RISKVUE ARCHIVE | FEATURE STORIES

Did the Earth Move?

By Michael L. Blauvelt

Two federal district courts recently rejected insurers' attempts to apply Earth Movement exclusions to losses resulting from human actions, even where the policies in question explicitly provided coverage for mine subsidence in either an Extra Coverages provision or in the Earth Movement exclusion itself.

In Totty v. Chubb Corp., 455 F. Supp. 2d 376 (W.D. Pa. 2006), 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 insured, Helen Totty, 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. Totty's claimed loss included cracked walls, damaged door frames, plumbing leaks, and the sinking of one side of her home.

After an expert inspection of Totty's home concluded that the road-resurfacing work had not caused the damage claimed by Totty, her insurer (Great Northern Ins. Co.) denied coverage in November 2002. The denial was followed by months of back-and-forth discussions about the existence of an expert report favorable to Totty, but it failed to result in the production of the report. Great Northern closed the file in November 2003. In February 2004, Totty filed the lawsuit against Chubb Corp. (dismissed because it was not a party to the policy) and Great Northern and produced an expert report supporting her theory of the case.

Great Northern contested Totty's theory of causation but argued that even under Totty's 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 provided:

Earth Movement. We do not cover any loss caused by earth movement including volcanic eruptions, landslides, mud flows, and the sinking, rising or shifting of land. But we do cover losses caused by the eruption of a volcano when the loss is the result of:

• a volcanic blast or airborne shock waves;
• ash, dust, or particulate matter; or
• lava flow.

We also insure ensuing covered loss due to fire, explosion, theft, or glass breakage unless another exclusion applies.

The exclusions section of the policy issued by Great Northern defined "caused by" to mean "any loss that is contributed to, made worse by, or in any way results from that peril."

Relying on the Pennsylvania Supreme Court's decision in Steele v. Statesman Ins. Co., 607 A.2d 742 (Pa. 1992), which "analyzed a substantially similar 'earth movement' exclusion," the Court in Totty held that:

On one hand, the provision bars coverage for natural events, i.e., earthquakes and volcanic eruptions. On the other hand, the provision 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 insured 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,1 the court held that Totty's policy excluded coverage only for natural earth movements. The court further held that Great Northern could have easily excluded earth movement caused by man-made events clearly and unambiguously.

Great Northern attempted to distinguish Steele on the basis of its policy's "Extra Coverages" provision, which explicitly provided coverage for mine subsidence, stating that "[t]he exclusions of loss caused by structural movement, and earth movement in this policy do not apply to mine subsidence." Great Northern argued that because mine subsidence is a man-made event, the earth movement exclusion must cover both natural and man-made events in order to prevent the mention of mine subsidence in the Extra Coverages provision from being mere surplusage. The Court disagreed, concluding that the Extra Coverages provision was "insufficient to render the earth movement exclusion unambiguous" and noting that "[e]ven where an earth movement provision itself specifically excludes mine subsidence (which Totty's policy does not), courts have found the exclusion to be ambiguous."

The U.S. District Court for the District of Colorado, for example, recently held that even where mine subsidence is explicitly listed in the policy's Earth Movement exclusion, the policy was ambiguous and therefore should be construed in favor of coverage. Liberty Ins. Underwriters, Inc. v. Westport Ins. Corp., No. 04-CV-01856-WYD-BNB, 2006 WL 2130728 (D. Colo. July 28, 2006). In that case, the insured's assignee, Liberty Insurance Underwriters, alleged that Westport failed to fully satisfy its obligations under the all-risk Commercial Property insurance policy it issued to the YMCA of Metropolitan Denver. The loss at issue included cracking and heaving of the slab-on-grade floor and damage to some of the interior walls and floors to a YMCA facility that was under construction. Experts for both Westport and Liberty "agree[d] that the damage to the facility was caused by 'an increase in moisture in the soil underneath the YMCA building; that the increase in moisture caused soil particles to separate, which in turn caused expansion of the soil, resulting in an increase in the soil volume; [and] that the soil rose upward under the slabs, causing the slabs to heave, with resulting damage.'"

Almost two years after the YMCA notified both Westport and Liberty of the loss and over one year after Westport sent the YMCA a reservation-of-rights letter that referred to the earth movement and water exclusions in the policy, Westport sent YMCA a check in the amount of $25,000 without any accompanying cover letter or other written document. One year later, YMCA submitted claims to both Westport and Liberty for business interruption loss. Westport denied coverage for the business income claim in excess of $25,000 because "although an 'earth movement' exclusion...applied to the claim for physical damage to the Facility, Westport paid $25,000 [the policy limit for water damage] on that claim pursuant to Limitation C.2.c of the Policy for water under the ground surface pressing on, or flowing or seeping through foundations, walls, floors, or paved surfaces, basements, doors, windows or other openings." Westport further denied liability for the business loss claim on the basis of the earth movement exclusion and the water damage limitation.

Westport's policy contained the following exclusion:

B. Exclusions

We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.

* * *

b. Earth Movement

(1) Any earth movement (other than sink hole collapse), such as an earthquake, landslide, mine subsidence or earth sinking, rising, or shifting. But if loss or damage by fire or explosion results, we will pay for that resulting loss or damage.

In support of its position, Westport analogized to Hoang v. Monterra Homes (Powderhorn) LLC, 129 P.3d 1028 (Colo. Ct. App. 2005), where the court held an earth movement exclusion "applicable to damage caused by pressure exerted by underground water associated with Colorado's clay soils or the fill materials underlying plaintiffs' homes."2 Distinguishing the cases, the court held that unlike the policy in Hoang, which "excludes a number of specific types of earth movement followed by the catch-phrase 'or any other movement of the land, earth or mud,' the provision at issue in this case begins by excluding 'any earth movement' but then qualifies that phrase by stating 'such as earthquake, landslide, and mine subsidence or earth sinking, rising, or shifting.'"

