SYLLABUS
(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the
convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the
interest of brevity, portions of any opinion may not have been summarized.)
Oxford Realty Group Cedar v. Travelers Excess and Surplus Lines Company (A-85-15) (077617)
Argued January 31, 2017 -- Decided May 25, 2017
FERNANDEZ-VINA, J., writing for a unanimous Court.
In this appeal, the Court considers coverage under a surplus lines insurance contract and determines
whether debris removal coverage applies in addition to the policy’s endorsement limiting flood coverage for all
losses “resulting from Flood to buildings, structures or property in the open” in the covered flood zone.
Plaintiffs Oxford Realty Group Cedar, CLA Management, and R.K. Patten LLC (collectively, Oxford) own
and manage an apartment complex located on in Long Branch, New Jersey (the Property). The Property is located
in Flood Zone A according to National Flood Insurance Program classifications. Oxford entered into an insurance
contract with defendant Travelers Excess and Surplus Lines Company (Travelers) to insure the Property.
The Property suffered significant flood damage when Superstorm Sandy struck New Jersey in October
2012. Oxford submitted a claim to Travelers pursuant to the Policy. Oxford claimed flood damage in excess of
$1,000,000 and $207,961.28 in debris removal costs. Travelers asserted that all damage caused by the flood was
subject to the $1,000,000 limitation for a flood occurrence and paid Oxford only $1,000,000 on its claim.
In July 2013, Oxford sued Travelers in Superior Court. Both parties moved for partial summary judgment
on the issue of Travelers’ liability for the debris removal costs.
The trial court granted partial summary judgment in favor of Travelers. The court did not find the Policy to
be ambiguous regarding flood coverage and debris removal coverage. The court acknowledged that the
Supplemental Coverage Declarations appeared to allow additional debris removal coverage but concluded that the
Limit of Insurance for Flood nullified any coverage for flood damage above $1,000,000.
The court further held that “the general condition that the debris removal is an additional coverage must
yield to the specific term in the Supplemental Coverage Declarations that the [$1,000,000] coverage applies to ‘all
losses’ caused by flood.” Accordingly, the trial court granted partial summary judgment in favor of Travelers. In
August 2014, the court granted summary judgment in favor of Travelers on all remaining counts.
The Appellate Division reversed the grant of summary judgment and remanded for entry of judgment in
favor of Oxford. The panel concluded that the Policy required the provision of up to $500,000 for debris removal
coverage in addition to the $1,000,000 flood limit. The panel held that the $1,000,000 limitation in the
Supplemental Coverage Declarations applied only to insured buildings rather than insured occurrences. In contrast,
the panel held that the Property Coverage Form’s additional debris removal coverage applied to all Covered
Property, not just Oxford’s buildings. The panel further reasoned that the Flood Endorsement did not limit Oxford’s
damages to $1,000,000 because the endorsement applied “only to loss or damage to covered property caused by
flood, meaning Oxford’s building.” (Emphasis added).
The Court granted Travelers’ petition for certification. 227 N.J. 216 (2016).
HELD: Although the Policy assigns debris removal a coverage sublimit, it does not constitute a self-contained policy
provision outside the application of the $1,000,000 flood limit. Because the terms of the Policy are not ambiguous, the
Court need not address contentions about contra proferentem or the doctrine of reasonable expectations.
1. Surplus lines insurance policies, governed by N.J.S.A. 17:22-6.40 to -6.84, offer coverage in specialized situations.
Surplus lines policies insure risks which insurance companies authorized or admitted to do business in New Jersey have
1
refused to cover by reason of the nature of the risk. These policies are unique in that the insured parties engage in high
risk enterprises for which insurance could only be obtained from a surplus lines carrier through a broker. Insureds
procure surplus lines policies covering commercial risk through insurance brokers, thus involving parties on both sides
of the bargaining table who are sophisticated regarding matters of insurance. (p. 13)
2. In assessing the meaning of provisions in an insurance contract, courts first look to the plain meaning of the
language at issue. If the language is clear, that is the end of the inquiry. If an ambiguity exists, the court will resort
to tools and rules of construction beyond the corners of the policy. But courts will not manufacture an ambiguity
where none exists. An insurance policy is not ambiguous merely because two conflicting interpretations of it are
suggested by the litigants. Nor does the separate presentation of an insurance policy’s declarations sheet, definition
section, and exclusion section necessarily give rise to an ambiguity. (pp. 13-15)
3. Ordinarily, our courts construe insurance contract ambiguities in favor of the insured via the doctrine of contra
proferentem. Sophisticated commercial insureds, however, do not receive the benefit of having contractual
ambiguities construed against the insurer. Similar to the doctrine of contra proferentem, the doctrine of reasonable
expectations, under which the insured’s “reasonable expectations” are brought to bear on misleading terms and
conditions of insurance contracts, is less applicable to commercial contracts. (pp. 15-16)
4. The Flood Endorsement places a hard cap on the amount recoverable for flood damage. Under that section,
“[t]he most [Travelers] will pay for the total of all loss or damage caused by Flood . . . is the single highest Annual
Aggregate Limit of Insurance specified for Flood shown in [Section B.14 of] the Supplemental Coverage
Declarations.” (Emphasis added). Section B.14 sets that Limit of Insurance at $1,000,000. Thus, the Flood
Endorsement categorically denies any flood damage coverage in excess of $1,000,000. The Flood Endorsement also
clarifies that this $1,000,000 ceiling will apply even if more than one Limit of Insurance applies, such as the Limit
of Insurance for debris removal in the Supplemental Coverage Declarations. There is no indication that this
limitation applies only to Oxford’s buildings. The Policy limits Oxford’s flood coverage to $1,000,000 and
therefore will be enforced as written. (pp. 16-19)
5. The Eighth Circuit addressed a similar issue in Altru Health System v. American Protection Insurance Co., 238
F.3d 961 (8th Cir. 2001). The insured plaintiff and insurer defendant contracted to cover a commercial hospital.
