Earthquake Insurance: What's Your Exposure



...event to produce the loss; or (d) whether the event occurs suddenly or gradually, involves isolated or widespread damage, arises from natural or external forces, or occurs as a result of any combination of these.

Note that the (d) part of this provision refers to both natural as well as external forces.

The court in the Castillo case concluded that based on this language, the policy clearly and unambiguously excluded the earth movement loss, regardless of the cause. The trial court in Fayad followed this reasoning, despite the fact that the lead-in language to the exclusions in each policy read differently.

The plaintiff appealed to the District Court on the basis that the exclusionary language in the Clarendon policy was materially different from the exclusion in the State Farm policy. While agreeing that the Clarendon exclusion was much narrower, the District Court nevertheless upheld the ruling of the trial court. The plaintiff then appealed to the Florida Supreme Court.

Without including all the details of the Supreme Court’s analysis, the main points of the Court’s ruling were as follows: (1) There is a distinction between losses caused by man-made events and natural causes; (2) Where an earth movement exclusion does not contain language excluding earth movement regardless of its cause, the majority of courts conclude that the exclusion only applies to earth movement caused by natural causes; (3) The principle of ejusdem generis , meaning that where a policy lists several events (such as mudslide, earthquake, volcano) and then lists a broader event (earth sinking, rising or shifting), the court will interpret the broader events as applying to the same kind or class as those that are specifically mentioned.

The Florida Supreme Court concluded that there was no specific language in the Clarendon policy that excluded earth movement regardless of cause (despite the lead-in language of the Clarendon policy), and that the policy listed several natural events in its definition of “earth movement.” As a result, the Court overturned the District Court and ruled that the policy covered damage caused by blasting. The Court further stated that if Clarendon intended to exclude damage from earth movement caused by man-made events, it should have done so clearly and unambiguously.

It is also noteworthy that the Court commented that even though Clarendon would be paying for the plaintiff’s damage, it could seek recovery against the blasting company through subrogation.

In Pioneer Tower Owners Assn. v. State Farm Fire & Casualty Co . 2009 NY Slip Op 03409 (Court of Appeals) 2 , the plaintiff made claim for damage to its condominium building that was caused by excavation on an adjacent lot. State Farm denied the claim citing the earth movement exclusion. When cracks appeared in the building, an engineer was called in and concluded that the cracks and separations in the building were caused by the excavation work on the adjacent lot. The engineer attributed damage to the building to flawed underpinning that was built by the excavating company to protect the plaintiff’s foundation, and that as a result, earth slid away from beneath the building causing the damage.

State Farm’s anti-concurrent cause provision was the same as that shown in the Castillo case, except for part (d). (Emphasis added.) The earth movement exclusion in the State Farm policy read as follows:

Earth movement, meaning the sinking, rising, shifting, expanding or contracting of earth, all whether combined with water or not. Earth movement includes but is not limited to earthquake, landslide, erosion, and subsidence but does not include sinkhole collapse.

State Farm also relied on the settling or cracking exclusion which read:

We do not insure for loss either consisting of, or directly and immediately caused by, one or more of the following:

In deciding this case, the Court noted that the law governing...