Murray v. State Farm Fire and Casualty
Annotate this CaseJanuary 1998 Term
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Nos. 24759 & 24760
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ROBERT L. MURRAY and JANET L. MURRAY, his wife;
BERNIE W. REES and JULIE A. REES, his wife; and
ROBERT J. WITHROW,
Plaintiffs below, Appellees
v.
STATE FARM FIRE AND CASUALTY COMPANY,
a Foreign Corporation;
ALLSTATE INSURANCE COMPANY,
a Foreign Corporation;
Defendants below, Appellants,
and ROBERT J. HARRIS,
Defendant below, Appellee.
______________________________________________________
Appeal from the Circuit Court of Jackson County
Hon. Charles E. McCarty, Judge
Civil Action No. 94-C-50
REVERSED AND REMANDED
______________________________________________________
Submitted:
April 29, 1998
Filed: July 21, 1998
David P. Cleek,
Esq. Ted
M. Kanner, Esq.
Lou Ann S. Cassell,
Esq. The
Ted Kanner Law Office
McQueen, Harmon, Potter & Cleek,
L.C. Charleston,
West Virginia
Charleston, West
Virginia J.
Nicholas Barth, Esq.
Attorneys for Appellant State
Farm Barth,
Thompson & George
Charleston,
West Virginia
Brent K. Kesner,
Esq. Attorneys
for Appellees
Tanya M. Kesner,
Esq. Murray,
Rees and Withrow
Linda Gay, Esq.
Kesner, Kesner &
Bramble Larry
L. Skeen, Esq.
Charleston, West
Virginia Ripley,
West Virginia
Attorneys for Appellant
Allstate Attorney
for Appellee Harris
JUSTICE STARCHER delivered the Opinion of the Court.
SYLLABUS BY THE COURT
1. "Language
in an insurance policy should be given its plain, ordinary meaning." Syllabus Point
1, Soliva v. Shand, Morahan & Co., Inc., 176 W.Va. 430, 345 S.E.2d 33 (1986).
2. "Whenever
the language of an insurance policy provision is reasonably susceptible of two different
meanings or is of such doubtful meaning that reasonable minds might be uncertain or
disagree as to its meaning, it is ambiguous." Syllabus Point 1, Prete v. Merchants
Property Ins. Co. of Indiana, 159 W.Va. 508, 223 S.E.2d 441 (1976).
3. "It is well
settled law in West Virginia that ambiguous terms in insurance contracts are to be
strictly construed against the insurance company and in favor of the insured."
Syllabus Point 4, National Mut. Ins. Co. v. McMahon & Sons, Inc., 177 W.Va.
734, 356 S.E.2d 488 (1987).
4. The plain,
ordinary meaning of the word "landslide" in an insurance policy contemplates a
sliding down of a mass of soil or rock on or from a steep slope.
5. The plain,
ordinary meaning of the word "erosion" in an insurance policy contemplates a
natural process that includes weathering, dissolution, abrasion, corrosion and
transportation whereby material is removed from the earth's surface.
6. "An
insurance company seeking to avoid liability through the operation of an exclusion has the
burden of proving the facts necessary to the operation of that exclusion." Syllabus
Point 7, National Mut. Ins. Co. v. McMahon & Sons, Inc., 177 W.Va. 734, 356 S.E.2d 488 (1987).
7. When an earth
movement exclusion in an insurance policy contains terms not otherwise defined in the
policy, and the terms of the exclusion relate to natural events (such as earthquakes or
volcanic eruptions), which events, in some instances, may also be attributed to a
combination of natural and man-made causes (such as landslides, subsidence or erosion),
the terms of the exclusion must be read together and limited to exclude
naturally-occurring events rather than man-made events.
8. When examining
whether coverage exists for a loss under a first-party insurance policy when the loss is
caused by a combination of covered and specifically excluded risks, the loss is covered by
the policy if the covered risk was the efficient proximate cause of the loss. No coverage
exists for a loss if the covered risk was only a remote cause of the loss, or conversely,
if the excluded risk was the efficient proximate cause of the loss. The efficient
proximate cause is the risk that sets others in motion. It is not necessarily the last act
in a chain of events, nor is it the triggering cause. The efficient proximate cause
doctrine looks to the quality of the links in the chain of causation. The efficient
proximate cause is the predominating cause of the loss.
9. "With
respect to insurance contracts, the doctrine of reasonable expectations is that the
objectively reasonable expectations of applicants and intended beneficiaries regarding the
terms of insurance contracts will be honored even though
painstaking study of the policy provisions would have negated those
expectations." Syllabus Point 8, National Mut. Ins. Co. v. McMahon & Sons,
Inc., 177 W.Va. 734, 356 S.E.2d 488 (1987).
10. An insurance
policy provision providing coverage for a "sudden and accidental loss" or an
"accidental direct physical loss" to insured property requires only that the
property be damaged, not destroyed. Losses covered by the policy, including those
rendering the insured property unusable or uninhabitable, may exist in the absence of
structural damage to the insured property.
Starcher, Justice:
The appellants and defendants below, State
Farm Fire and Casualty Company ("State Farm") and Allstate Insurance Company
("Allstate"), appeal an order of the Circuit Court of Jackson County granting
summary judgment to several homeowners in a dispute concerning policy exclusions in two
homeowners' insurance policies. The policyholders' homes were damaged by rocks falling
from the highwall of a 40-year old abandoned rock quarry situated next to the homes. The
policyholders' insurance carriers denied coverage, claiming that the applicable insurance
policies excluded losses caused by "landslides" and "erosion." The
circuit court concluded that the policies did not exclude from coverage losses caused by
"rockfalls" and "weathering," and that the plaintiffs' losses were the
result of those events. The circuit court held that the plaintiffs were entitled to
coverage under the policies.
After reviewing the record, we conclude
that questions of material fact exist concerning whether coverage exists under both
policies. We reverse the circuit court's order granting summary judgment and remand the
case for trial.
I.
Factual Background
The plaintiff-appellees in
this case -- Robert and Janet Murray, Bernie and Julie Rees, and Robert Withrow -- are the
owners of three adjacent properties on Spring Street in Ripley, West Virginia. The
plaintiffs' homes were constructed on their properties in the 1970's. Immediately adjacent
to the rear of the three houses is a man-made highwall standing nearly 50 feet high. This
vertical highwall is the result of quarrying operations conducted in the 1950's. The
highwall is allegedly located on property owned by defendant- appellee Robert B. Harris.
On February 22, 1994, several large
boulders and rocks fell off the highwall and onto the houses owned by plaintiffs Murray
and Withrow, causing extensive damage. The house owned by plaintiffs Mr. and Mrs. Rees was
not damaged by rocks. However, firemen compelled all three families to leave their homes
because of the possibility that additional rocks could fall, and turned off all
electricity and water. An engineer who examined the highwall several days later concluded
that further rockfalls would "continue to occur, some with potentially disastrous
results."See footnote 1 1 None
of the three families has lived in their homes since February 22, 1994.See footnote 2 2
Several engineers and geologists examined the property and highwall in the following weeks. Each gave, to some extent, an opinion that what occurred on Spring Street was primarily a "rockfall" and not a "landslide," because no "sliding" was involved: a layer of shale supporting a layer of sandstone "weathered," removing support for the sandstone, and sandstone blocks broke loose and dropped onto the plaintiffs' homes.See footnote 3 3 One expert said that he thought of a rockfall as "almost a vertical displacement free-falling through the air off of a cliff, a highwall, an escarpment." However, several of the experts conceded that rock falls are considered to be a type of landslide, and are accepted as a sub-category of a landslide; and they further agreed that erosion contributed to the moving of the rocks in the instant case.