One section of the contract provided coverage for losses incurred during “Interruption by Civil Authority.” A severe
flood damaged the hospital and caused a civil authority to close the hospital temporarily. The insured claimed that
losses sustained from the civil authority’s closure of the hospital applied in addition to the $1,500,000 flood limit.
The court reasoned that the Civil Authority coverage was not “a self-contained policy provision” to which the flood
limit did not apply. Rather, the court held that the $1,500,000 flood limit applied to all damages caused by an
occurrence of flood, even if the contract assigned individual sublimits to specific types of damages. Thus, Altru
Health supports the conclusion that the $500,000 debris removal limit does not apply in addition to the Flood
Endorsement’s $1,000,000 limit. Although the Policy assigns debris removal a coverage sublimit, it does not
constitute a self-contained policy provision outside the application of the $1,000,000 flood limit. (pp 19-20)
6. Because the Court does not find the terms of the Policy ambiguous, it does not address Oxford’s contentions
about contra proferentem or the doctrine of reasonable expectations. (pp 20-21)
The judgment of the Appellate Division is REVERSED, and the trial court’s grant of summary judgment
in favor of Travelers is REINSTATED.
JUSTICE ALBIN, DISSENTING, expresses the view that the insurance contract is hopelessly ambiguous
and needlessly complex. Because reasonable minds can differ about the meaning and interplay of the flood
insurance and debris removal clauses in the insurance policy and because Travelers drafted the ambiguous policy
terms, the insured’s interpretation should prevail under the doctrines of contra proferentem and reasonable
expectations, according to Justice Albin.
CHIEF JUSTICE RABNER and JUSTICES LaVECCHIA, PATTERSON, and SOLOMON join in
JUSTICE FERNANDEZ-VINA’s opinion. JUSTICE ALBIN filed a separate, dissenting opinion in which
JUSTICE TIMPONE joins.
2
SUPREME COURT OF NEW JERSEY
A-85 September Term 2015
077617
OXFORD REALTY GROUP CEDAR,
CLA MANAGEMENT, and R.K.
PATTEN, LLC,
Plaintiffs-Respondents,
v.
TRAVELERS EXCESS AND SURPLUS
LINES COMPANY,
Defendant-Appellant.
Argued January 31, 2017 – Decided May 25, 2017
On certification to the Superior Court,
Appellate Division.
Wystan M. Ackerman, a member of the
Connecticut and New York bars, argued the
cause for appellant (Robinson & Cole,
attorneys; Mr. Ackerman and Michael J.
Mernin, on the brief).
Allan Maitlin argued the cause for
respondents (Sachs, Maitlin, Fleming &
Greene, attorneys; Mr. Maitlin and
Christopher Klabonski, on the brief).
JUSTICE FERNANDEZ-VINA delivered the opinion of the Court.
In this appeal, we consider competing arguments about a
surplus lines insurance contract’s coverage for a flood
occurrence. Specifically, we are called upon to determine
whether debris removal coverage applies in addition to the
policy’s endorsement limiting flood coverage for all losses
1
“resulting from Flood to buildings, structures or property in
the open” in the policy’s covered flood zone.
The insured contracted, through the services of a licensed
broker, with the insurer to obtain the surplus lines coverage
for certain commercial apartment buildings. The insurance
policy provided limits of insurance for the insured’s buildings
and business personal property. The policy also listed limits
of insurance for various occurrences and expenses, including
debris removal. According to the policy, the debris removal
coverage could apply in addition to certain limits of insurance
for covered property under certain conditions.
Although the original insurance policy disclaimed all flood
coverage, the parties added an endorsement to obtain access to
flood coverage. The endorsement limited flood coverage to
$1,000,000, a sum delineated in the supplemental coverage
declarations.
The insured’s property sustained severe damage during
Superstorm Sandy. The insured claimed debris removal coverage
in addition to $1,000,000 in flood damage. The insurer refused
to pay any amount above the $1,000,000 flood damage cap in the
endorsement. The insured sued for the debris removal coverage.
The trial court determined that the policy unambiguously
capped the insured’s recovery at $1,000,000. The Appellate
2
Division reversed and held that the debris removal provisions
applied in addition to the $1,000,000 flood limit.
For the reasons set forth in this opinion, we hold that the
insurance policy unambiguously capped the insured’s recovery at
$1,000,000. Accordingly, we reverse the decision of the
Appellate Division granting additional debris removal coverage.
I.
A.
The material facts are not in dispute. Plaintiffs Oxford
Realty Group Cedar, CLA Management, and R.K. Patten LLC
(collectively, Oxford) own and manage an apartment complex
located on Patten Avenue in Long Branch, New Jersey (the
Property). The Property is located in Flood Zone A according to
National Flood Insurance Program classifications. Oxford
entered into an insurance contract with defendant Travelers
Excess and Surplus Lines Company (Travelers) to insure the
Property. That insurance policy (the Policy) was effective
between February 1, 2012, and February 1, 2013.
