Susan Sharif and her husband are suing their insurance company and broker, claiming they told the broker they wanted complete insurance coverage on their now-ruined Brick home, but were not notified their policy did not cover flooding. Andrew Mills/The Star-Ledger

For years, Susan and Ahmad Sharif thought of their little beachfront cottage in Brick as the home they’d retire to one day. When Hurricane Sandy’s monster storm surge pushed the house off its foundation and collapsed the garage, they felt reassured by one thought: Their insurance company would cover the loss.

They were wrong.

Despite taking out a policy that covered the house for $175,000 and its contents for $50,000, all the Sharifs got from Paramount Insurance Co. was $6,343.68. The money wasn’t for the hole the storm tore in the back of the house or the furniture inside. It was for siding torn from the outside of the house by Sandy’s gale-force winds. Paramount told the Chatham couple, who had been renting out their Brick house, that they were covered only for wind damage, not flood damage, although the Sharifs say they thought they were covered for both.

All over the barrier islands and the Bayshore, homeowners are learning from their insurance carriers about to what extent their losses are covered. Some who have been disappointed, such as the Sharifs, have decided to take their cases to court.
Hundreds, perhaps thousands, of lawsuits, may eventually be filed over Sandy insurance claims that were denied or paid out too little in the eyes of the policyholder, according to plaintiffs’ attorneys and lawyers for the insurers.

Legal experts, however, believe these lawsuits will be anything but slam dunks. They also note that lawsuits account for only a small percentage of the total number of Sandy insurance claims filed in New Jersey, which to date total about half a million.

Litigation will be centered on a few types of disputes, say experts, from wind-versus-flood determinations to business interruption claims to alleged negligence by insurance brokers.

The Sharifs are suing both Paramount and their insurance broker, Tri-County Agency of Brick, claiming that at the time they purchased their home, they told the broker they wanted complete insurance coverage. They weren’t notified that their policy didn’t cover flooding and weren’t advised to buy flood insurance, they said.

“I 100 percent thought that I had flood insurance,” Susan Sharif said, recalling the disbelief she felt when her claim was largely denied. “My house is 20 feet from the water. Why would I not have flood insurance?”

Standard homeowners and commercial policies do not cover flood losses. To be covered for flooding, a separate policy must be acquired through the National Flood Insurance Program. Only home and business owners in high-risk flood zones who have mortgages through a federally backed lender, like a bank, are required by law to purchase federal flood insurance. Part of the problem for the Sharifs is that when they bought their beach cottage in 2005, they paid for it all in cash, according to property records as well as their attorney, Tom Maloney of Morristown. Without a mortgage, there was no bank-mandated requirement that they purchase flood insurance.

In a lawsuit filed last month in Superior Court in Morris County, the Sharifs allege that Paramount, a unit of the New York-based Magna Carta Cos., failed to send annual notices, required under New Jersey law, that their homeowners policy did not cover losses due to flooding. They also claim Paramount acknowledged it had no record of sending them the required notice about flood insurance, and allege the company continued to deny them any additional coverage for their loss.

Gary Stewart, a vice president of human resources at Paramount, declined to comment on the litigation, but said the company is “proud of our excellent record of superior service and customer satisfaction.”

Marshall Bilder, an attorney for Tri-County Agency, also declined to comment on the specifics of the case, but noted in an e-mail that the firm has a record of professionalism and community service, and that its own employees had homes that were devastated by Sandy.

“Unfortunately, tragedies like this spawn litigation which could take years to resolve,” Bilder wrote.

Attorneys said it is difficult to speculate on rates of success, but policyholders face a number of hurdles. The terms of flood insurance policies, for one, tend to be inflexible, they said. Litigation is also costly and time-consuming at a time when homeowners and businesses are trying to rebuild.

Robert Hartwig, president and economist with the Insurance Information Institute, an industry-funded group, said courts have not looked kindly upon attempts to “sue for coverage that didn’t exist in the policy.”

TWO WAVES

Harry Baumgartner, an attorney with Bressler Amery & Ross who represents insurers, said he expects two waves of lawsuits: the first arriving in the three-to-six month period after Sandy are just rolling in now. The second wave will come when the time to file is nearing expiration under the statutes of limitations. The disputes can take different forms, according to Gene Killian, an Iselin-based attorney who will likely represent commercial and residential policyholders in Sandy-related lawsuits. Chief among the insurance disputes is determining the cause of the damage. And the more complex the calamity, the harder that can be. Was it wind? Water? Was it wind-driven water?

While standard homeowners and commercial policies do not cover floods, they do cover wind-driven rain. Some policyholders will attempt to argue that wind sheared off their roof, allowing damaging rainwater to pour into their home or business, Killian said.