Furthermore, there is
evidence in the record that negligent construction of the highwall behind the plaintiffs'
residences, namely the cutting of the rock face at a near vertical angle, contributed to
the rockfall. Expert George A. Hall indicated that "the design of the cut-slope on
Spring Street did not meet standards which you would reasonably and normally expect for
civil engineering purposes of designing cut-slopes." He also said that had proper
civil engineering techniques been used when the highwall was created, the danger of a fall
like the one that occurred would not be present.
Plaintiffs Murray and Rees filed claims
for the losses to their homes with their homeowner's insurance carrier, defendant State
Farm. Plaintiff Withrow filed a similar claim with his insurance carrier, defendant
Allstate. Insurance agents notified the plaintiffs that State Farm and Allstate would not
cover the losses, citing to numerous policy provisions and exclusions, including an
exclusion for losses caused by landslide or erosion.
The plaintiffs then filed the instant
lawsuit against defendants Allstate and State Farm alleging breach of contract and bad
faith. The plaintiffs also sued defendant Harris for nuisance, trespass, and failing to
protect the plaintiffs' property from the "dangerous, artificial manmade condition
existing on the defendant's property[.]" Defendant State Farm filed a counterclaim
against the plaintiffs seeking a declaratory judgment regarding State Farm's obligations
under its policies.
The plaintiffs and defendants State Farm
and Allstate filed motions for summary judgment concerning coverage under the disputed
insurance policies. Through a letter ruling on January 3, 1997 and a subsequent order on
March 17, 1997, the circuit court granted summary judgment to the plaintiffs. The circuit
court held that the rockfall "is a loss covered under the plaintiffs' respective
insurance policies." The court also held that whether the plaintiffs' damages were
caused by a rockfall, and the extent of those damages, were issues to be determined by a
jury.
State Farm and Allstate now appeal the
circuit court's order.
II.
Standard of Review
This appeal arises from
the circuit court's granting of partial summary judgment to the plaintiff. Our review is de
novo. Syllabus Point 1, Painter v. Peavy, 192 W.Va. 189, 451 S.E.2d 755 (1994).
In reviewing summary judgment, this Court will apply the same test that the circuit court
should have used initially, and must determine whether "it is clear that there is no
genuine issue of fact to be tried and inquiry concerning the facts is not desirable to
clarify the application of the law." Syllabus Point 3, Aetna Casualty & Surety
Co. v. Federal Insurance Co. of New York, 148 W.Va. 160, 133 S.E.2d 770 (1963). In
this case we are primarily asked to review the circuit court's interpretation of an
insurance contract. In Payne v. Weston, 195 W.Va. 502, 506-7, 466 S.E.2d 161,
165-66 (1995), we discussed the applicable standard of review in such cases, stating that
"[t]he interpretation of an insurance contract, including the question of whether the
contract is ambiguous, is a legal determination which, like the court's summary judgment,
is reviewed de novo on appeal." "Determination of the proper coverage
of an insurance contract when the facts are not in dispute is a question of law." Pacific
Indemnity Co. v. Linn, 766 F.2d 754, 760 (3d Cir. 1985).
When a court interprets an insurance
policy, the "[l]anguage in an insurance policy should be given its plain, ordinary
meaning." Syllabus Point 1, Soliva v. Shand, Morahan & Co., Inc., 176
W.Va. 430, 345 S.E.2d 33 (1986). "Where the provisions of an insurance policy
contract are clear and unambiguous they are not subject to judicial construction or
interpretation, but full effect will be given to the plain meaning intended."
Syllabus, Keffer v. Prudential Ins. Co. of America, 153 W.Va. 813, 172 S.E.2d 714
(1970).
However, "[w]henever the language of
an insurance policy provision is reasonably susceptible of two different meanings or is of
such doubtful meaning that reasonable minds might be uncertain or disagree as to its
meaning, it is ambiguous." Syllabus Point 1, Prete v. Merchants Property Ins. Co.
of Indiana, 159 W.Va. 508, 223 S.E.2d 441 (1976). "It is well settled law in
West Virginia that ambiguous terms in insurance contracts are to be strictly construed
against the insurance company and in favor of the insured." Syllabus Point 4, National
Mut. Ins. Co. v. McMahon & Sons, Inc., 177 W.Va. 734, 356 S.E.2d 488 (1987).
With these principles in mind, we
undertake a plenary review of the disputed policy language to determine whether the
plaintiffs' homeowners' policies from defendants Allstate and State Farm provide coverage
in the factual situation presented.
III.
Discussion
Defendants Allstate and
State Farm provided the plaintiffs with "all-risk" homeowner's insurance
policies.See footnote 4 4 Under an
all-risk policy, recovery is allowed for all losses arising from any fortuitous cause,
unless the policy contains an express provision excluding the loss from coverage. Essex
House v. St. Paul Fire & Marine Ins. Co., 404 F. Supp. 978, 987 (S.D. Ohio 1975). See
generally, J. Draper, Coverage Under All-Risk Insurance, 30 A.L.R.5th 170
(1995).
Both Allstate and State Farm contend that
the losses suffered by the plaintiffs are barred from coverage by express policy
provisions excluding losses resulting from "earth movement, including but not limited
to . . . landslide . . . [or] erosion[.]"
The defendants challenge the circuit
court's order on four grounds. First, both defendants challenge the circuit court's
summary judgment order finding that coverage existed under the policies because the
plaintiffs' losses were the result of a "rockfall" caused by
"weathering," and not excluded by policy provisions regarding
"landslide" and "erosion." Second, both defendants argue that the
earth movement exclusions are clear and unambiguous, and should therefore not be construed
but instead applied to exclude coverage for the plaintiffs. Third, defendant State Farm
argues that even if the earth movement exclusion could be construed as ambiguous, an
extensive "lead-in" clause in its policy clarifies any ambiguity and excludes
any coverage as to plaintiffs Murray and Rees. Lastly, both defendants argue that the
plaintiffs cannot recover for the total loss of their homes due to the potential for a
future rockfall, but can only recover for the actual physical damage sustained.
We address these arguments in turn.
A.
The Circuit Court's Summary Judgment Order
We first address the circuit court's
order. While the circuit court's letter ruling and subsequent order are less than
perfectly clear, it appears that the circuit court concluded that the boulders that
damaged the plaintiffs' homes arose from a "rockfall" rather than a
"landslide." Based in part upon the expert testimony in the record, the circuit
court construed the policy language strictly against the insurance carriers and found that
"the language therein did not include or contemplate a rockfall[.]" The circuit
court further referred to expert testimony, apparently to hold that the rockfall was the
result of "weathering" as opposed to "erosion," and that the
plaintiffs were therefore covered under their homeowners' policies.
