Now, the company is in a legal fight with its insurer over compensation for the damage. The case is among the first of what are likely to be thousands of Sandy-related insurance disputes that will wind up in court.
Natural disasters often leave in their wake a jumble of court cases debating insurers' obligations to pay for losses. And Sandy's path through a region that includes New York City and other centers of commerce means more of those claims-and lawsuits-will come from businesses.
Risk Management Solutions Inc., a disaster-modeling firm, predicts that nearly two-thirds, or $16 billion, of the up to $25 billion in estimated private-sector insurance payouts for Sandy damage will go to businesses. The costs are likely to push many insurers to fourth-quarter losses, but the industry has ample capital to pay claims.
Based on previous disasters, "it would not be surprising to see thousands" of lawsuits, said Kirk Pasich, a lawyer with Dickstein Shapiro LLP. Still, it could take months or years before the scope of Sandy-related insurance disputes is known. Litigation often waits until after claims are submitted, evaluated and adjusted, said Lon Berk, partner at Hunton & Williams.
In the International Motor Freight dispute, the company's insurer, National Interstate Corp., NATL -0.61% filed a complaint in mid-November arguing that the policy caps the total payout at $1 million.
The insurer maintains all damage to the trucking company's vehicles counts as "single occurrence." The trucking firm, on the other hand, sees damage to its fleet as a "number of occurrences" that cumulatively would likely exceed $1 million, court papers say.
Sandy-related filings are expected to be heaviest in New York and New Jersey, but lawyers predict litigation far beyond those boundaries, thanks to disruptions in businesses' supply chains that had links in the hardest-hit states.
To be sure, the vast majority of claims won't result in litigation. After Katrina, fewer than 2% of homeowners' claims were disputed in mediation programs or in court, according to trade group Insurance Information Institute. So far, formal complaints about insurers in New York are running at less than 1% of the total claims filed with the insurers, data from the state's Department of Financial Services show.
Many lawsuits will argue over the size of the claims payment and whether exclusions exist to entirely negate a payment. Some business policies exclude flooding, in line with exclusions in standard homeowners' policies.
Other policies limit or exclude coverage for some types of storms, like hurricanes and tropical storms. Depending on the language in the policy, there may be unresolved legal questions about whether the limits and exclusions were triggered-since the National Hurricane Center downgraded Sandy to a posttropical cyclone before it made landfall, said Frank DeAngelis, a partner at Mound Cotton Wollan & Greengrass, which represents National Interstate.
He declined to comment on the dispute with International Motor Freight. An attorney for the trucking company declined to comment.
Many companies hold "business interruption" and "contingent business interruption" coverage to reimburse for lost profits. But policy provisions "are notoriously difficult to decipher," said Stacy Andreas, a partner with law firm Lathrop & Gage in Kansas City, Mo.
Insurers typically scrutinize a claimant's historic and anticipated sales figures and operational data to assess the loss. It is difficult to predict the outcome of such litigation because coverage almost always is determined by state law, and there are many state jurisdictions involved. It will be "a nightmare to sort out which jurisdictions' laws apply," Ms. Andreas said.
Other suits may emerge as companies realize they were underinsured against Sandy's wrath. Cardolite Corp., a company that uses liquid from cashew nut shells to make industrial coatings and adhesives, sued its insurance broker, Willis Group Holdings WSH -0.66% PLC, in early December alleging that Willis mistakenly failed to procure adequate flood coverage.
Sandy caused $2 million in flood damage to Cardolite's largest U.S. factory, located near the Passaic River in Newark, N.J., according to the suit. Willis submitted a claim on Cardolite's behalf that asserted the company had $28.3 million in flood coverage, but the insurer, American International Group Inc., denied the claim because of a flood exclusion in the policy, according to the suit in New Jersey Superior Court.
A Willis spokeswoman said the firm "adheres to the highest standards in insurance placement. We will address the merits of the case in the proper forum." AIG didn't have immediate comment.
Cardolite's attorney, Robert Chesler of Anderson Kill & Olick, said he expected many more lawsuits against brokers in the months ahead. But suits in New Jersey are more likely to be successful than ones in New York, where "the law is much more restrictive" about a broker's obligations, he said.
Still, some attorneys say the Northeast presents an unusual dynamic, where aggressive regulators, eager politicians and concentrated media could place unwanted scrutiny on insurers that deny claims.
"There is a good chance that insurance companies will want to resolve claims on an amicable basis," said Mitchell Auslander, a lawyer with Willkie Farr & Gallagher, on a webcast hosted last month by insurance broker Marsh Inc., a unit of Marsh & McLennan Cos.
Some insurers may avoid litigation when small-business owners conclude it might cost more to sue than they would recover.
Lee Pelosi, owner of Floor Craze in Guilford, Conn., filed a claim with the government's flood-insurance program for damage to contents when water rushed in and out of his carpet and flooring store, in a six-hour span. He then turned to his private-sector insurer for reimbursement for lost profits over the next week, when power outages and a nearby road closure hurt business.
According to Mr. Pelosi, the insurer denied the claim, citing a flooding exclusion. Mr. Pelosi argued flooding wasn't the issue with his lost profits, because the water had quickly receded from his showroom. "I would have had to hire a lawyer to pursue this, and it wouldn't have been worth the trouble," he said.