The Policy provided protection for the Property in the
event of certain occurrences. Four sections of the Policy are
pertinent to this matter: the Property Coverage Form; the Flood
Endorsement; the Supplemental Coverage Declarations; and the
General Conditions.
Property Coverage Form
3
The Property Coverage Form constitutes the insuring
agreement and proceeds to delineate the boundaries of coverage
under the Policy. It thus establishes the structure for
analyzing how the Policy’s parts work together. Section A’s
Insuring Agreement states that
[Travelers] will pay for direct physical loss
or damage to Covered Property at premises as
described in the most recent Statement of
Values . . . caused by or resulting from a
Covered Cause of Loss. Covered Cause of Loss
means risks of direct physical loss unless the
loss is excluded in Section D., Exclusions;
limited in Section E., Limitations; or
excluded or limited in the Supplemental
Coverage Declarations or by endorsements.
Under Section B, Coverage explains what is and is not
covered. The section notes at the outset that
[c]overage is provided for Covered Property
and Covered Costs and Expenses . . . unless
excluded in Section C., Property and Costs Not
Covered. Coverage applies only when a Limit
of Insurance is shown in the Supplemental
Coverage Declarations for the specific type of
Covered Property or Covered Costs and
Expenses, except for items B.2.a., d., e., g.,
h. and i.[,] which do not require a specific
Limit of Insurance to be shown.
Section B.1 addresses “Covered Property” and B.2 addresses
“Covered Costs and Expenses.” “Covered Property” includes
“Building(s)” and “Business Personal Property,” among other
property items. Under Section B.2, “Covered Costs and Expenses”
include “Debris Removal,” among other services and expenses.
Section B.2.a. addresses debris removal:
4
(1) [Travelers] will pay the necessary and
reasonable expense incurred by [Oxford] to
remove debris of Covered Property, other than
“Outdoor Property[,]” caused by or resulting
from a Covered Cause of Loss that occurs
during the policy period.
. . . .
(2) For this Debris Removal Coverage,
[Travelers] will pay up to 25% of:
(a) The amount [Travelers] pays for the
direct physical loss or damage to
the Covered Property; plus
(b) The deductible in this policy
applicable to that direct physical
loss or damage.
This limit is part of and not in addition
to the Limit of Insurance that applies to
the lost or damaged Covered Property.
But if:
(a)(i) The sum of direct physical loss
or damage and debris removal expense
exceeds the Limit of Insurance; or
(ii) The debris removal expense exceeds
the above 25% limitation;
and
(b) A Limit of Insurance is specified in
the Supplemental Coverage
Declarations for Debris Removal
(additional);
[Travelers] will also pay an additional
amount, up to the Limit of Insurance
specified in the Supplemental Coverage
Declarations for Debris Removal
(additional)[.]
5
Section D of the Property Coverage Form lists “Exclusions”
and specifically disavows any coverage for flood under the
Property Coverage Form’s terms.
Flood Endorsement
Although the Property Coverage Form excludes flood damage,
the parties to this insurance contract added a Flood Endorsement
to the Policy to provide for flood occurrence coverage. Section
F of the Flood Endorsement sets a cap for the flood coverage.
Specifically, Section F states that
[t]he most [Travelers] will pay for the total
of all loss or damage caused by Flood in any
one policy year is the single highest Annual
Aggregate Limit of Insurance specified for
Flood shown in the Supplemental Coverage
Declarations. This limit is part of, and does
not increase, the Limits of Insurance that
apply under this policy.
Subject to the single highest Annual Aggregate
Limit of Insurance:
1. Any individual Aggregate Limit of Insurance
shown in the Supplemental Coverage
Declarations for Flood is the most
[Travelers] will pay in any one policy year
for all loss or damage to which that Limit
of Insurance applies.
2. If more than one Annual Aggregate Limit of
Insurance applies to loss or damage under
this endorsement in any one occurrence,
each limit will be applied separately, but
the most [Travelers] will pay under this
endorsement for all loss or damage in that
occurrence is the single highest Annual
Aggregate Limit of Insurance applicable to
that occurrence.
6
Supplemental Coverage Declarations
In the Policy’s Supplemental Coverage Declarations section,
the insurance agreement establishes that the insurance “applies
on a Blanket basis” for coverage, and Section A identifies that
covered property shall include “Buildings” and “Business
Personal Property.” Specific values are assigned under Blanket
Limits of Insurance for the entire Covered Property.
Section B then delineates the Limits of Insurance for all
types of various expenses and occurrences. Of particular
relevance for this case are these provisions. Section B.6
provides a $250,000 limit for “Outdoor Property including Debris
Removal, in any one occurrence.” Section B.7 states, “Debris
Removal (additional), in any one occurrence: [The Limit of
Insurance is] $500,000.” And, Section B.14 addresses the Limit
of Insurance for Flood. According to Section B.14:
Flood -- aggregate in any one policy year, for
all losses covered under this policy,
commencing with the inception date of this
policy:
a. Occurring at Insured Premises resulting
from Flood to buildings, structures or
property in the open within Flood Zone A
. . . or property in or on buildings or
structures located within such Flood
Zones:
[The Limit of Insurance is] $1,000,000.
