Earthquake Insurance: What's Your Exposure

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...easily excluded earth movement caused by man-made events. The cases reviewed previously, except for State Farm Fire & Casualty Co. v. Castillo , held for coverage. However, in Cali v. Merrimack Mut. Fire Ins. Co. , 2007 NY Slip Op 06415 (Appellate Division, Second Dept.) 6 , the Court ruled that the earth movement exclusion applied to rule out coverage. Aportion of the plaintiff’s home collapsed when the concrete slab foundation settled, sank, and cracked. Merrimack denied the claim based on the policy language that excluded losses due to earth movement, earth sinking, rising or shifting and settling, shrinking, bulging, or expansion, including resultant cracking of pavements, patios, foundations, etc.

The plaintiff’s engineer concluded that the slab foundation partially collapsed as a result of decayed wood in the earth beneath the foundation, which caused a void in the soil and the eventual collapse.

The Court held that Merrimack met its initial burden of establishing that the exclusion clearly and unambiguously applied to the loss. The Court also made reference to language which stated that losses due to earth movement are excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss. Here, the loss was attributable to the resultant earth movement and sinking, even though the movement was precipitated, at least in part, by decayed wood in the earth beneath the foundation slab. In this case, there was no evident man-made external force involved such as that of excavating or blasting that occurred in the previous cases discussed. The Court concluded that the policy language specifically excluded coverage for damages resulting from earth movement, even though the cause of the earth movement may be a covered peril or not specifically excluded.

Conclusion

It is apparent from these court decisions that causation as well as policy language, particularly anti-concurrent cause and exclusion provisions, will influence how courts interpret insurance policy provisions and rule in a dispute. Admittedly, some of the decisions discussed could be described as close calls, in that the decision could have gone either way.

On the one hand, it seems unlikely that an insured would prevail in an earth movement claim when the insurance policy involved contains both a strong anti-concurrent cause provision and a detailed earth movement exclusion. Yet it is evident from these cases that the possibility exists when an external force such as man-made activity causes or contributes to the loss, and pertinent policy provisions are vague, subject to ambiguity, or lack detail. It is also true that some insurers, usually non-standard or specialty companies that write larger commercial risks, will provide earth movement coverage, including that caused by man- made activity. In such cases, the insurer deletes the anti-concurrent cause provision.

In closing, it is noteworthy that in the 2000 edition of the ISO homeowners special or “open perils” policy and the latest editions of theAAIS homeowners special policy, earth movement is excluded whether it results from or is caused by human or animal forces or an act of nature.

Seemingly, that language would settle the matter once and for all, but it was not present in the court cases discussed previously 7 nor is it present in standard commercial property or business owners forms, at least not yet.

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