New Jersey Court Enforces Policy Language Designed To Avoid An Efficient Proximate Cause Analysis

The Superior Court of New Jersey, Appellate Division, affirmed a lower court’s order dismissing plaintiffs’ complaint for first-party insurance coverage in Um v. The Cumberland Ins. Group, 2008 WL 656805 (N.J. Super. Ct. App. Div. 2008).  The policy covered fortuitous direct physical loss caused by vehicles, but excluded direct and indirect loss from earth movement.  Plaintiffs argued that the Court should apply the efficient proximate cause test and determine that the damage (caused first in sequence by construction vehicles) is covered, even if a contributing cause (earth movement) is not.  The Appellate Division disagreed, holding that policy language designed to avoid the efficient proximate cause doctrine is enforceable.  Id. at 5.

Plaintiffs Yong S. Um and Jennifer M. Um purchased a home in Voorhees, New Jersey in 2001.  Defendant Cumberland Insurance Group (“Cumberland”) provided Plaintiffs with a homeowners’ insurance policy, effective from July 31, 2002 to July 31, 2003.  The policy provided coverage for Plaintiffs’ dwelling and for loss or damage caused by vehicles, but contained an exclusion for “any sort of damage or loss directly or indirectly, wholly or partially aggravated by, consisting of, or resulting from the following-even if loss otherwise covered contributes to such concurrently or in any sequence . . . Earth movement (including but not limited to earth rising, sinking, shifting, or subsiding; landslide; mudflow aggravated by or resulting from any natural or human made causes . . . Wear and tear . . . Buckling, bulging, contracting, cracking, expansion, settling, shrinkage, or sinking of ceilings, floors, roofs, walls, driveways, foundations, patios, pavements, or pools.”  Id. at 4.  

In 2002, Pulte Homes of New Jersey (“Pulte”), as well as various subcontractors hired by Pulte, began construction on a residential real estate development adjacent to Plaintiffs’ property.  The contractors’ equipment consisted of off-road trucks, excavators, dozers, and loaders, with between two and twelve vehicles being used at any given time.  Id. at 1.

In Spring, 2003, Plaintiffs alleged that their home sustained physical damage when it experienced intense and continued vibrations during the construction work.  The damage included leaking skylights, brown water stains, nail pops, broken plumbing, sagging kitchen cabinets, and large cracks in the basement foundation wall.  Id.  In response to Plaintiffs’ complaint, Pulte’s land manager provided an expert report concluding that the vibration levels could not have caused damage to Plaintiffs’ property.  Instead, Pulte’s expert argued that the area was experiencing high amounts of rainfall, which caused the water table to rise and the house to settle.  Id. at 2.  Plaintiffs retained their own expert to inspect their home.  Plaintiffs’ expert concluded that the ongoing construction activities caused Plaintiffs’ property damage.  Specifically, he indicated that the heavy track equipment used by the developer, as well as the dewatering activities conducted near Plaintiffs’ premises, allowed for and caused additional soil consolidation and settlement of the soil supporting the foundation of the home.  Id.  In May, 2005, Cumberland retained an expert to inspect Plaintiffs’ home.  Cumberland’s expert concluded that the damage to the house was substantially the result of problems with its design and construction.  He stated that a small percentage of the cracks were attributable to excess vibrations from the construction site, but that damage from vibrations to a well-built home would be minimal.  Id. at 3.

On October 20, 2003, Plaintiffs filed a complaint against Cumberland, seeking coverage under their homeowners’ policy for their damages.  On March 17, 2006, the trial court granted summary judgment in favor of Cumberland, holding that there was no coverage under the policy.  Plaintiffs appealed the order.

On appeal, Plaintiffs asserted that they were entitled to coverage because the policy provided coverage for fortuitous direct physical loss to their dwelling resulting from vehicles.  Plaintiffs asked the Court to apply the efficient proximate cause test to determine that the damage was caused first in sequence by the construction vehicles.  Id. at 5.  Essentially, Plaintiffs argued that there was coverage under the policy because the efficient proximate cause—construction vehicles—was covered, even if a contributing cause—earth movement—was not.

The Appellate Division explained that, under New Jersey law, when an insurance policy exclusion bars coverage for losses caused by a certain peril, the exclusion applies only if the excluded peril was the efficient proximate cause of the loss.  Id. at 5; see also Ariston Airline & Catering Supply Co., Inc. v. Forbes, 511 A.2d 1278 (N.J. Super. 1986) (coverage is provided whenever the policy does not exclude the efficient cause of the damage, even if the policy excludes other contributing causes).  New Jersey courts generally afford an insured coverage where a covered cause of loss is either the first or last step in the chain of causation.  Id.  As an example, the Court referred to the case Assurance Co. of Am., Inc. v. Jay-Mar, Inc., 38 F. Supp.2d 349 (D. N.J. 1999).  In Assurance, vandals broke into the insured’s warehouse and caused a flood that resulted in damaged inventory.  The court held that there was coverage because a covered cause of loss—vandalism—was the proximate cause, even though an excluded cause of loss—water damage—contributed to the damages.  Id.  However, the Court further noted that even when the policy language is clear, New Jersey courts will rule for the insured if denial of coverage contravenes the insured’s reasonable expectations.  Um, 2008 WL 656805 at 4.  

The Court refused to apply the efficient proximate cause test, noting that the exclusionary language in Cumberland’s policy designed to avoid efficient proximate cause was enforceable.  Id.  Because Cumberland’s policy clearly did not provide insurance for any damage or loss “directly or indirectly, wholly or partially, aggravated by, consisting of, or resulting from [earth movement]-even if loss otherwise covered contributes to such concurrently or in any sequence,” the Court found that the exclusion did not frustrate Plaintiffs’ reasonable expectations of coverage.  Accordingly, the Court held that there was no coverage for the loss under the policy.  Id. at 6.

In New Jersey, courts will uphold unambiguous policy language designed to avoid an efficient proximate cause analysis, as long as the exclusion does not frustrate the insured’s reasonable expectations of coverage.