General Conditions
7
In addition, in its General Conditions section, the Policy
includes Section O, which addresses and explains the Limits of
Insurance that apply under this contract. According to Section
O:
1. The most [Travelers] will pay for loss or
damage in any one occurrence is the
applicable specified Limit(s) of Insurance
shown in the Supplemental Coverage
Declarations, Schedules, Coverage Form(s)
or endorsement(s).
2. Under the Property Coverage Form, unless
otherwise stated in the Supplemental
Coverage Declarations, or by endorsement:
a. Payments under the following Covered
Costs and Expenses will not increase the
applicable Covered Property Limit(s) of
Insurance:
(1) Debris Removal. But if a Limit of
Insurance for Debris Removal
(additional) is specified in the
Supplemental Coverage Declarations,
that Limit of Insurance will apply
in addition to the applicable
Covered Property Limit of
Insurance;
. . . .
b. The Limits of Insurance that are
specified for the remaining Covered
Costs and Expenses are in addition to
the Covered Property Limit(s) of
Insurance.
B.
The Property suffered significant flood damage when
Superstorm Sandy (Sandy) struck New Jersey in October 2012.
After Sandy, Oxford undertook repair efforts, including “the
8
removal of damaged or undamaged portions of the building complex
and the removal of the debris which resulted from the
construction and from the damage caused by the flood.” Shortly
thereafter, Oxford submitted a claim to Travelers pursuant to
the Policy. Oxford claimed flood damage in excess of
$1,000,000. Additionally, Oxford claimed $207,961.28 in debris
removal costs.
Oxford sought to recover the debris removal costs as an
amount due over and above the $1,000,000 of flood coverage
provided under the Flood Endorsement. Travelers, however,
asserted that all damage caused by the flood was subject to the
$1,000,000 limitation for a flood occurrence. Accordingly,
Travelers paid Oxford only $1,000,000 on its claim.
In July 2013, Oxford sued Travelers in Superior Court.
Oxford sought to hold Travelers accountable for payment of up to
$500,000 for debris removal costs in addition to the $1,000,000
paid for flood damage under the Policy. In February and March
2014, both parties moved for partial summary judgment on the
issue of Travelers’ liability for the debris removal costs.
In April 2014, the trial court issued a written decision
granting partial summary judgment in favor of Travelers. The
court did not find the Policy to be ambiguous regarding flood
coverage and debris removal coverage. The court acknowledged
that the Supplemental Coverage Declarations appeared to allow
9
additional debris removal coverage in Section B.7, but concluded
that Section B.14’s Limit of Insurance for Flood nullified any
coverage for flood damage above $1,000,000.
The court further held that “the general condition that the
debris removal is an additional coverage must yield to the
specific term in the Supplemental Coverage Declarations that the
[$1,000,000] coverage applies to ‘all losses’ caused by flood.”
Accordingly, the trial court granted partial summary judgment in
favor of Travelers. In August 2014, the court granted summary
judgment in favor of Travelers on all remaining counts.
Thereafter, Oxford appealed the grant of summary judgment.
In an unpublished per curiam opinion, the Appellate Division
reversed the grant of summary judgment and remanded for entry of
judgment in favor of Oxford. The Appellate Division agreed with
the trial court that the flood coverage and debris removal
coverage were unambiguous. However, the panel concluded that
the Policy required the provision of up to $500,000 for debris
removal coverage in addition to the $1,000,000 flood limit.
The panel held that the $1,000,000 limitation in Section
B.14 of the Supplemental Coverage Declarations applied only to
insured buildings rather than insured occurrences. In contrast,
the panel held that the Property Coverage Form’s additional
debris removal coverage applied to all Covered Property, not
just Oxford’s buildings. The panel further reasoned that the
10
Flood Endorsement did not limit Oxford’s damages to $1,000,000
because the endorsement applied “only to loss or damage to
covered property caused by flood, meaning Oxford’s building.”
(Emphasis added). The panel concluded that Travelers was
required to pay an additional $207,961.28 for debris removal
under the Policy.
We granted Travelers’ petition for certification. 227 N.J.
216 (2016).
II.
Travelers argues that the terms of the Policy unambiguously
cap all flood-related coverage at $1,000,000 per flood
occurrence. Specifically, Travelers highlights the Flood
Endorsement’s statement that “[t]he most [Travelers] will pay
for the total of all loss or damage caused by Flood in any one
policy year is the single highest Annual Aggregate Limit of
Insurance specified for Flood shown in the Supplemental Coverage
Declarations,” which is $1,000,000 under Section B.14 of the
Supplemental Coverage Declarations.
Travelers further contends that the words “Covered Property
Limit(s) of Insurance” in Section O.2 of the Policy’s General
Conditions refer to the value of Oxford’s buildings and business
personal property, not the limitations for flood coverage.
Similarly, Travelers avers that Section B.2.a. of the Property
Coverage form and Section B.7 of the Supplemental Coverage
11
Declarations refer to the value of Oxford’s buildings and
business personal property. In addition, Travelers maintains
that Oxford is incapable of invoking the doctrine of reasonable
expectations because it is a sophisticated commercial entity,
which procured the specific Policy through use of a professional
broker.
