Madelaine Chocolate v. Great Northern: Second Circuit Clarifies Insurer’s Trial-Stage Burden and Admissibility of Subjective Intent when Resolving Ambiguous Insurance Policies

1. Introduction

The Second Circuit’s June 2025 summary order in Madelaine Chocolate Novelties, Inc. v. Great Northern Insurance Co. addresses a decade-long dispute over insurance coverage for “Superstorm Sandy” storm-surge losses. Although the order is formally non-precedential, it tackles two questions of broad practical importance to insurance litigation under New York law:

What evidentiary burden rests on an insurer at trial—after a court has found the policy language ambiguous—when the insurer relies on an exclusion?
May a jury consider evidence of a party’s uncommunicated, subjective intent to discern the parties’ mutual intent in an ambiguous contract?

By affirming the district court’s post-trial rulings, the Second Circuit clarifies that:

An insurer need only prove, by a preponderance of the evidence, that its interpretation is correct, not that it is the only reasonable interpretation—once the issue has been submitted to a jury because extrinsic evidence was found to be inconclusive at the summary-judgment stage.
Evidence of uncommunicated subjective intent may reach the jury so long as it helps illuminate the parties’ negotiations and objective conduct.

Parties

Plaintiff-Appellant: Madelaine Chocolate Novelties, Inc. (“Madelaine”), a confectioner whose Rockaway Beach factory was inundated by storm surge.
Defendant-Appellee: Great Northern Insurance Company (“Great Northern”), a Chubb subsidiary that issued an “all-risk” commercial property policy.

Key Issues on Appeal

Whether the district court erred in denying Madelaine’s Rule 50 motion for judgment as a matter of law after a jury verdict for Great Northern.
Whether the district court abused its discretion in denying Madelaine’s Rule 59 motion for a new trial.

2. Summary of the Judgment

The Court of Appeals affirmed the district court’s August 24, 2022 judgment, upholding a jury verdict that the policy did not cover storm-surge losses. The panel (Cabranes, Sullivan, and Pérez, JJ.) held:

The jury charge correctly placed the burden on Great Northern to show, by a preponderance of the evidence, that both parties intended to exclude storm-surge losses.
The evidentiary record—including Madelaine’s prior discontinuation of excess flood coverage and its failure to list Great Northern as a flood insurer—provided a legally sufficient basis for the verdict.
Permitting testimony about Great Northern’s internal, subjective views did not constitute reversible error; such evidence was admissible once contract meaning turned on parties’ intent.
The law-of-the-case doctrine did not bar Great Northern from advancing its reading of the Windstorm Endorsement at trial because the appellate court’s prior remand had not resolved that factual issue.

3. Analysis

3.1 Precedents Cited & Their Influence

Cross v. N.Y.C. Transit Auth., 417 F.3d 241 (2d Cir. 2005) – standard of review for Rule 50 denials.
Reeves v. Sanderson Plumbing, 530 U.S. 133 (2000) – requirement to draw all inferences in favor of non-movant.
Parks Real Estate Purchasing Group v. St. Paul Fire & Marine Ins., 472 F.3d 33 (2d Cir. 2006) – framework for ambiguous insurance contracts: threshold ambiguity → extrinsic evidence → contra proferentem as last resort.
SR International Business Ins. Co. v. World Trade Center Properties, 467 F.3d 107 (2d Cir. 2006) – admissibility of subjective intent post-ambiguity.
Catlin Specialty Ins. Co. v. QA3 Financial Corp., 629 F. App’x 127 (2d Cir. 2015) – jury instructions embodying contra-insurer principle.
Channel Fabrics, Inc. v. Hartford Fire Ins. Co., 2012 WL 3283484 (S.D.N.Y.) and Campanile v. State Farm Gen. Ins. Co., 161 A.D.2d 1052 – relied on by Madelaine but distinguished as summary-judgment authorities.

