Earthquake Insurance: What's Your Exposure



...two causes, one that is covered and one that is excluded, the loss will be covered. It applies primarily to “all risks” or “open perils” policies. Insurers then countered the concurrent causation doctrine, which in many instances resulted in their paying claims that were never contemplated in their premium structure to be covered, by adding an anti-concurrent causation provision to the exclusions section. That provision clarified that there was no coverage for loss caused by an excluded peril (flood, earthquake, etc.), regardless of any other cause that contributed concurrently or in any sequence to the loss.

While current standard property forms of ISO and AAIS contain this provision, non-standard or independently filed policies may not, or may contain their own versions of this provision. Reviewing court decisions that involve the issue of man-made vs. natural earth movement losses can be instructive by providing insights on how courts analyze the issue and the insurance language that is applicable to the loss.

Court Decisions

The first case is Fayad v. Clarendon National Ins. Co. , 899 So.2d 1082, 2005 WL 729172, (Fla. 2005). 1 The plaintiffs had an all risks property policy that contained an earth movement exclusion. The claim involved nearby blasting activity that caused structural damage to their home. Clarendon denied the claim on the basis that blasting was earth movement and, therefore, excluded. The pertinent provision in the Clarendon policy read as follows:

We do not insure for loss caused directly or indirectly by any of the following. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss.

The earth movement exclusion read:

Earth Movement, meaning earthquake, including land shock waves or tremors before, during or after a volcanic eruption; landslide; mine subsidence; mudflow; earth sinking, rising or shifting; unless direct loss by: fire or explosion ensues and then we will pay only for the ensuing loss.

The trial court decided in favor of Clarendon based on the ruling in another case, State Farm Fire & Casualty Co. v. Castillo , 829 So.2d 242 (Fla. 3d DCA 2002). In that case, the court held that the lead-in language of the exclusions clearly ruled out coverage. State Farm’s lead-in provision read:

We do not insure under any coverage for any loss which would not have occurred in the absence of one or more of the following events. We do not insure for such loss regardless of: (a) the cause of the excluded events or (b) other causes of the loss or (c) whether other causes acted concurrently or in any sequence with the excluded...

“Whether coverage applies typically depends on how the exclusion is worded, and particularly on the existence and/or strength of the anti- concurrent causation lead-in language to the exclusions.”