In contrast, Oxford claims that the Policy unambiguously
provides up to $500,000 in debris removal coverage in addition
to the $1,000,000 flood limit. According to Oxford, Section B.7
of the Supplemental Coverage Declarations, Section O.2 of the
General Conditions, and Section B.2.a. of the Property Coverage
Form all grant an additional $500,000 in debris removal
coverage. Oxford contends that the Limits of Insurance
referenced in those sections are not the values of its buildings
and personal property, but instead separate coverage limits such
as the $1,000,000 flood limitation.
Alternatively, Oxford argues that if this Court finds the
Policy to be ambiguous, we should construe the terms in its
favor. Oxford avers that the Policy is so confusing that an
average policyholder would be incapable of ascertaining the
boundaries of coverage. Oxford further asserts that, even if
this Court determines that the Policy technically disfavors
coverage, the doctrine of reasonable expectations demands
additional debris removal coverage. Essentially, Oxford takes
12
the position that any policyholder not involved in the insurance
industry is an unsophisticated policyholder.
III.
Surplus lines insurance policies, governed by N.J.S.A.
17:22-6.40 to -6.84, offer coverage in specialized situations.
Surplus lines policies insure “risks which insurance companies
authorized or admitted to do business in [New Jersey] have
refused to cover by reason of the nature of the risk.” R.R.
Roofing & Bldg. Supply Co. v. Fin. Fire & Cas. Co., 85 N.J. 384,
389 (1981). These policies are unique in that the insured
parties “engage[] in high risk enterprises for which insurance
could only be obtained from a surplus lines carrier” through a
broker. Am. Wrecking Cor. v. Burlington Ins. Co., 400 N.J.
Super. 276, 283 (App. Div. 2008). Insureds procure surplus
lines policies covering commercial risk through insurance
brokers, thus involving parties on both sides of the bargaining
table who are sophisticated regarding matters of insurance.
Ibid.; Werner Indus., Inc. v. First State Ins. Co., 112 N.J. 30,
38 (1988).
In assessing the meaning of provisions in an insurance
contract, courts first look to the plain meaning of the language
at issue. Chubb Custom Ins. Co. v. Prudential Ins. Co. of Am.,
195 N.J. 231, 238 (2008). “If the language is clear, that is
the end of the inquiry.” Ibid. Thus, “in the absence of an
13
ambiguity, a court should not ‘engage in a strained construction
to support the imposition of liability’ or write a better policy
for the insured than the one purchased.” Ibid.
(quoting Progressive Cas. Ins. Co. v. Hurley, 166 N.J. 260, 272-
73 (2001)); see also George J. Kenny & Frank A. Lattal, N.J.
Ins. Law § 4-2:3, at 75 (2016 ed.).
In many insurance contract disputes, the parties disagree
as to the plain meaning of contractual provisions, or claim that
the provisions are ambiguous. The presence of an ambiguity is
key because “if an ambiguity exists, the court will resort to
tools and rules of construction beyond the corners of the
policy.” Kenny & Lattal, supra, § 4-3, at 76. But our courts
will not manufacture an ambiguity where none exists. Chubb,
supra, 195 N.J. at 238; Longobardi v. Chubb Ins. Co., 121 N.J.
530, 537 (1990); see also Kenny & Lattal, supra, § 4-3:1, at 77-
79.
“An ‘insurance policy is not ambiguous merely because two
conflicting interpretations of it are suggested by the
litigants.’” Fed. Ins. Co. v. Campbell Soup Co., 381 N.J.
Super. 190, 195 (App. Div. 2005) (quoting Powell v. Alemaz,
Inc., 335 N.J. Super. 33, 44 (App. Div. 2000)), certif. denied,
186 N.J. 365 (2006). Nor does the separate presentation of an
insurance policy’s declarations sheet, definition section, and
14
exclusion section necessarily give rise to an ambiguity.
Zacarias v. Allstate Ins. Co., 168 N.J. 590, 602-03 (2001).
Ordinarily, our courts construe insurance contract
ambiguities in favor of the insured via the doctrine of contra
proferentem. Progressive, supra, 166 N.J. at 273. In applying
contra proferentem, courts “adopt the meaning that is most
favorable to the non-drafting party.” Pacifico v. Pacifico, 190
N.J. 258, 267 (2007) (citing 5 Corbin on Contracts § 24.27
(Perillo ed., rev. ed. 1998)). Sophisticated commercial
insureds, however, do not receive the benefit of having
contractual ambiguities construed against the insurer. Chubb,
supra, 195 N.J. at 246; Werner Indus., supra, 112 N.J. at 38.
Contra proferentem is a consumer-protective doctrine “only
available in situations where the parties have unequal
bargaining power. If both parties are equally ‘worldly-wise’
and sophisticated, contra proferentem is inappropriate.”
Pacifico, supra, 190 N.J. at 268.
The doctrine of reasonable expectations is a related
doctrine commonly applied in cases where an ambiguity is
alleged. Kenny & Lattal, supra, §§ 4-5 to 4-5:1, at 84-87; 28
Eric Mills Holmes, Appleman on Insurance § 173.10[C] (2d ed.
2008). Under that doctrine, “the insured’s ‘reasonable
expectations’ are brought to bear on misleading terms and
conditions of insurance contracts and genuine ambiguities are
15
resolved against the insurer.” Di Orio v. N.J. Mfrs. Ins. Co.,
79 N.J. 257, 269 (1979). Similar to the doctrine of contra
proferentem, the doctrine of reasonable expectations is less
applicable to commercial contracts. See Nunn v. Franklin Mut.