The Second Circuit wove these cases together to articulate a two-tiered burden scheme:

Summary-Judgment Stage: Insurer must show that exclusion is the only reasonable reading, because ambiguities are construed in favor of the insured.
Trial Stage: Once ambiguity and inconclusive extrinsic evidence push the matter to a jury, the insurer’s burden is “merely” to prove its reading is correct by a preponderance; the contra proferentem “tie-breaker” applies only if evidence remains in equipoise.

3.2 Court’s Legal Reasoning

Standard of Review and Burden Allocation
• De novo review of Rule 50 denial.
• “Heaviness” of insurer’s burden contextualized—distinguishing summary judgment from post-trial posture.
Admissibility of Subjective Intent
• Recognized doctrinal divide: subjective intent irrelevant to establishing ambiguity but can inform jury fact-finding.
• Relied on SR International for admissibility once parties’ objective acts are illuminated.
Sufficiency of the Evidence
• Madelaine dropped excess flood coverage in 2001 and never represented having flood coverage from Great Northern—circumstantial proof both sides saw storm surge as excluded.
• Loss-control reports categorized wind and flood separately—consistent with Great Northern’s reading.
Law of the Case
• Earlier Second Circuit remand mandated consideration, not resolution, of potential clash between Windstorm Endorsement’s ACC clause and Flood Exclusion.
• Therefore, arguments about the endorsement’s limited deductible-centric purpose were fair game at trial.

3.3 Potential Impact

Even though issued as a “summary order,” the reasoning is likely to influence:

Insurance Coverage Litigation – Clarifies trial-stage burden and keeps the door open for subjective intent evidence; expect insurers to marshal underwriting files and internal communications when ambiguity survives pre-trial motions.
Policy Drafting – Reemphasizes the havoc caused by competing anti-concurrent-causation clauses in endorsements versus base forms. Carriers may tighten integration clauses or harmonize ACC wording across forms.
Procedure – Highlights that contra proferentem remains a last-resort rule; litigants must present extrinsic proof or risk jury determination.
Climate-Related Claims – Provides a road map for litigating storm-surge (wind-plus-water) losses, an increasingly common scenario given rising sea levels and coastal development.

4. Complex Concepts Simplified

Anti-Concurrent Causation (ACC) Clause: Policy language stating that if an excluded peril (e.g., flood) and a covered peril (e.g., wind) both contribute to a loss, the entire loss is excluded. Think of it as a “bad apple spoils the barrel” rule favoring the insurer.
Windstorm Endorsement: An add-on form that primarily adjusts deductibles/waiting periods for wind damage but, here, contained its own ACC clause in the opposite direction—potentially converting any wind-driven event into a covered peril regardless of accompanying causes.
Contra Proferentem: Latin for “against the drafter.” When contract terms remain ambiguous after all evidence is weighed, courts interpret them against the party that drafted the language—usually the insurer.
Rule 50 & Rule 59 Motions: Rule 50: asks the court to override a jury verdict because no reasonable jury could reach that result.
Rule 59: seeks a new trial due to serious errors or manifest injustice in the verdict.
Law-of-the-Case Doctrine: Once an appellate court decides a legal issue, the ruling governs later phases of the same case—unless the issue was left open, as happened here.

5. Conclusion

The Second Circuit’s disposition in Madelaine Chocolate resolves a high-stakes hurricane-coverage battle but, more importantly, crystallizes procedural and evidentiary principles that transcend this single dispute. When a policy is ambiguous and summary judgment is denied, the insurer’s hurdle at trial is not insurmountable: it must simply persuade the fact-finder that its reading best reflects the parties’ intent. In doing so, it may rely on documentary and testimonial evidence—even uncommunicated subjective views—so long as such evidence sheds light on the parties’ mutual understanding. The case thus serves as a cautionary tale for insureds and insurers alike: ambiguous drafting invites a jury’s scrutiny, and the ultimate outcome may turn on past conduct and internal deliberations, not merely on the four corners of the policy.

Prepared by [Your Name], Legal Commentator.