Defendants Allstate and State Farm first
contend that the circuit court erred in finding that a "rockfall" is not
included within the definition of "landslide." The defendants cite to Dupps
v. Travelers Ins. Co., 80 F.3d 312 (8th Cir. 1996), where the court, addressing a
landslide triggered by a sinkhole, stated that "[t]he ordinary meaning of the term
'landslide' includes rocks falling down a bluff. . . . [T]he only reasonable
interpretation of the policy prohibits recovery for rocks which have fallen. . . ."
80 F.3d at 314. Similarly, the court in Syllabus Point 4 of Olmstead v. Lumberman's
Mut. Ins. Co., 22 Ohio St.2d 212, 259 N.E.2d 123 (1970) concluded that "[t]he
common ordinary meaning of the word 'landslide' is a sliding down of a mass of soil or
rock on a steep slope."
We agree with the defendants that the
circuit court erred. We hold that the plain, ordinary meaning of the word
"landslide" in an insurance policy contemplates a sliding down of a mass of soil
or rock on or from a steep slope. See generally, 13A G. Couch, Couch on
Insurance 2d 48:180 (1982) ("What Constitutes a Landslide").
Allstate and State Farm also argue that
the circuit court erred in concluding that "weathering" is different from
"erosion," and therefore any loss resulting from weathering is not excluded from
coverage. The Dictionary of Geological Terms defines "erosion" as
"the group of processes whereby earth or rock material is loosened or dissolved and
removed from any part of the earth's surface," specifying that it includes the
processes of "weathering, solution, corrosion and transportation." The American
Heritage Dictionary also includes within its definition of erosion the "natural
processes, including weathering, dissolution, abrasion, corrosion and transportation, by
which material is removed from the earth's surface."
We again agree that the
circuit court erred. We hold that the plain, ordinary meaning of the word
"erosion" in an insurance policy contemplates a natural process that includes
weathering, dissolution, abrasion, corrosion and transportation whereby material is
removed from the earth's surface.
Applying these definitions to the circuit
court's order, it is clear that the circuit court's granting of partial summary judgment
to the plaintiffs was incorrect. A naturally- occurring "rockfall" is included
within the common definition of "landslide," and the process of
"weathering" to rock is included as a component of the natural process of
erosion. We further hold that the circuit court erred in finding that as a matter of law
coverage existed under the policies by applying these definitions. However, as discussed
below substantial questions of fact remain to be resolved concerning the existence of
coverage.
B.
Earth Movement Exclusion
Both insurance policies in
this case contain exclusions for "earth movement." The policy issued by Allstate
excludes coverage for any loss resulting from:
2. Earth movement, including, but not
limited to, earthquake, volcanic eruption, landslide, subsidence, mud flow, sinkhole,
erosion, or the sinking, rising, shifting, expanding, bulging, cracking, settling or
contracting of the earth. This exclusion applies whether or not the earth movement is
combined with water.
Similarly, the policy issued by State Farm excludes coverage for losses
resulting from:
b. Earth Movement, meaning
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.
When a policyholder shows
that a loss occurred while an insurance policy was in force, but the insurance company
seeks to avoid liability through the operation of an exclusion, the insurance company has
the burden of proving the exclusion applies to the facts in the case. Syllabus Point 7, National
Mut. Ins. Co. v. McMahon & Sons, Inc., 177 W.Va. 734, 356 S.E.2d 488 (1987).
"Where the policy language involved is exclusionary, it will be strictly construed
against the insurer in order that the purpose of providing indemnity not be
defeated." Syllabus Point 5, Id.
Both of the earth movement exclusions in
this case refer to "earth movement" including, but not limited to
"earthquake," "volcanic eruption," "landslide,"
"subsidence," "mud flow," "sinkhole," "erosion,"
"sinking," "shifting," or "settling." None of these terms is
further defined in the insurance policies. The defendant insurance companies argue that
the facts in this case show that the rocks and earthen debris that fell on the plaintiffs'
homes constitute a "landslide" caused by "erosion," an event within
the earth movement exclusions.
The plaintiffs, however, argue that the
facts show the damage to their homes was caused by the negligent creation of the highwall
in the 1950's and its negligent maintenance by defendant Harris today, two events that
would be covered by the policies.
On the one hand, the exclusions cited in
the defendants' policies could bar coverage for solely natural events such as
earthquakes, volcanic eruptions, and sinkholes.
On the other hand, the same exclusions refer to events which could be man-made,
such as subsidence or earth movement caused by equipment or a broken water line. Or, as
alleged in this case, earth movement could be caused by both man and nature over a
period of time, such as landslides, mudflows, or the earth sinking, shifting, or settling.
Because the policy language is reasonably susceptible to different meanings, we believe
that the earth movement exclusions in the insurance policies at issue are ambiguous, and
must have a more limited meaning than that assigned to it by the defendants.
The majority of courts that have
considered earth movement exclusions have found them to be ambiguous.See footnote 5 5 Having found the clause to be ambiguous,
courts have used two methods of policy construction to examine whether coverage exists or
is excluded under the earth movement exclusion.
First, courts have applied two doctrines
of construction, ejusdem generis and noscitur a sociis, to limit the
application of the earth movement exclusion to natural, catastrophic events, rather than
man-made events.
Second, courts have examined the
particular causes of the loss presented by the policyholder, and although an excluded
event (such as earth movement) may have been a concurring or contributing cause of a loss,
courts have allowed policyholders to recover under an insurance policy if the proximate
cause of the loss was an event insured by the policy.
We believe that both approaches are
applicable in this case.See footnote 6 6
We therefore examine exclusions in the instant case using the same two approaches.
First, having determined that the earth
movement exclusions at issue in this case are ambiguous, we apply the construction
principles of ejusdem generis and noscitur a sociis. Under the doctrine of ejusdem
generis, "[w]here general words are used in a contract after specific terms, the
general words will be limited in their meaning or restricted to things of like kind and
nature with those specified." Syllabus Point 4, Jones v. Island Creek Coal Co.,
79 W.Va. 532, 91 S.E. 391 (1917). The phrase noscitur a sociis literally means
"it is known from its associates," and the doctrine implies that the meaning of
a general word is or may be known from the meaning of accompanying specific words. See
Syllabus Point 4, Wolfe v. Forbes, 159 W.Va. 34, 217 S.E.2d 899 (1975). The
doctrines are similar in nature, and their application holds that in an ambiguous phrase
mixing general words with specific words, the general words are not construed broadly but
are restricted to a sense analogous to the specific words.
In the seminal case of Wyatt v.
Northwestern Mutual Ins. Co. of Seattle, 304 F. Supp. 781 (D.Minn. 1969), the district
court considered a summary judgment motion where an insurance company sought, through the
operation of an earth movement exclusion, to avoid liability for losses caused by the
negligence of a contractor excavating land adjacent to the policyholder's home. While
holding that the exclusionary language was intended to remove from coverage losses
resulting from natural causes and natural phenomena, such as earthquakes, the court
concluded that questions of fact remained as to whether the movement of earth that damaged
the policyholder's house was caused by the actions of third parties. The court reasoned
that the earth movement exclusion was created by insurance companies
. . . to relieve the insurer from
occasional major disasters which are almost impossible to predict and thus to insure
against. There are earthquakes or floods which cause a major catastrophe and wreak damage
to everyone in a large area rather than one individual policyholder. When such happens,
the very basis upon which insurance companies operate is said to be destroyed. When damage
is so widespread no longer can insurance companies spread the risk and offset a few or the
average percentage of losses by many premiums. Looking at the special exclusionary clause
in the policy here in question, it seems to cover situations where one single event could
adversely affect a large number of policyholders. . . . All of these are phenomena likely
to affect great numbers of people when they occur.