Ins. Co., 274 N.J. Super. 543, 549-51 (App. Div. 1994)
(distinguishing commercial policy from homeowners policy).
IV.
The Appellate Division held that the terms of the Policy
were unambiguous and provided Oxford with additional debris
removal coverage. We cannot agree. The terms of the Policy
unambiguously place a $1,000,000 total on recovery for all flood
occurrence losses.
To begin, we look to the explicit terms of the Flood
Endorsement and Section B.14 of the Supplemental Coverage
Declarations. It is undisputed that, absent the Flood
Endorsement, the Policy would not cover any flood damage.
Section F of the Flood Endorsement places a hard cap on the
amount recoverable for flood damage. Under that section,
[t]he most [Travelers] will pay for the total
of all loss or damage caused by Flood . . . is
the single highest Annual Aggregate Limit of
Insurance specified for Flood shown in
[Section B.14 of] the Supplemental Coverage
Declarations. This limit is part of, and does
not increase, the Limits of Insurance that
apply under this policy.
[(Emphasis added).]
16
Section F.2 fortifies this hard cap by explaining that, even if
multiple Annual Aggregate Limits of Insurance apply to flood
damage, the Limit of Insurance specified in Section B.14 of the
Supplemental Coverage Declarations is the most Travelers will
pay. Section B.14 sets that Limit of Insurance at $1,000,000.
Thus, the Flood Endorsement categorically denies any flood
damage coverage in excess of $1,000,000. The Flood Endorsement
also clarifies that this $1,000,000 ceiling will apply even if
more than one Limit of Insurance applies, such as the Limit of
Insurance for debris removal in Section B.7 of the Supplemental
Coverage Declarations. Therefore, the Flood Endorsement
controls the extent of flood coverage and it is not modified by
the rest of the Policy’s terms.
The Appellate Division arrived at a different conclusion
regarding the Flood Endorsement and Section B.14 of the
Supplemental Coverage Declarations. In the appellate panel’s
reading, the $1,000,000 cap on flood coverage applied only to
Oxford’s buildings.
In reaching this conclusion, the appellate panel opined
that Section B.14 of the Supplemental Coverage Declarations
provided a $1,000,000 limit for all losses “resulting from Flood
to buildings.” The full text of Section B.14, however, belies
this interpretation. Section B.14.a. provides $1,000,000 in
flood coverage for all damage “resulting from Flood to
17
buildings, structures, or property” within Flood Zone A. There
is no indication that this limitation applies only to Oxford’s
buildings. Additionally, the Appellate Division’s reading
disregards the Flood Endorsement’s express language limiting
coverage for all damage and loss caused by flood to the highest
Annual Aggregate Limit of Insurance: $1,000,000. Thus, a plain
reading of the Policy’s text conflicts with the Appellate
Division’s holding.
The Property Coverage Form and General Conditions further
support our reading. Both Section B.2.a. of the Property
Coverage Form and Section O.2.a. of the General Conditions set
forth circumstances in which Oxford may claim debris removal
coverage in addition to Covered Property Limits of Insurance.
Covered Property Limits of Insurance are values assigned to
Oxford’s buildings and business personal property. As a result,
those sections provide debris removal coverage in addition to
the values of Oxford’s buildings and business personal property.
Those sections do not add coverage to limitations for
occurrences such as flood or fire.1
1 Oxford’s reliance upon Section O.2 of the General Conditions is
unconvincing, further, because that section increases coverage
“unless otherwise stated . . . by endorsement.” Thus, even if
Section O.2 applied to the flood limit, the terms of the Flood
Endorsement would negate any increase in coverage.
18
Therefore, we do not find the Policy’s provision of flood
coverage and debris removal coverage to be ambiguous. Oxford’s
alternative reading presents a conflicting interpretation
suggested by litigants rather than a genuine ambiguity. Fed.
Ins. Co., supra, 381 N.J. Super. at 195. The Policy limits
Oxford’s flood coverage to $1,000,000 and therefore will be
enforced as written. Longobardi, supra, 121 N.J. at 537.
We also find support for our opinion in the decisions of
other jurisdictions. See Chubb, supra, 195 N.J. at 238
(“[C]ourts frequently look to how other courts have interpreted
the same or similar language in standardized contracts to
determine what the parties intended, especially where rules in
aid of interpretation fail to offer a clear result.”)
The Eighth Circuit addressed a similar issue in Altru
Health System v. American Protection Insurance Co., 238 F.3d 961
(8th Cir. 2001). The insured plaintiff and insurer defendant
contracted to cover a commercial hospital. Id. at 962-63. One
section of the contract provided coverage for losses incurred
during “Interruption by Civil Authority.” Id. at 963. The
parties subsequently added flood coverage to the contract,
capping the insurer’s liability “for losses resulting from any
one Flood disaster” at $1,500,000. Id. at 962-63. A severe
flood damaged the hospital and caused a civil authority to close
the hospital temporarily. Id. at 962. The insured claimed that
19
losses sustained from the civil authority’s closure of the
hospital applied in addition to the $1,500,000 flood limit.
Ibid.
The court disagreed and concluded that the Civil Authority
coverage limit did not apply in addition to the $1,500,000 flood
limit. Id. at 963-65. The court reasoned that the Civil
Authority coverage was not “a self-contained policy provision”
to which the flood limit did not apply. Ibid. Rather, the
court held that the $1,500,000 flood limit applied to all
damages caused by an occurrence of flood, even if the contract
assigned individual sublimits to specific types of damages.