Paramount Insurance Co. told the Susan Sharif and her husband, who had been renting out their Brick house, that they were covered only for wind damage, not flood damage, although the Sharifs say they thought they were covered for both. Andrew Mills/The Star-Ledger

This is what Susanne Bannon believes happened to her. She evacuated her Union Beach townhouse before Sandy struck, only to return to find it reduced to rubble.

Based on the debris and accounts from neighbors who stayed behind during the storm and later told her of wind gusts that sounded like trains overhead, Bannon believes high winds contributed to the collapse.

But her insurer, Allstate, disagreed. Days after an adjuster’s visit, Bannon said, an Allstate representative called to tell her that floodwaters were to blame. As a result, she’d only be covered by her flood insurance policy, which Bannon, who is in her mid-60s, said wouldn’t come close to covering the cost of rebuilding or replacing everything that was lost.

An Allstate spokesman, Danny Jovic, declined to comment on Bannon’s situation, saying the insurer does not discuss individual claims. But in an e-mailed statement, he said, “Adjusters determine whether damage was caused by flood or by wind by examining the facts of each individual claim.

“Generally speaking, claim adjusters are able to determine the cause of damage based on evidence gathered at the property, or as necessary, neighboring properties. This evidence may include reports of engineers and other experts.”

Bannon said as far as she knows, her claim is still under review, although she said she hasn’t been able to get through to her adjuster. But if she gets notice that her claim is denied, she said she will consider suing.

“It’s traumatic to lose your house and everything you own,” she said. “On top of this, you find out your insurance is not helping you at all, that you’re totally on your own after years of paying them.”

WAR OF WORDS

Others will challenge the integrity of policy language that was written to limit their coverage. Many insurance contracts feature what are known as anti-concurrent causation clauses, which means they cover damage caused by a peril such as hurricane-force winds, but not if it occurs at the same time as a peril that is not covered, for example a tidal surge. In these cases, even if a policyholder is insured for wind damage, the insurance company can deny coverage if it occurred at the same time as a second, non-covered peril, such as flooding. Enterprising attorneys will scour individual policies for language that a judge would find exceedingly vague, Bressler Amery’s Baumgartner said.

“If a court were to find sufficient ambiguity, it might negate the exclusion and find for coverage,” he said.

Another fight is brewing over the liability of brokers who sell policies to customers like the Sharifs.

“There is a cottage industry of plaintiff’s attorneys that is forming around the notion that brokers or agents are liable to the extent that they didn’t adequately inform policyholders around the absence of coverage,” Baumgartner said. “Whether or not there’s viability to these cases depends on the facts of the case.”

One such case is under way in Newark.

Cardolite Corp., which turns cashew nut liquids into industrial adhesives and coatings, is suing its insurance broker, Willis of New Jersey, on claims that the broker failed to purchase proper flood coverage for the company’s Newark plant, which is located near the Passaic River. Cardolite’s president is Anthony Stonis, who happens to be a past chairman of New Jersey Manufacturers Insurance Co.’s board of directors.

The policy that Willis bought excluded flood coverage in the high-risk flood zone that the Cardolite’s facility is located in, according to a Superior Court lawsuit filed last month in Essex County. As a result, the company suffered a $2 million uninsured flood and wind loss during Sandy, Cardolite’s attorneys wrote.

In an e-mail, a Willis spokeswoman said, “Willis always puts our clients’ interests first and adheres to the highest standards in insurance placement. We will address the merits of the case in the proper forum.”

DOWN TO SPECIFICS

In the case of agent liability, cases will turn on the specific discussions between the agent and the client, noted Jay Feinman, a professor of insurance law with Rutgers University in Camden. For example, a customer could have a valid claim if he or she asked for a specific policy that wasn’t bought or voiced specific concerns that weren’t addressed by the agent.

“The agent is not obligated to give you everything,” said Feinman, who has written on insurer tactics to deny and defend claims.

But other attorneys note that New Jersey courts have ruled that policyholders can rely on their brokers’ expertise in certain circumstances, and that they don’t even need to have read their policy to be protected.

“Fairly or unfairly, people are going to say we thought we had this coverage,” Killian, the Iselin attorney, said.

That is the case of the Sharifs, who claim Tri-County Agency breached its duty by allegedly failing to advise them to buy flood insurance or offer it to them. They also accuse the agency of negligence because the person who sold them their initial policy, identified in the complaint only by the name of Ernie, allegedly assured the Sharifs that he was familiar with the property and that he would secure for them full coverage.

“I told him what I needed,” Susan Sharif said of the Tri-County representative, whom she said has since left the brokerage and who is not named as a defendant in their case. “I told him all the details of my home, and I told them I needed the appropriate insurance policy.”

With the house slated for demolition, Susan Sharif said she and her husband, who are in their late 50s and early 60s, don’t have the ability to rebuild from scratch. “It’s a huge loss in our state, our age to have our security taken away because some company didn’t do their job,” she said.