The court also distinguished Westport's policy from the State Farm policies held by various jurisdictions to exclude both man-made and natural earth movements. In State Farm's policies, "earth movement" is defined as "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, mudflow, sinkhole, subsidence and erosion." Two of the State Farm policies also contained a lead-in clause explaining:

We do not insure for such loss regardless of: (a) the cause of the excluded event; or (b) other causes of the loss; or (c) whether other causes acted concurrently or in any sequence with the excluded 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....

Noting that "[t]he majority of courts that have interpreted earth movement exclusions that do not contain the type of "lead-in" clause used by State Farm have concluded that such exclusions 'apply only to earth movement that arises from natural events,'" the court again turned to the language in Westport's exclusion. The court said that while the majority of cases agree that the terms "earthquake" and "landslide" connote natural events, "[i]t is less clear...whether the terms 'mine subsidence,' and 'earth sinking, rising, or shifting' are understood to refer only to natural phenomena."3 The court reasoned that "[t]hese terms could bar coverage for solely natural events, or could refer to earth movement resulting from human or natural events." Holding the terms ambiguous, the court held that the exclusion limited to only natural earth movements.

Turning finally to Westport's "lead-in" clause, which stated: "[s]uch loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss," the court interpreted that clause to mean that "coverage will be excluded so long as 'earth movement' is a cause of the loss, even if other causes also contribute to the loss." The court observed that "[u]nlike the lead-in clause in the State Farm policy, which provides that earth movement is excluded regardless of the cause of the earth movement, the language in Westport's policy does nothing to clarify what constitutes earth movement in the first instance."

Taken together, Totty and Liberty Insurance stand for the proposition that earth movement exclusions will not be read to cover man-made earth movements on the basis of the explicit enumeration of mine subsidence in either the earth movement exclusion or an extra coverages provision. Instead, insurance policies intended to exclude man-made earth movements must clearly and unambiguously exclude them, preferably as part of a "lead-in" clause.

Notes

(1) Black's Law Dictionary 556 (8th ed. 2004) defines "ejusdem generis" as:

A canon of construction that when a general word or phrase follows a list of specifics, the general word or phrase will be interpreted to include only items of the same type as those listed. For example, in the phrase horses, cattle, sheep, pigs, goats, or any other farm animal, the general language or any other farm animal-- despite its seeming breadth--would probably be held to include only four-legged, hoofed mammals typically found on farms, and thus would exclude chickens.

As a technical matter, the principle of ejusdem generis is applicable only where the general word or phrase "follows a list of specifics" and should not be applied where, as in the exclusions in the two decisions discussed herein, the general word or phrase precedes a list of specifics. See, e.g., Mincin v. Vail Holdings, Inc., 308 F.3d 1105 (10th Cir. 2002) (where "the general language...precedes the specific language....the doctrine of ejusdem generis is inapposite"); Brown v. Farm Bureau Ins. Gen. Ins. Co. of Michigan, No. 271520 (Mich. Ct. App. Jan. 18, 2007) (same). Neither court addresses this distinction.

(2) The earth movement exclusion in Hoang provided:

This insurance does not apply to..."property damage"...arising out of, caused by, resulting from, contributed to, aggravated by, or related to earthquake, landslide, mud flow, subsidence, settling, slipping, falling away, shrinking, expansion, caving in, shifting, eroding, rising, tilting or any other movement of land, earth or mud.

(3) The court did not provide an explanation on how "mine subsidence," by definition a result of human action, could be interpreted to refer to natural causes.

Update

Liberty Ins. Underwriters, Inc. v. Westport Ins. Corp., No. 04-cv-01856-WYD-BNB (D. Colo. July 28, 2006), motion for reconsideration denied, (April 18, 2007).

On April 18, 2007, the United States District Court for the District of Colorado (Daniel, J.) denied Westport's Motion for Reconsideration of his July 28, 2006 decision denying Westport's Motion for Summary Judgment. That decision held, in pertinent part, that the policy's earth movement exclusion would be construed to refer only to natural phenomena because it was ambiguous as a result of its failure to define "earth movement," and in spite of a lead-in clause that excluded losses caused by certain events "regardless of any other cause or event that contributes concurrently or in any sequence to the loss."

Shortly after that decision, the Colorado Court of Appeals considered a similar lead-in clause in the context of a water damage exclusion. In that case, Thompson v. State Farm Fire & Cas. Co., No. 05CA2079, 2007 WL 686006 (Colo. App. Mar. 8, 2007), the court held that a water damage exclusion with a lead-in clause excluding water damage losses "regardless of the cause of the excluded event" was not ambiguous because the lead-in clause "excludes any water damage loss, regardless of its cause or origin." Id. at *6. On the basis of that decision, Westport moved for reconsideration. Judge Daniel recognized the similarity between the lead-in clause in Thompson and the one at issue in Liberty, but nonetheless found that Westport's policy was "ambiguous in that it does not clarify what constitutes 'earth movement' in the first instance." As a result, Judge Daniel concluded that Thompson was not controlling and reconsideration was therefore inappropriate.

Judge Daniel's decision in Liberty to deny reconsideration in light of Thompson does not affect our analysis of his previous holding in this matter.

-- Michael L. Blauvelt

ABOUT THE AUTHOR

Michael L. Blauvelt is an Associate at Mound Cotton Wollan & Greengrass.

Reprinted with permission from the Spring 2007 issue of Newsletter, a publication of Mound Cotton Wollan & Greengrass.

riskVue | The webzine for risk management professionals
June 2007