Ibid.
Thus, Altru Health supports our conclusion that the
$500,000 debris removal limit does not apply in addition to the
Flood Endorsement’s $1,000,000 limit. Although the Policy
assigns debris removal a coverage sublimit, it does not
constitute a self-contained policy provision outside the
application of the $1,000,000 flood limit. See also El-Ad 250
W. LLC v. Zurich Am. Ins. Co., 988 N.Y.S.2d 462 (N.Y. Sup. Ct.
2014) (declining to apply additional coverage from other
sublimits of an insurance policy in addition to a flood limit
when a single occurrence of flood caused various damages),
aff’d, 13 N.Y.S.3d 68 (N.Y. App. Div. 2015).
20
Because we do not find the terms of the Policy ambiguous,
we need not address Oxford’s contentions about contra
proferentem or the doctrine of reasonable expectations. See
Pacifico, supra, 190 N.J. at 267-68 (characterizing contra
proferentem as doctrine of last resort applied to ambiguities);
Di Orio, supra, 79 N.J. at 269-70 (declining to apply doctrine
of reasonable expectations absent ambiguous or misleading
terms).
V.
The judgment of the Appellate Division is reversed, and the
trial court’s grant of summary judgment in favor of Travelers is
reinstated.
CHIEF JUSTICE RABNER and JUSTICES LaVECCHIA, PATTERSON, and
SOLOMON join in JUSTICE FERNANDEZ-VINA’s opinion. JUSTICE ALBIN
filed a separate, dissenting opinion in which JUSTICE TIMPONE
joins.
21
SUPREME COURT OF NEW JERSEY
A-85 September Term 2015
077617
OXFORD REALTY GROUP CEDAR,
CLA MANAGEMENT, and R.K.
PATTEN, LLC,
Plaintiffs-Respondents,
v.
TRAVELERS EXCESS AND SURPLUS
LINES COMPANY,
Defendant-Appellant.
JUSTICE ALBIN dissenting.
The majority finds that the language of the insurance
policy at issue unambiguously limits the insured’s damages to
$1,000,000 in flood coverage. The Appellate Division found that
the policy’s language unambiguously provides, in addition to the
flood-insurance coverage, $500,000 for debris removal costs.
Both cannot be right, and neither is wholly wrong. Both sides
have reasonable arguments because the insurance contract is
hopelessly ambiguous and needlessly complex. Deciphering an
insurance contract should not be comparable to breaking the
Enigma code.
Because reasonable minds can differ about the meaning and
interplay of the flood insurance and debris removal clauses in
the insurance policy and because Travelers drafted the ambiguous
1
policy terms, I believe that the insured’s interpretation should
prevail under the doctrines of contra proferentem and reasonable
expectations. I therefore respectfully dissent.
I.
Oxford purchased an insurance policy that provides coverage
for damages caused by flood. Oxford also purchased additional
coverage for debris removal. The question is whether this
insurance policy provides reimbursement for the cost of debris
removal above the limit for damages caused by flood. I disagree
with the majority that there is only one ineluctable answer.
One reasonable interpretation that can be teased from the
ninety-one-page insurance policy is that Oxford is entitled to
reimbursement for debris removal after exceeding the limit for
damages caused by flood.
Here is the policy language that leads to that conclusion.
A.
The section entitled “Supplemental Coverage Declarations”
sets the “Limits of Insurance” for certain losses. Paragraph 14
states that the aggregate limit “for all losses covered under
this policy” for “Flood” is $1,000,000. Paragraph 7, however,
states that the limit for “Debris Removal (additional), in any
one occurrence,” is $500,000. According to the policy terms,
reimbursement for debris removal is “additional,” which in
common parlance means “added, extra, or supplementary to what is
2
already present or available.” The New Oxford American
Dictionary 18 (2d ed. 2005). That language suggests that flood
loss is covered up to a limit of $1,000,000 but that
reimbursement for debris removal in the amount of $500,000 is
“additional” to any loss exceeding the flood limit.
This interpretation is strengthened by the instruction that
“[f]or application of Limits of Insurance refer to Section O,”
which is located in the General Conditions section of the
policy. The preamble to the General Conditions section states
that “[a]ll coverages included in this policy are subject to the
following conditions,” one of which is Section O. Section
O.2.a.(1) provides that “if a Limit of Insurance for Debris
Removal (additional) is specified in the Supplemental Coverage
Declarations, [it] will apply in addition to the applicable
Covered Property Limit of Insurance.” (Emphasis added).
Oxford’s interpretation is further bolstered by Section
B.2.a.(1) and (2) of the Property Coverage Form that addresses
debris removal. Section B.2.a.(1) generally provides that
Travelers “will pay the necessary and reasonable expense
incurred by the Insured to remove debris of Covered Property . .
. caused by or resulting from a Covered Cause of Loss that
occurs during the policy period.” Section B.2.a.(2)
specifically provides that if:
(a)(i) The sum of direct physical loss or
3
damage and debris removal expense exceeds the
Limit of Insurance; or
(ii) The debris removal expense exceeds the
above 25% limitation; and
(b) A Limit of Insurance is specified in the
Supplemental Coverage Declarations for Debris
Removal (additional); [then]
[Travelers] will also pay an additional
amount, up to the Limit of Insurance specified
in the Supplemental Coverage Declarations for
Debris Removal (additional).
