(Article from Insurance Law Alert, June 2017)
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Addressing matters of first impression under West Virginia and Michigan law, two courts ruled that earth movement exclusions unambiguously preclude coverage for rock-related damage, whether caused by natural or man-made events.
In Erie Ins. Prop. and Cas. Co. v. Chaber, 2017 WL 2415333 (W. Va. June 1, 2017), Chaber sought property coverage from Erie for damage caused by sliding soil and rocks. Erie denied coverage based on an earth movement exclusion, which applies “regardless of whether any of the above . . . is caused by an act of nature or is otherwise caused.” However, Erie agreed to provide coverage for the replacement of broken glass pursuant to an ensuing loss exception, which provides that “if Earth Movement . . . results in fire, explosion, sprinkler leakage, volcanic action, or building glass breakage, we will pay for the ‘loss’ or damage caused by such perils.” A circuit court ruled that Erie was obligated to cover the entire loss. The court reasoned that the policy did not unambiguously exclude damage caused by man-made events and that Chaber could have reasonably expected coverage for the loss at issue. The court further found that the ensuing loss exception was ambiguous and should be construed in favor of coverage. The West Virginia Supreme Court of Appeals reversed.
The court ruled that the exclusionary phrase “caused by an act of nature or is otherwise caused” unambiguously encompasses earth movement-related losses regardless of whether caused by natural or man-made forces. In so ruling, the court noted that other jurisdictions have deemed similar language unambiguous. Having found no ambiguity, the court ruled that the lower court’s reliance on Chaber’s reasonable expectations was erroneous.
The court also rejected the lower court’s ruling as to the ensuing loss exception, explaining that while an ensuing loss provision provides “a narrow exception to the exclusion” for certain losses, it “does not revive or reinstate coverage for losses otherwise unambiguously excluded by the policy.” Thus, the court ruled that damages caused by the earth movement were not covered, but that the portion of loss caused by glass breakage was covered by the ensuing loss exception.
The Michigan Court of Appeals, in Home-Owners Ins. Co. v. Andriacchi, 2017 WL 2491886 (Mich. Ct. App. June 8, 2017), similarly upheld a denial of coverage pursuant to an earth movement exclusion. There, the exclusion applied to losses or damage caused by “any earth movement (other than sinkhole collapse), such as an earthquake, landslide or earth sinking, rising or shifting.” The policyholder argued that the exclusion was ambiguous and should be construed to apply only to earth movement caused by natural events. More specifically, the policyholder claimed that under the doctrine of ejusdem generis, the term “earth movement” was constricted by the limiting descriptions following the words “such as.” Because the exclusion identified only natural events, Andriacchi argued that the exclusion did not apply to earth movement caused by man-made activities.
The court rejected this argument, finding the exclusion unambiguous on its face. The court explained that the doctrine of ejusdem generis (or any other canon of statutory interpretation) is inapplicable where, as here, policy language is clear. The court reasoned that “any earth movement” is all-encompassing and applies to every kind of earth movement, regardless of cause. The court noted that its conclusion is further reinforced by policy language stating that any damage caused by a listed excluded act or event is “excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.” As the court noted, other jurisdictions are split as to whether similar exclusionary language is ambiguous.