An Earth Movement Exclusion is Limited to Damage Caused by Natural Causes (Absent Specific Policy Language to the Contrary)
April, 2005
The Florida Supreme Court held in Fayad v. Clarendon National Ins. Co., 2005 WL 729172 (Fla, 2005), that damages caused by blasting are covered under an ‘all-risk' insurance policy that expressly excludes damage caused by earth movement. In deciding this issue, the Court resolved a split in the Florida District Courts of Appeals.
Facts
Plaintiffs Carlos and Dora Fayad purchased an all-risk property insurance policy from Clarendon for their home and certain personal effects. During the policy period, plaintiffs reported to Clarendon that nearby blasting activity caused structural damage to their home and other personal property. Clarendon denied that blasting was the cause of the damage, but assumed for summary judgment purposes (where the court must view all facts in the light most favorable to the non-moving party) that the blasting did cause the damage, but that the blasting was earth movement, and was therefore excluded from coverage.
The policy stated, in pertinent party, as follows:
SECTION I.—EXCLUSIONS
1. We do not insure for loss caused directly or indirectly by any of the following. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss.
***
b. Earth Movement,
meaning earthquake, including land shock waves or tremors before, during or after a volcanic eruption; landslide; mine subsidence; mudflow; earth sinking, rising or shifting; unless direct loss by:
(1) Fire; or
(2) Explosion….
ensues and then we will pay only for the ensuing loss.
COVERAGE C -- PERSONAL PROPERTY
We insure for direct physical loss to the property described in Coverage C caused by a peril listed below unless the loss is excluded in SECTION I-- EXCLUSIONS
3. Explosion
The trial court granted summary judgment to Clarendon based on State Farm Fire & Casualty Co. v. Castillo, 829 So.2d 242 (Fla. 3d DCA 2002). In Castillo, the Third District Court of Appeals held that the lead-in provision of that particular earth movement exclusion precluded coverage. The State Farm lead-in provision read as follows:
We do not insure under any coverage for any loss which would not have occurred in the absence of one or more of the following events. We do not insure for such loss regardless of: (a) the cause of the excluded events 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….
Castillo at 245. The Castillo court concluded that the policy unambiguously excluded loss resulting from earth movement, regardless of the cause. Id. at 246. The trial court in Fayad followed this reasoning, despite a different exclusion. Fayad v. Clarendon, 857 So.2d 293, 28 Fla. L. Weekly D2221 (Fla. 3d DCA 2003).
The Fayads appealed to the Third District Court precisely because the exclusion in their policy was materially different from the Castillo exclusion. The Third District Court agreed that the exclusion in the Fayads' policy was much narrower than the Castillo exclusion, but ruled that “under the plain language of Clarendon's exclusion, there is no coverage for the claimed losses in this case,” (Fayad v. Clarendon, 857 So.2d 295-96), and upheld the summary judgment order of the trial court.
The Fayads then appealed to the Florida Supreme Court, arguing that the Third District Court's ruling directly conflicted with a decision of the Fourth District Court of Appeals of Florida, Phoenix Insurance Co. v. Branch, 234 So.2d 396 (Fla. 4th DCA 1970). In Phoenix, plaintiffs sought coverage under their homeowner's policy after their home was damaged by nearby blasting activity. The homeowner's policy was also an all-risk policy, which stated:
This policy does not insure against loss:
(a) by wear and tear, deterioration, rust, mould, wet or dry rot; contamination, smong (sic), smoke from agricultural smudging or industrial operations; mechanical breakdown; settling, cracking, shrinkage, bulging or expansion of pavements, patios, foundations, walls, floors, roofs or ceilings…unless explosion…ensues, and this Company (Phoenix) shall then be liable only for such ensuing loss;
(b) caused by, resulting from, contributed to or aggravated by any earth movement…; unless loss by…explosion…ensues, and this company shall then be liable only for such ensuing loss….
Id. at 398. The Phoenix court acknowledged that the burden is on the insured to demonstrate that the loss falls within coverage, but concluded that “the very nature of the term ‘all risks' must be given a broad and comprehensive meaning as to the covering of any loss, other than a willful and fraudulent act of the insured.” Id. at 398. The Phoenix court stated that the burden to demonstrate that an exclusion applies is on the insurer, and stated that the insurer failed to meet this burden, without analyzing the specifics of the earth movement exclusion. “Defendant's argument . . . does not impress us.” Id. at 398.
Analysis
In resolving the conflict between Phoenix and Castillo, the Florida Supreme Court made three rulings. First, the Court ruled that there is a distinction between losses caused by man-made events and natural causes. The Court stated that there is an opportunity for subrogation recovery in a man-made event, allowing the insurer to mitigate its losses. Fayad, 2005 WL 729172 (Fla. 2005).
Second, the Court stated that where an earth movement exclusion does not contain language excluding earth movement regardless of its cause, the overwhelming majority of courts conclude that such an exclusion only applies to earth movement caused by natural causes. Id. “Absent specific language in the policy to the contrary, an earth movement exclusion is limited to damage caused by natural causes.” Id. The Court ruled that there was no specific language to the contrary in the instant case. Id.
Third, the Court resorted to the principle of ejusdem generis, meaning that where a policy lists several potential events (such as mudslide, earthquake, volcano) 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. Id.
The Court stated that the words “earth sinking, rising or shifting” at the end of the list of excluded events does not broaden coverage under the policy. Id. Instead, the Court construed those words in relation to the other events listed in the exclusion, such as earthquakes and landslides, which are natural events. Id. The Court did not address “mine subsidence” in this analysis.
Because Clarendon can seek recovery through subrogation, there was no specific language in the Clarendon policy that excluded earth movement regardless of cause, and the policy listed several natural events in its definition of “earth movement,” the Supreme Court overturned the Third District Court and found that the policy covered damage caused by blasting. The Supreme Court stated that if Clarendon intended to exclude damage from earth movement caused by man-made events, it should have done so clearly and unambiguously. Id.
Learning Point:
Under Florida law, if an insurer wants to exclude man-made earth movement events from coverage, it must expressly state that earth movement is excluded, regardless of its cause. •
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