In the aftermath of Superstorm Sandy, Amtrak (a.k.a., National Railroad Passenger Corp.) sought coverage for widespread property damage sustained within its tunnels as a result of the incursion of seawater. Amtrak submitted claims under various policies, which covered the losses but only up to the combined $125 million flood sublimits for its policies. Amtrak argued that the sublimits should not apply because the definitions of “flood” in the policies were ambiguous, and the corrosion of the train tracks constituted a separate “ensuing loss” that was not subject to the sublimit. With respect to corrosion, Amtrak reasoned it was caused by a “chloride attack” that occurred only after the seawater evaporated, leaving salt residue to interact with oxygen on the rails.

On September 7, 2016, in national-railroad-passenger-corp-v-aspen-specialty-insurance-co, the Second Circuit affirmed the district court’s ruling and held that the Amtrak was only entitled to coverage up to the flood sublimits of the insurance policies for Superstorm Sandy related losses. According to the Second Circuit, although three separate definitions of “flood” were at issue, each was unambiguous and the mere existence of different definitions did not render them ambiguous. As to the ensuing loss argument, the Court ruled that Amtrak’s broad interpretation would swallow the express and unambiguous purpose of the sublimit policy. Further, “chloride attack” was not an “ensuing loss” because “[t]he corrosion of Amtrak’s metal equipment cannot meaningfully be separated from water damage that is plainly subject to the flood sublimit, nor can it be attributed to a distinct ‘covered peril.’”

Not only will this case be useful when interpreting what constitutes flood damage, but it has broad applicability in evaluating whether consequential damages or ensuing losses are covered as a separate event. At times, it is difficult from a metaphysical perspective to determine when one loss ends, and another begins. The analogy of evaporating sea water and resulting rust can certainly help in such circumstances.

Thanks to Chris Soverow for his contribution to this post.