This gives some force to the view that
the various exclusions were not intended to cover the situation as here where "earth
movement" occurred under a single dwelling, allegedly due to human action of third
persons in the immediate vicinity of the damage.
304 F. Supp. at 783. We believe that similar reasoning underlies the
exclusions in this case.
Examining the exclusionary terms used by
Allstate and State Farm in their context, and applying the rule that ambiguities must be
resolved in favor of the insured, we conclude that both earth movement exclusions must be
read to refer only to phenomena resulting from natural, rather than man-made, forces.
Therefore, when an earth movement
exclusion in an insurance policy contains terms not otherwise defined in the policy, and
the terms of the exclusion relate to natural events (such as earthquakes or volcanic
eruptions), which events, in some instances, may also be attributed to a combination of
natural and man-made causes (such as landslides, subsidence or erosion), the terms of the
exclusion must be read together and limited to exclude naturally-occurring events rather
than man-made events.
The second approach consistently taken by
courts in construing insurance policies is that for coverage to exist under an insurance
policy, policyholders are required to prove that the efficient proximate cause of the loss
was an insured risk.See footnote 7 7 For
example, in Huntington, Ashland & Big Sandy Transportation Co. v. Western Assur.
Co. of Toronto,
Ont., 61 W.Va. 324, 57 S.E. 140 (1907), an insurance policy on the
policyholder's steamboat excluded coverage for "loss, damage or expense resulting
from stranding or grounding, unless caused by stress of weather." The evidence
suggested that heavy, gusting winds caused the steamboat to run aground. This Court held
that high wind was a "stress of weather," and whether wind was a proximate cause
of the loss was a question of fact for the jury. 61 W.Va. at 325-26, 57 S.E. at 140. The
Court sustained a jury verdict for the policyholder.
Another example is LaBris v. Western
National Ins. Co., 133 W.Va. 731, 59 S.E.2d 236 (1950), where a policyholder sought to
recover for the collapse of the roof of a tire repair shop under a policy insuring against
"direct loss by windstorm." We stated that in order for a policyholder to
recover under such a policy, "wind must be an efficient cause of the loss, and the
qualifying word 'direct' in referring to the cause of the loss means 'proximate or
immediate.'" 133 W.Va. at 739, 59 S.E.2d at 240. We stated in Syllabus Point 2 that
"it must be established by a preponderance of the evidence that a windstorm of itself
was sufficient to, and did cause the alleged damage to the property insured, though there
may be other contributing causes." We concluded that there was no coverage for the
policyholder because the evidence showed that the roof collapse was caused by water
accumulating on the roof, and not wind. In accord, Lewis v. St. Paul Fire &
Marine Ins. Co., 155 W.Va. 178, 182 S.E.2d 44 (1971) (no coverage because policyholder
failed to prove damage to building was a "direct loss by windstorm").
The scope of coverage under an all-risk homeowner's policy includes all risks except those risks specifically excluded by the policy. A majority of jurisdictions use the "efficient proximate cause" doctrineSee footnote 8 8 in adjudicating coverage issues for all-risk insurance policies, where both a covered and a non-covered peril contribute to a loss.See footnote 9 9 When a loss is caused by a combination of covered and specifically excluded risks, the loss is covered if the covered risk was the proximate cause of the loss. Two leading treatises support this position. According to Couch on Insurance:
In determining cause of
loss for purposes of fixing insurance liability, if there is evidence of concurrent causes
for the damage, the "proximate cause" to which the loss is to be attributed is
the dominant, efficient one that sets the other causes in operation; causes which are
incidental are not proximate, even though they may be nearer the loss in both time and
place. Where it is said that the cause to be sought is the direct and proximate cause, it
is not meant that the cause or agency which is nearest in point of time or place to the
result is necessarily to be chosen, since there may be a dominant cause even though
concurrent or remote in point of time or place.
L. Russ, 7 Couch on Insurance 3d § 101:44 (1997). Similarly,
Professor Appleman's treatise states that "where the insured risk was the last step
in the chain of causation set in motion by an uninsured peril, or where the insured risk
itself set into operation a chain of causation in which the last step may have been an
excepted risk," recovery may be allowed. J. Appleman, 5 Insurance Law and Practice
§ 3083 (1969).See footnote 10 10
We hold that, when examining whether
coverage exists for a loss under a first- party insurance policy when the loss is caused
by a combination of covered and specifically excluded risks, the loss is covered if the
covered risk was the efficient proximate cause of the loss. No coverage exists for a loss
if the covered risk was only a remote cause of the loss, or conversely, if the excluded
risk was the efficient proximate cause of the loss. The efficient proximate cause is the
risk that sets others in motion. It is not necessarily the last act in a chain of events,
nor is it the triggering cause. The efficient proximate cause doctrine looks to the
quality of the links in the chain of causation. The efficient proximate cause is the
predominating cause of the loss.See footnote 11 11
One more point is made clear by courts
considering the problem of concurrent risks: the question of which event was the efficient
proximate cause of the loss is generally a question of fact. State Farm Fire & Cas.
Co. v. Von Der Lieth, 54 Cal. 3d 1123, 1131, 2 Cal. Rptr. 2d 183, 188-89, 820 P.2d 285,
290-91 (1991).
After reviewing the record, we conclude
that substantial questions of material fact remain for jury resolution. The earth movement
exclusions apply to exclude naturally occurring risks. The plaintiffs argue that the
evidence currently in the record suggests that the rocks fell from the quarry highwall due
to its negligent vertical construction in the 1950's, and its negligent maintenance by the
current owner. These risks facially appear to be covered by the language in both policies.
Conversely, the defendants argue that the plaintiffs' losses are the result of the
excluded event of a landslide caused by another excluded event, erosion. We believe that
whichever of these events was the efficient proximate cause of the plaintiffs' losses is a
question for the finder of fact.
C.
State Farm's Lead-In Clause
State Farm contends in its
reply brief that a "lead-in" clause in the "Losses Not Insured"
section of its policy precludes coverage to plaintiffs Murray and Rees, and excludes
coverage for all forms of earth movement, regardless of whether resulting from natural or
man-made causes. The State Farm lead-in clause states:
SECTION I -- LOSSES NOT INSURED
* * *
2. 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 excluded events. 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:
The policy then goes on to list numerous occurrences that are excluded, including the previously discussed "earth movement."
State Farm uses unique
language in the "Losses Not Insured" section of its policy (which includes the
earth movement exclusion), language not employed by other insurance companies in standard
all-risk insurance policies. As one court recently recognized in construing an earth
movement exclusion,
. . . State Farm adopted language peculiar
to itself, and one of plaintiffs' [insurance] experts describes State Farm as a
"deviated company" which employs its own language and is "known in the
industry as ones who try to push earth movement as broadly as they can."
