The house at the center of the case, belonging to Harvey and Phyllis Karan, survived Sandy in October.
The case has wider implications in part because New Jersey now wants to build a dune system along its entire coastline.
The Army Corps of Engineers built a 22-foot-high dune for storm protection in front of the Karans' house after Harvey Cedars condemned a portion of their beach.
A Superior Court jury awarded the couple damages in 2011, finding that the dune construction, while benefiting many of the surrounding homeowners, had substantially diminished the value of the Karans' $1.9 million home.
The appellate division of Superior Court upheld the jury verdict in 2012, finding that the couple deserved substantial compensation.
"The project did not permit any new or more lucrative use of the property," the appellate court said, rejecting the idea that the Karans had received a special benefit. "Its highest and best use remained residential."
Lawyers for both sides traded arguments for nearly two hours before the Supreme Court in May over the question of whether the dune construction was a benefit since it protected the Karans' home from flooding.
Some members of the court seemed skeptical at that time that there was a legal basis for the award.
"The government spent millions to increase the value of the home [with the dune construction], and you don't want the jury to consider that?" Justice Barry Albin asked. "You only want the jury to consider the loss of view. Should that be our standard of just compensation in the 21st century?"
Peter Wegener, the Karans' lawyer, said that to do otherwise would be unfair to his clients. The dune protection project, a series of barrier dunes along the oceanfront in Harvey Cedars, would benefit scores of homeowners farther from the beach than the Karans.
But without compensation for their lost view and portions of their beach, the Karans would, in effect, be forced to pay for a disproportionate share of the project, he said.
The case has drawn the attention of local and state officials. Authorities are seeking easements up and down the Shore for flood-protection projects, and in some places homeowners have declined.
Harvey Cedars initially offered owners of beachfront homes about $300 each for portions of their beach where the dunes were to be built, and about 80 homeowners accepted. But the Karans and more than a dozen others declined.
Inquirer staff writer Chris Mondics contributed to this article.