Arizona Federal Court Finds "Earth Movement" Exclusion Not Ambiguous and Not Limited to "Acts of God"
February, 2006
In Holy Trinity Greek Orthodox Church v. Church Mutual Ins. Co., 2006 WL 18488 (D. Ariz.), the court assessed whether an “earth movement” exclusion in the plaintiff church’s property insurance policy precluded coverage for damage to the building’s slab caused by a broken water pipe.
Facts
On April 15, 2003, a water pipe broke and released between 60,000 and 80,000 gallons of water into the education building owned by the plaintiff church. Plaintiff filed a formal insurance claim with the defendant insurer for the resulting damage to the building’s slab and the subterranean earth. Plaintiff alleged that the water released from the broken pipe infiltrated the soil and fill materials beneath the building and that this infiltration of water caused the soil to expand. According to plaintiff, this expansion subsequently caused significant damage to the building’s slab.
The policy stated in pertinent part:
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 “sinkable collapse”) such as an earthquake, landslide or earth sinking, rising, or shifting. But if earth movement results in fire or explosion, we will pay for the loss or damage caused by that fire or explosion.
Defendant denied coverage based on the “earth movement” exclusion.
Analysis
Plaintiff did not dispute that “earth movement” was an excluded cause of loss under the policy. Instead, plaintiff’s argument in favor of coverage was that: 1) the “earth movement” exclusion was ambiguous; and 2) the “earth movement” exclusion should be interpreted as excluding only movement caused by natural phenomena or an “act of God.”
Relying on the Arizona Court of Appeals’ interpretation of the “earth movement” exclusion in Millar v. State Farm Fire and Casualty, 804 P.2d 822 (Ariz. App. 1990), the district court first found that the exclusion was not ambiguous:
The Arizona Court of Appeals has interpreted an “earth movement” exclusion and found that the exclusion is not ambiguous. Millar, 804 P.2d at 824-26. Plaintiff, however, urges the Court to disregard Millar and find that the term “earth movement” is ambiguous. Plaintiff relies on State Farm Mut. Auto Ins. Co. v. Wilson, 162 Ariz. 251, 782 P.2d 727 (Ariz. 1989) for the proposition that because a District Court in Virginia interpreted a similar “earth movement” exclusion to apply only to natural phenomena that this Court must find that the “earth movement” exclusion at issue here is ambiguous and applies only to natural phenomena. In Wilson, the Arizona Supreme Court stated: “… because two divisions of our court of appeals have reached diametrically opposite conclusions based on essentially identical wording, prior authority requires us to conclude that the clause must be ambiguous.” Id. at 732.
This Court has not been presented with, nor did its own research reveal any authority from this jurisdiction that contradicts the Court of Appeals’ interpretation of the “earth movement” exclusion in Millar. Thus, two courts in this jurisdiction have not “reached diametrically opposed conclusions” regarding the interpretation of an “earth movement” exclusion.
The district court then rejected plaintiff’s argument that its loss should be covered because a proper interpretation of the policy’s “earth movement” exclusion is that it is limited to excluding damage caused by natural phenomena. The court noted that the term “earth movement” was prefaced with the word “any” and that the policy then utilized the disjunctive “or” after the examples of natural disasters and before listing “earth sinking, rising, or shifting.” Based on the plain language of the policy and its sentence structure, the court determined that the “earth movement” exclusion was not limited to natural disasters and phenomena.
Learning Point:
The district court here determined that the property policy’s “earth movement” exclusion, when construed according to its plain and ordinary meaning, was not ambiguous and was not limited to natural phemonena. The court was careful to note that even if it had determined that the “earth movement” exclusion was ambiguous, under Arizona law, unlike some other jurisdictions, ambiguities in insurance policies are not automatically construed in favor of the insured. Arizona courts instead “construe a clause subject to different interpretations by examining the language of the clause, public policy considerations, and the purpose of the transaction as a whole.” Wilson, 782 P.2d at 733. Further, the court recognized that it is not only permissible, but expected, for an insurance company to attempt to limit its liability. •
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