Winters v. Charter Oak Fire Ins. Co., ___ F.Supp. ___, ___ 1998 WL
240317 (D.N.M. 1998).
The court in Cox v. State Farm Fire
& Cas. Co., 217 Ga.App. 796, 459 S.E.2d 446 (1995) considered State Farm policy
language nearly identical to that at hand and held the lead-in clause to be ambiguous. The
policyholders in Cox alleged that their home had been damaged by vibrations from
explosions, and that explosions were a covered peril under their homeowner's policy. As in
this case, State Farm in that case denied coverage under the earth movement exclusion, and
argued that man-made earth movement was excluded by the lead-in clause which expanded the
exclusion to cover "natural or external forces." The court stated that:
Because "external" is not
defined in the policy, we must give the word its usual and common meaning. As we have
found no definition of the word that means anything other than apart, beyond, exterior or
connected to the outside (see Webster's Third New International Dictionary), we cannot
define the word to include a concept of non-natural or man-made forces as State Farm would
have us do. Therefore, we must interpret this provision as excluding coverage arising from
natural forces from beyond or outside the property.
217 Ga.App. at 797, 459 S.E.2d at 448 (citation omitted).
We believe a similar analysis applies
here. The policy language at issue in this case does not define the term
"external," and we must therefore give the word its "plain, ordinary
meaning." We can find no definition for "external"
that means anything other than outside, apart, or beyond, and we cannot define the word to
include man-made forces as State Farm would have us do. As with the court in Cox,
we interpret the provision as excluding from coverage natural risks arising from beyond or
outside the property.
State Farm also argues that its lead-in
clause operates to defeat the efficient proximate cause doctrine, and argues that if earth
movement in any way contributes to a loss, regardless of the proximate cause, then under
the lead-in clause the entire loss is excluded from coverage under the all-risk policy.
The plaintiffs, however, argue that such a construction reaches a result contrary to the
reasonable expectations of policyholders. We agree with the plaintiffs' argument.
"With respect to insurance contracts,
the doctrine of reasonable expectations is that the objectively reasonable expectations of
applicants and intended beneficiaries regarding the terms of insurance contracts will be
honored even though painstaking study of the policy provisions would have negated those
expectations." Syllabus Point 8, National Mut. Ins. Co. v. McMahon & Sons,
Inc., 177 W.Va. 734, 356 S.E.2d 488 (1987).See
footnote 12 12
As in the instant case, where third-party
negligence is alleged to be the proximate cause of a loss, we believe a policyholder could
reasonably expect to be covered under State Farm's policy. Only through a painstaking
review of the lengthy "Losses Not Included" section would a policyholder
discover the language suggesting that, because the negligence occurred in conjunction with
an excluded event, the loss would not be covered. "Insureds with all-risks insurance
likely have heightened expectations because of the comprehensive nature of the coverage
and the greater premium rates. These expectations would not often be given effect if
recovery was denied whenever an exception or exclusion contributed to the loss." R.
Fierce, Insurance Law--Concurrent Causation: Examination of Alternative Approaches,
1985 S.Ill.U.L.J. 527, 544 (1986).
An example of the overbreadth of State
Farm's position was suggested by the court in Wyatt v. Northwestern Mut. Ins. Co. of
Seattle, 304 F. Supp. at 783, which stated:
It seems hard to contend that the
insurance policy meant to exclude all earth movements, for it is difficult to distinguish
between a situation where a piece of heavy equipment breaks loose and hits a house causing
serious damage and a situation where that equipment instead hits only an embankment next
to a house but causes the earth to move and thereby damages the house. Certainly not all
earth movements, or at least those where some human action causes such are included in the
exclusion.
However, applying State Farm's interpretation of its policy to the fact
pattern proffered by the court in Wyatt, there would be no coverage. We believe
such an interpretation clearly goes against the reasonable expectations of the parties.
We agree with the court's statement in Howell
v. State Farm Fire & Cas. Co., 218 Cal. App. 3d 1446, 267 Cal. Rptr. 708 (1st Dist.
1990), that:
Indeed, if we were to give full effect to
the State Farm policy language excluding coverage whenever an excluded peril is a
contributing or aggravating factor in the loss, we would be giving insurance companies
carte blanche to deny coverage in nearly all cases. A similar point was made by the
Supreme Court in Garvey [v. State Farm Fire & Cas. Co., 48 Cal. 3d 395,
408, 257 Cal. Rptr. 292, 299, 770 P.2d 704, 711]. There, the court noted that the insured
cannot be permitted to claim coverage merely because an included peril is a contributing
cause of a loss. The court reasoned that since "[i]n most instances, the insured can
point to some arguably covered contributing factor" such a rule would transform an
"'all-risk'" policy into an "'all-loss'" policy, and would make the
insurer liable in almost every case.
The present case presents the inverse
situation. Here, the State Farm policies would deny coverage whenever an excluded
peril is a contributing factor to the loss. Since, in most instances, an insurer can point
to some arguably excluded contributing factor, this rule would effectively transform an
"all-risk" policy into a "no-risk" policy.
218 Cal. App. 3d at 1456-57 n. 6, 267 Cal. Rptr. at 715 n.6 (citation omitted).
A statement in a concurring opinion to Howell makes clear how State Farm's interpretation of the lead-in clause goes against the reasonable expectations of policyholders. Justice Barry-Deal stated that "[n]o reasonable person would pay for insurance against some future peril if it were possible for the insurer to avoid liability by discovering an excluded peril somewhere in the chain of causation. . . . [W]here an insurer chooses to insure against the direct and proximate results of a certain peril, it may not rely on the concurrence of an excluded cause to deny coverage." 218 Cal. App. 3d at 1476, 267 Cal. Rptr. at 728-29.See footnote 13 13
Our examination of the State Farm lead-in clause leads us to a similar conclusion. As indicated previously, when an insurance carrier chooses to insure against a loss proximately caused by a particular peril, it may not rely on the mere concurrence of an excluded peril to deny coverage. The excluded peril must itself be the efficient proximate cause of the loss. Because State Farm's lead-in clause conflicts with the reasonable expectations of the parties, it should be construed to allow coverage for losses proximately caused by a covered risk, and deny coverage only when an excepted risk is the efficient proximate cause of the loss.See footnote 14 14
D.
Whether the Plaintiffs Suffered a "Direct Physical Loss" To Their Property
As indicated previously,
the Allstate policy provides coverage for any "sudden and accidental loss to the
property," while the State Farm policy "insure[s] for accidental direct physical
loss to the property[.]" Defendants Allstate and State Farm do not dispute the fact
that the plaintiffs' losses were "sudden" and "accidental." Instead,
the defendants argue that as a matter of law the insurance carriers cannot be held
responsible for the total loss of the plaintiffs' property. The defendants essentially
contend that while their policies might cover the actual physical damage to the Murray and
Withrow homes, the policies do not cover any losses occasioned by the potential damage
that could be caused by future rockfalls.
The appellants cite us to only one case in
support of their argument, Hoffman v. State Farm Fire & Cas. Co., 16 Cal. App. 4th 184, 19 Cal. Rptr. 2d 809 (2d. Dist. 1993), and we believe that case is
factually and legally inapplicable here.