[(Emphasis added).]
Oxford’s claim appears to meet the preconditions for
additional debris removal coverage. Oxford’s total claimed loss
of $1,207,961.28 exceeds the $1,000,000 flood-insurance limit,
and the Supplemental Coverage Declarations explicitly provides
for up to $500,000 of additional debris removal as a separate
limit. Therefore, a reasonable interpretation of the insurance
policy allows for $500,000 of debris removal as an additional
coverage above the $1,000,000 limit of insurance applying to a
flood loss.
B.
The majority takes the position that the Flood Endorsement
stands apart from the remainder of the contract and controls the
extent of flood coverage available to Oxford. Ante at ___ (slip
op. at 17). That approach leads the majority to conclude that
the Flood Endorsement separately controls the limit of coverage
4
for any damage stemming from a flood. Id. at ___ (slip op. at
16-17).
But the Flood Endorsement is not an island unto itself; it
is inextricably interwoven into an insurance policy that must be
read as a whole. See Manahawkin Convalescent v. O’Neill, 217
N.J. 99, 118 (2014) (“Contracts should be read ‘as a whole in a
fair and common sense manner.’” (quoting Hardy ex rel. Dowdell
v. Abdul-Matin, 198 N.J. 95, 103 (2009))). The Flood
Endorsement must be viewed in conjunction with the Property
Coverage Form, the Supplemental Coverage Declarations, and the
General Conditions of the policy. Doing so would lead a
reasonable insured to believe that debris removal coverage is
additional to flood coverage.
At the very least, “the phrasing of the policy is so
confusing that the average policyholder cannot make out the
boundaries of coverage.” Weedo v. Stone-E-Brick, Inc., 81 N.J.
233, 247 (1979). In construing an insurance contract, if the
“language of a policy will support two meanings, one favorable
to the insurer and the other to the insured, the interpretation
favoring coverage should be applied.” Cypress Point Condo.
Ass’n v. Adria Towers, L.L.C., 226 N.J. 403, 416 (2016) (quoting
Butler v. Bonner & Barnewell, Inc., 56 N.J. 567, 575 (1970)).
Given the uncertain scope of coverage, Oxford should
receive the benefit of having the contractual ambiguity
5
construed against the insurer under the doctrines of contra
proferentem and reasonable expectations.
II.
An insurance policy is not an ordinary contract, but rather
a “contract[] of adhesion between parties who are not equally
situated.” Nav-Its, Inc. v. Selective Ins. Co. of Am., 183 N.J.
110, 118 (2005) (alteration in original) (quoting Doto v. Russo,
140 N.J. 544, 555 (1995)). Under the doctrine of contra
proferentem, “a court generally will adopt the meaning that is
most favorable to the non-drafting party,” or, stated
differently, an interpretation against the draftsman. Chubb
Custom Ins. Co. v. Prudential Ins. Co. of Am., 195 N.J. 231, 238
(2008). The doctrine of contra proferentem applies to a
commercial entity that did not “participate[] in the drafting of
the insurance contract.” See Benjamin Moore & Co. v. Aetna Cas.
& Sur. Co., 179 N.J. 87, 102 (2004). “[O]nly where it is clear
that an insurance policy was ‘actually negotiated or jointly
drafted,’ and where the policyholder had bargaining power and
sophistication, is the rule of strict construction of policy
terms against the insurer not invoked.” Owens-Illinois, Inc. v.
United Ins. Co., 264 N.J. Super. 460, 488 (App. Div. 1993)
(quoting AIU Ins. Co. v. FMC Corp., 799 P.2d 1253, 1265 (Cal.
1990)), rev’d in part and remanded on other grounds, 138 N.J.
437 (1994).
6
Although Oxford is a commercial entity, there is no
evidence to suggest that it negotiated the terms of this
insurance contract with Travelers. The insurance policy is an
amalgamation of standardized forms and boilerplate language
spread over nearly one-hundred pages of dense and confusing
verbiage. Under our jurisprudence, any ambiguity about the
scope of coverage should be resolved in favor of Oxford.
III.
The doctrine of reasonable expectations is another
interpretive canon for construing ambiguous insurance contracts.
In a case involving a sophisticated insured, a governmental
entity, this Court stated that ambiguous terms should be
resolved “against the insurer and in favor of the insured to
give effect to the insured’s reasonable expectations.” Passaic
Valley Sewerage Comm’rs v. St. Paul Fire & Marine Ins. Co., 206
N.J. 596, 601, 608 (2011); see also Stone-E-Brick, supra, 81
N.J. at 247 (stating that reasonable expectations of insured
commercial entity prevail if legitimate ambiguity arises from
phrasing of insurance policy).
The majority’s strained and hyper-technical analysis is at
variance with the interpretive canons that favor the insured
when a policy is so riddled with ambiguity that no clear
understanding can be reached about the scope of an insurance
contract. One sensible interpretation of the policy is that the
7
“additional” debris removal coverage was intended to supplement
the reimbursement available for flood. That interpretation
justifies Oxford’s reasonable expectations.
IV.
Because the majority finds certitude where ambiguity
abounds and because Oxford is denied the benefit of its
reasonable interpretation of an insurance policy that entitles
it to debris removal coverage, I respectfully dissent.
8