Hurricane Sandy damaged or destroyed tens of thousands of homes along the Atlantic Coast. Some were insured, some were not. And where insurance policies were in force when the storm struck, confusion and disagreement remain about what sort of damage those policies do and don’t (or should and shouldn’t) cover. As the Newark Star-Ledger reports, those differences of opinion are triggering lawsuits. (“Hurricane Sandy to Spawn Storm of Insurance Lawsuits,” by Ed Beeson.)

The case of Susan and Ahmad Sharif, homeowners in New Jersey’s Brick Township, are typical of one kind of dispute: the so-called “wind versus water” controversy. The Sharifs had a standard homeowners’ policy on their house, which Sandy pushed off its foundation. They didn’t have a separate flood insurance policy from the National Flood Insurance Program (NFIP). But they say they were never informed that their homeowners’ policy would not cover hurricane storm surge destruction.

The argument that a standard homeowners’ policy ought to cover flood is likely a non-starter: those policies have excluded flood damage for decades. That’s the reason mortgage lenders always require borrowers whose homes lie in flood hazard zones to buy a separate NFIP policy for the dwelling. But the Sharifs didn’t have a mortgage — and they are suing not just the insurance carrier, but also the broker who issued their policy, who they say did not tell them about the flood exclusion in their policy.

In New Jersey, regulations require insurance companies to specifically notify policyholders that their policies do not cover flood. And in some cases, New Jersey courts have ruled that policyholders can rely on brokers to convey the meaning of policies — and that owners may not even have to read the policy themselves. “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,” reports the Star-Ledger. “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.”

Commercial policyholders are making similar arguments, the Star-Ledger reports. “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,” says the paper. Cardolite says its $2 million uninsured loss from Sandy is the broker’s fault.

But other cases will hinge on a different issue: some homeowners are insisting that their houses were damaged by wind, not flood — or by a combination of the two. If they can prove it, policyholders could collect at least some of the value of the damaged or destroyed house under their standard homeowners’ policies. But even in that situation, there are legal fine points: some policies exclude coverage for “concurrent” events, so that wind damage that would have been covered if there had been no flood might not be covered in cases where the property got flood and wind at the same time.
Amid the uncertainties, however, one thing is certain: the lawsuits are just beginning, and they won’t be over for a long, long time.