In Hoffman, the court held that
policyholders were not entitled to recover under an all-risk homeowner's policy when the
damage became apparent over a year after the policyholders sold their home,
canceled the policy and moved out. The policyholders contended that, a year after they
moved out of their home, they discovered an entire region surrounding their former home
was subjected to a massive, slow-moving landslide, and that their former home suffered
some structural damage. The policyholders contended that they were entitled to recover for
the damage to their former home, and to recover for the "just discovered"
diminished market value of the property when it was sold. The court stated, in dicta,
that "[d]imunition in market value is not a covered peril. In fact, insuring land
values is illegal in California, and doing so is a felony misdemeanor." 16 Cal. App. 4th at 190, 19 Cal. Rptr. 2d at 812 (citations omitted).
Hoffman fails to mention four other
California cases where the courts held policyholders could recover for losses to
their homes other than tangible physical damage caused by landslides. See Strickland
v. Federal Ins. Co., 200 Cal. App. 3d 792, 246 Cal. Rptr. 345 (2d. Dist. 1988); Snapp
v. State Farm Fire & Cas. Co., 206 Cal. App. 2d 827, 24 Cal.Rptr.
44 (2d Dist. 1962); Hughes v. Potomac Ins. Co., 199 Cal. App. 2d 239,
18 Cal. Rptr. 650 (1st Dist. 1962); and Pfeiffer v. General Ins. Co., 185 F. Supp. 605 (N.D.Cal. 1960). In each case, the cosmetic damage to the policyholders' homes was
relatively minor, while the cost of making the home inhabitable usually exceeded the
policy limits. In each case, the insurance company refused coverage, and in each case the
court held the insurance company liable for the total cost of making the property
liveable.
For instance, in Hughes, supra,
the policyholders awoke one morning to discover 30 feet of their backyard had washed into
a creek, leaving their home standing on the edge of a newly-formed 30-foot cliff. The
landslide deprived the house of subjacent and lateral support essential to the stability
of the house. An insurance adjuster concluded that the house sustained only $50.00 in
damage, but that the cost of a retaining wall and fill to support the dwelling was
$19,000.00. The insurance carrier denied coverage contending its policy only insured the
physical damage to the dwelling. The court rejected this argument and found the appellant
insurance carrier liable for the entire loss to the use of the property. The court stated:
To accept appellant's interpretation of
its policy would be to conclude that a building which has been overturned or which has
been placed in such a position as to overhang a steep cliff has not been
"damaged" so long as its paint remains intact and its walls still adhere to one
another. Despite the fact that a "dwelling building" might be rendered
completely useless to its owners, appellant would deny that any loss or damage had
occurred unless some tangible injury to the physical structure itself could be detected.
Common sense requires that a policy should not be so interpreted in the absence of a
provision specifically limiting coverage in this manner. Respondents correctly point out
that a "dwelling" or "dwelling building" connotes a place fit for
occupancy, a safe place in which to dwell or live. It goes without question that
respondents' "dwelling building" suffered real and severe damage when the soil
beneath it slid away and left it overhanging a 30-foot cliff. Until such damage was
repaired and the land beneath the building stabilized, the structure could scarcely be
considered a "dwelling building" in the sense that rational persons would be
content to reside there.
199 Cal. App. 2d at 248-49, 18 Cal. Rptr. at 655.
We believe similar reasoning is applicable
to the case at hand. The policies in question provide coverage against "sudden and
accidental loss" and "accidental direct physical loss" to property.
"'Direct physical loss' provisions require only that a covered property be injured,
not destroyed. Direct physical loss also may exist in the absence of structural damage to
the insured property." Sentinel Management Co. v. New Hampshire Ins. Co., 563 N.W.2d 296, 300 (Minn.App. 1997) (citations omitted).
The properties insured by Allstate and
State Farm in this case were homes, buildings normally thought of as a safe place in which
to dwell or live. It seems undisputed from the record that on February 22, 1994 all three
of the plaintiffs' homes became unsafe for habitation, and therefore suffered real damage
when it became clear that rocks and boulders could come crashing down at any time. The
record suggests that until the highwall on defendant Harris' property is stabilized, the
plaintiffs' houses could scarcely be considered "homes" in the sense that
rational persons would be content to reside there.See
footnote 15 15
We therefore hold that an insurance policy
provision providing coverage for a "sudden and accidental loss" or an
"accidental direct physical loss" to insured property requires only that the
property be damaged, not destroyed. Losses covered by the policy, including those
rendering the insured property unusable or uninhabitable, may exist in the absence of
structural damage to the insured property.
IV.
Conclusion
We reverse the circuit court's summary
judgment ruling that found as a matter of law that coverage existed under the Allstate and
State Farm policies. Because we find substantial questions of material fact in the record
concerning the existence of coverage, we remand the case for further proceedings to
determine whether the plaintiffs sustained a loss, and whether that loss was proximately
caused by the covered risk of third-party negligence, or proximately caused by the
excluded natural events of a landslide or erosion.
Reversed and remanded.
Appendix A
Cases Construing Earth Movement Exclusions
A. Jurisdictions holding that earth movement exclusions are ambiguous, and limited in application only to naturally-occurring catastrophic events include: Winters v. Charter Oak Fire Ins. Co., ___ F.Supp. ___, 1998 WL 240317 (D.N.M. 1998) (water line broke in policyholder's clubhouse, causing soil beneath clubhouse to shift and damaging building; court held that coverage could exist because earth movement exclusion applied only to naturally-occurring earthquake-type phenomena; any earth movement in this case was caused by a man-made source, that is, a water line); Cox v. State Farm Fire & Cas. Co., 217 Ga.App. 796, 459 S.E.2d 446 (1995) (policyholder's home damaged by vibrations from explosions; insurance company denied coverage citing earth movement exclusion; court found policy ambiguous, applied principle of ejusdem generis and found exclusion limited to earth movement from natural causes; man-made forces such as explosions were covered under the policy); Boston Company Real Estate Counsel, Inc. v. Home Ins. Co., Inc., 887 F. Supp. 369 (D.Mass. 1995) (before constructing office building, engineers reported soil was unsuitable and would not support building; contractor continued to construct building, and building settled at a rate "exceeding expectations;" court held meaning of earth movement exclusion was confined "to its commonplace usage -- referring only to sudden, cataclysmic events (e.g. earthquakes);" gradual soil compression was therefore not earth movement as defined by exclusion); American Motorists Ins. Co. v. R&S Meats, Inc., 190 Wis.2d 196, 526 N.W.2d 791 (1994) (city negligently constructed storm sewer; after heavy rain, water flowed beneath floor of policyholder's building and blast freezer; water froze under freezer floor, causing floor to heave upward damaging walls, pillars, and ceiling beams; court held that earth movement exclusion was not applicable to human action, and therefore did not bar coverage); Sentinel Associates v. American Manufacturers Mut. Ins. Co., 804 F. Supp. 815 (E.D.Va. 1992) (policyholder's shopping center damaged when soil supporting foundation washed away by broken water line; court construed earth movement exclusion to apply only to natural, rather than man-made, phenomena; genuine issue of fact remained of whether natural forces (settling) or a man-made problem (leaking water