Earthquake Insurance: What's Your Exposure

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...looking at State Farm’s internal operating guidelines. In reviewing those guidelines, the Court found a reference to the effect that damage from blasting, crane or demolition equipment, etc., cannot occur unless the earth moves. Therefore, the Court reasoned that coverage will be provided for blasting that causes shockwaves/vibrations transmitted through the earth to the plaintiff’s dwelling which causes damage without displacement of the earth. In conclusion, the Court determined that the plaintiff could proceed to a jury because the question of whether or not the shockwaves and vibrations alleged by the Castillos damaged their dwelling without displacement of the earth was an issue of material fact. The Court also noted that once the plaintiff establishes a loss apparently within the terms of an all risks policy, the burden shifts to the insurance company to prove that the loss arose from a cause which is excluded.

In Totty v. Chubb Corp., 455 F. Supp. 2d 376 (W.D. Pa. 2006) 5 , the Court, applying Pennsylvania law, held that the earth movement exclusion in the homeowner’s insurance policy did not clearly exclude damage caused by man-made forces and, therefore, denied the insurer’s motion for summary judgment.

The plaintiff alleged that her property was damaged because of the densification of sand layers in the underlying soil that resulted from the use of a vibratory compactor to repave the adjacent street in July 2002. Damage included cracked walls, damaged door frames, plumbing leaks, and the sinking of one side of her home. Although the case is identified as Totty v. Chubb Corp., the claim was initially denied by Great Northern Insurance Co., a member of the Chubb Group, whose policy insured Totty. Totty subsequently filed suit against both Chubb Corp., the parent company, and Great Northern. Hence, the references to Great Northern throughout the discussion. Great Northern contested the plaintiff’s theory of causation, but argued that even under that theory, the loss was not covered because it fell within the policy’s earth movement and structural movement exclusions. The earth movement exclusion in Great Northern’s policy was similar to the exclusionary language previously cited in the aforementioned cases.

The Court reasoned that on one hand, the exclusion bars coverage for natural events, i.e., earthquakes and volcanic eruptions. On the other hand, it bars coverage for events which can be natural, man-made or both, i.e., landslide, mudflow, earth sinking, rising or shifting. Although it is arguable that the exclusion is applicable to earth movement due to natural and man-made events, a reasonable person could conclude that the exclusion is applicable to earth movement due to natural events only. Since the earth movement exclusion is reasonably susceptible to different constructions, it is impossible to determine the intent of the parties as manifested by the written language of the contract of insurance.

Relying on this ambiguity and the principle of ejusdem generis , the Court held that the plaintiff’s policy excluded coverage only for natural earth movements. The Court further held that Great Northern could have...


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