Public Service Sues AIG, Allianz Over Sandy Coverage

Public Service Enterprise Group Inc. (PEG), the largest provider of gas and electric service in New Jersey, sued 11 insurers, including American International Group Inc. (AIG), over losses from Hurricane Sandy.

PSE&G, which provides electricity to 2.2 million customers in New Jersey, claimed storm damage to its facilities of $426 million while the insurers say their liability for flood losses in designated zones is $50 million, according to the complaint filed June 18 in state Superior Court in Newark.

Damage caused by Sandy’s storm surge was the result of a “named windstorm” under the policies and shouldn’t be subject to limits on flood coverage, according to the complaint. Sandy crashed ashore in New Jersey on Oct. 29, leaving 2.7 million people in the state without power, severely damaging some coastal towns and crippling mass transit.

“The losses caused by Superstorm Sandy’s ensuing storm surge were caused by named windstorm and are not subject to any flood sublimits under such policies,” according to the complaint.

The defendants include AIG’s National Union Fire Insurance Co. of Pittsburgh; Allianz Global Risks U.S. Insurance Co., a unit of Allianz SE (ALV), Europe’s largest insurer; Liberty Mutual Holding Co.; Ace Ltd. (ACE)’s Ace American Insurance Co.; and Swiss Re Ltd. (SREN)

Insurance Contracts

“We are committed to promptly and fairly resolving Sandy related claims,” Cora Lee Klena, a Swiss Re spokeswoman, said in an e-mailed statement. “We take all insurance matters very seriously, and we treat all insurance contracts as confidential agreements with each of our clients. We cannot disclose or discuss the contractual elements of this matter.”

Spokesmen for AIG, Liberty Mutual, Allianz and Ace declined to comment on the suit.

PSE&G, based in Newark, had $250 million in primary coverage and $750 million in excess coverage, according to the complaint.

In its complaint, PSE&G said that only the National Union policy limits the liability to flood damage.

Oversee Operations

Governor Chris Christie has said it will cost $36.9 billion to repair the damage from Sandy and prevent future devastation.

PSE&G will take over operations of the Long Island Power Authority, leaving the state-owned utility without any day-to-day responsibilities after thousands of its customers were left without power for weeks by Sandy.

Under the agreement, which needs legislative approval, the New York Department of Public Service would oversee PSE&G’s New York operations, New York Governor Andrew Cuomo said. Public Service was awarded a 10-year contract in 2011 to manage the authority’s power lines and distribution systems starting next year.

Cuomo’s plan to expand the role of Public Service was revealed May 1 at a meeting of the governor’s Cabinet. Cuomo criticized the authority’s response to Sandy, saying in November that its management failed.

The case is Public Service Enterprise Group v. Ace American Insurance, L-4951-13, Superior Court of New Jersey, Essex County (Newark).

To contact the reporters on this story: David Voreacos in Newark, New Jersey, at dvoreacos@bloomberg.net; Zachary Tracer in New York at ztracer1@bloomberg.net.

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net; Dan Kraut at dkraut2@bloomberg.net.

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