pipe) caused the damage); Steele v. Statesman Ins. Co., 530 Pa. 190, 607 A.2d 742 (1992) (next-door neighbor overloaded property during construction, causing hillside to collapse onto policyholder's house; court applied ejusdem generis doctrine and construed earth movement and landslide exclusion to apply only to natural events; coverage existed for hillside collapse due to man- made event of construction); Howell v. State Farm Fire & Cas. Co., 218 Cal. App. 3d 1446, 267 Cal. Rptr. 708 (1990) (summer brush fire destroyed vegetation, and subsequent winter rain triggered landslide damaging insured property; policy provided coverage for losses caused by brush fire; under California statute, earth movement and water damage exclusions could only operate to avoid coverage if an excluded event (earth movement or water damage rather than brush fire) was the "efficient proximate cause" of the loss); Safeco Ins. Co. of America v. Hirschmann, 112 Wash. 2d 621, 773 P.2d 413 (1989) (heavy rain and high wind -- a covered risk -- caused landslide which damaged policyholder's home; insurance company argued policy excluded coverage for earth movement "whether occurring alone or in any sequence with a covered peril;" court held issue of which event (rain and wind or landslide) was the efficient proximate cause of loss was question of fact, and that exclusions only circumvented coverage when the excluded peril was the efficient proximate cause of loss); Garvey v. State Farm Fire & Cas. Co., 48 Cal. 3d 395, 257 Cal. Rptr. 292, 770 P.2d 704 (1989) (addition to policyholder's house pulled away; policyholder alleged loss caused by contractor negligence; insurance company denied coverage and alleged loss caused by excluded event of earth movement; court ruled that in light of conflicting evidence, question of which event was the proximate cause of the loss, and thereby whether coverage existed, was a jury question); Clyce v. St. Paul Fire & Marine Ins. Co., 850 F.2d 1398 (11th Cir. 1987) (retaining wall and basement wall damaged, allegedly due to "earth pressures;" insurance company refused coverage under earth movement exclusion; court held that "earth movement" and "earth pressures" were significantly different terms for coverage purposes, and evidence created jury question as to whether coverage existed); Peters Township School Dist. v. Hartford Acc. & Indemn. Co., 833 F.2d 32 (3d Cir. 1987) (schools damaged by subsidence in mines inactive for nearly 50 years; court held that earth movement exclusions have historically related to natural, catastrophic earth movement; because mine subsidence was not "natural" but the result of man's activity, coverage existed under policy); Jones v. St. Paul Ins. Co., 725 S.W.2d 291, 294 (Tx.Ct.App. 1986) (court found earth movement exclusion unambiguous, but concluded that settling of policyholder's house resulting from soil contracting as it dried was not "earth movement" as contemplated by the policy. "The earth movement exclusion contemplates abnormally large movements such as the examples listed."); Villela v. Public Employees Mut. Ins. Co., 106 Wash. 2d 806, 725 P.2d 957 (1986) (building contractor negligently failed to provide proper drainage around policyholder's house, causing foundation to be undermined and house to settle; insurance company argued coverage precluded if earth movement contributed to the loss, "regardless how slight in degree;" court disagreed, holding that if negligent construction was the efficient proximate cause of loss, coverage existed); Henning Nelson Constr. Co. v. Fireman's Fund American Life Ins. Co., 383 N.W.2d 645 (Minn. 1986) ("[T]he earth movement exclusion must be construed to apply to earth movements caused by widespread disasters and not to those caused by human forces." Court found coverage when eight possible man-made causes combined on construction site to push earth against foundation wall and cause its collapse); Ariston Airline & Catering Supply Co. v. Forbes, 211 N.J.Super. 472, 511 A.2d 1278 (1986) (earth movement exclusion limited to natural phenomena akin to earthquakes, landslides or floods; exclusion did not exclude coverage for frost-heave damage to freezer floor caused by design and construction defects); United Nuclear Corp. v. Allendale Mut. Ins. Co., 103 N.M. 480, 709 P.2d 649 (1985) (earthen dam collapsed due to "differential settling," releasing 94 million gallons of uranium tailings; applying doctrine of ejusdem generis, court
construed term "earth movement" to cover only natural phenomenon, and exclusion did not apply to the collapse of the dam); Holy Angels Academy v. Hartford Ins. Group, 487 N.Y.S.2d 1005 (Sup.Ct. 1985) (policyholder's building damaged by construction of subway tunnel; court held losses covered by policy, and found earth movement exclusion inapplicable because exclusion was only designed to remove from coverage losses occurring from natural causes such as earthquakes); Mattis v. State Farm Fire & Cas. Co., 118 Ill.App.3d 612, 454 N.E.2d 1156 (1983) (policyholder's basement wall displaced by settling of backfill due to improper construction; court held earth movement exclusion was ambiguous, limited to same class as earthquake and landslide, and did not provide insurance company a basis for denial of coverage); Bly v. Auto Owners Ins. Co., 437 So. 2d 495 (Ala. 1983) (policyholder's house damaged by vibrations from logging trucks; court held loss was outside earth movement exclusion because "the enumerated types of earth movement are all natural phenomena"); Barash v. Insurance Co. of North America, 451 N.Y.S.2d 603, 607 (1982) (fill beneath policyholder's home decomposed and foundation collapsed; court held earth movement exclusion limited to "sudden earth movement on a large scale," and deterioration of the fill beneath one house is not a large-scale earth movement; loss was outside exclusion); State Farm Ins. Co v. Gilbert, 3 Ark.App. 52, 621 S.W.2d 880 (1981) (retaining wall collapsed into policyholder's yard; court held that because exclusionary clause contained only the term "earth movement" alone without other limiting words, term was ambiguous and question of fact was created over meaning of the term); Peach State Uniform Service, Inc. v. American Ins. Co., 507 F.2d 996 (5th Cir. 1975) (policyholder's building collapsed when sewer caved in beneath foundation; court held loss outside policy exclusion for "other earth movement;" phrase was ambiguous, and would be construed to refer only to "phenomena related to forces operating within the earth itself"); Wisconsin Builders, Inc. v. General Ins. Co. of America, 65 Wis.2d 91, 221 N.W.2d 832 (1974) (policyholder-contractor built apartment building beneath bluff; to prevent landslides, policyholder filled space between building and bluff with twice the specified amount of fill; weight of fill dirt combined with bulldozer moving dirt caused apartment wall to collapse; trial court erred in defining earth movement as "all movements of the earth whether it be up, down or sideways;" term "earth movement" should be limited to same class of peril as earthquake and landslide, and case remanded for trial); Strubble v. United Services Automobile Association, 35 Cal. App. 3d 498, 110 Cal.Rptr 828 (1973) (insured's home damaged by landslide triggered by earthquake; court held that because policy provided coverage for earthquake, landslide exclusion was inapplicable and coverage existed under policy); Vormelker v. Oleksinski, 40 Mich.App. 618, 199 N.W.2d 287 (1972) (contractor ignored engineer's report and built policyholder's home on unstable soil; soil shifted, damaging home; insurance company asserted earth movement exclusion; court concluded that whether proximate cause of loss was earth movement (excluded) or improperly constructed foundation (covered) was a jury question); Gullett v. St. Paul Fire & Marine Ins. Co., 446 F.2d 1100 (7th Cir. 1971) (boulders from retaining wall fell on policyholder's building; court applied doctrine of ejusdem generis and held earth movement
exclusion limited to earthquakes and landslides; jury question existed as
to whether loss was caused by "falling objects" -- a covered peril -- or
landslide -- an excluded peril); Government Employees Ins. Co. v. DeJames, 256 Md.
717, 261 A.2d 747 (Md.App. 1970) (foundation of policyholder's house collapsed due to
possible contractor negligence; court held that under doctrine of ejusdem generis,
term earth movement was limited to "unusual movement" and not normal pressures
and settling); Wyatt v. Northwestern Mut. Ins. Co. of Seattle, 304 F. Supp. 781
(D.Minn. 1969) (contractor excavated property adjacent to policyholder's home removing
lateral support and damaging home; insurance company denied coverage citing earth movement
exclusion; court limited exclusion to "occasional major disasters which are almost
impossible to predict and thus insure against" such as earthquakes and floods;
exclusion did not apply to earth movement events involving human action); General Ins.
Co. of America v. Lapidus, 325 F.2d 287 (9th Cir. 1963) (policy excluded coverage for
settling but contained coverage for landslide; court found coverage existed for continuing
slippage of soil around insured's home); and Anderson v. Indiana Lumbermens Mutual Ins.
Co., 127 So. 2d 304 (La.App. 1961) (policy excluded coverage for earth movement, but
covered landslides; coverage existed for settling because it was a "collapse.").
B. Jurisdictions that have concluded that earth
movement exclusions are not ambiguous, and apply to absolve the insurance company from any
liability under the policy regardless of the cause or type of earth movement, include: State
Farm Fire & Cas. Co. v. Bongen, 925 P.2d 1042 (Alaska 1996) (construction company
clear cut land above policyholder's property; heavy rains caused mudslide that damaged
property; court held that earth movement exclusion was unambiguous and precluded
coverage); Kula v. State Farm Fire & Cas. Co., 628 N.Y.S.2d 988 (Sup.Ct. 1995)
(water line from policyholder's well ruptured, washing out dirt supporting one corner of
house and damaging foundation; court found policy unambiguously excluded coverage for
earth movement regardless of the cause, whether natural or human); Alf v. State Farm
Fire & Cas. Co., 850 P.2d 1272 (Utah 1993) (water line to policyholder's house
froze and burst, washing away soil beneath tennis court and driveway; court found that
while damage to the pipe was covered, policy unambiguously excluded coverage for earth
movement); Schroeder v. State Farm Fire & Cas. Co., 770 F. Supp. 558 (D.Nev.
1991) (water pipe ruptured, saturating soil and causing damage to policyholder's building;
court held policy unambiguous and excluded earth movement caused by "non-natural
phenomena"); Millar v. State Farm Fire & Cas. Co., 167 Ariz. 93, 804 P.2d 822 (1990) (policyholder's home damaged when soil beneath it sank due to water escaping
from broken sprinkler system; court found earth movement exclusion unambiguous and denied
coverage); Village Inn Apartments v. State Farm Fire & Cas. Co., 790 P.2d 581
(Utah App. 1990) (water pipe ruptured, saturating soil beneath policyholder's apartments
and causing foundation to settle eight inches; earth movement exclusion unambiguous and
precluded recovery); Nida v. State Farm Fire & Cas. Co., 454 So. 2d 328 (La.App.
1984) (policyholder's home damaged when clay soil beneath home expanded and contracted;
court found earth movement exclusion unambiguous and denied coverage); Stewart v.
Preferred Fire Ins. Co., 206 Kan. 247, 477 P.2d 966 (1970) (policyholder's home sank
into mine shaft underlying property; court declined to apply ejusdem generis, and
held earth movement clause includes act originating from the carelessness of man); Underwood
v. United States Fidelity & Guaranty Co., 118 Ga.App. 847, 165 S.E.2d 874 (1968)
(city negligently widened creek, causing water to damage bridge serving as policyholder's
driveway; court found earth movement exclusion unambiguous, and because earth movement
contributed to the loss, no coverage existed).
C. For additional sources, see B. Mattis, Earthquake and Earth Movement Claims Under All-Risk Insurance Policies in the New Madrid Fault Zone, 21 Mem.St.U.L.Rev. 59 (1990); B. Mattis, Earth Movement Claims Under All Risk Insurance: The Rules Have Changed in California, 31 Santa Clara L. Rev. 29 (1991). See generally, R. Brazener, Property Insurance: Construction and Effect of Provision Excluding Loss Caused by Earth Movement or Earthquake, 44 A.L.R.3d 1316 (1973).
Footnote: 1 1 The March 2, 1994
report from engineer Eric G. Denemark to Mr. Rees stated:
Looking at the highwall from the Church
Street end up to and past the Withrow's yard, there is evidence of other past rockfalls.
We feel that this wall is inherently unstable and that these events will continue to occur
over time. Immediately behind the Withrow home a large block is already wedged off the
sandstone unit and sits, precariously and temporarily, on what is left of the underlying
shale. This is an extremely dangerous situation that, in our opinion, places the Withrow
home at immediate risk.
The situation behind your home has not
advanced quite as far. . . . It is only a matter of time before it too will fail resulting
in a rockfall similar to that which occurred last week.
Another factor perhaps worthy of
consideration, is that, typically, small pieces of rock will "spall" off the
wall sporadically but relatively continuously. . . . While the potential for structural
damages is minimal, a relatively small fragment, grapefruit-size for example, can easily
inflict a serious or fatal injury should it strike a person or animal. You may want to
consider this when contemplating letting your children or pets play near the highwall. We
would consider anywhere in the backyard to be potentially dangerous.
Footnote: 2 2 The Rees allege
that after moving from their home they were unable to afford the mortgage payments. They
were forced to convey the property back to the bank holding the deed of trust. The bank
then moved the house and relocated it to another site.
As to the remaining houses, a letter from
the City of Ripley Building inspector states that:
Presently the houses are unsightly,
unsafe, and are creating a health hazard. We are requesting they be torn down and removed
from their location. We feel it would be unsafe to repair or rebuild either house at their
present site. The city will not issue any building permit for rebuilding or repairing
either house without first having the rockfall stabilizing and secured.
Footnote: 3 3 Hobart M. King,
an expert hired by the City of Ripley, stated in a letter to the mayor that:
Because the distinction between a rockfall
and a landslide is sometimes important for insurance purposes, I made special effort to
determine what had happened. . . .
Mr. King discussed this distinction in his deposition testimony:
A. In a landslide, what you have is a
mass [of] rock or soil that is sliding over an underlying surface. That sliding takes
place across a plane. There is a plane or a surface of failure at the base of the moving
material. When I was looking at what had happened in Spring Street, there was no surface
of failure along which sliding occurred. Sandstone blocks had fallen from the higher
elevation above that shale layer that I previously discussed was underneath the sandstone.
So, those two reasons would be why I would call that a rockfall. . . .
Q. Would you agree that a rockfall is a
type of landslide?
A. No. Slide[s] take place over a surface
of failure. A fall occurs when a piece of the earth has broken away and falls
independently, no sliding involved.
Footnote: 4 4 Allstate insured
Mr. Withrow's home under a "Deluxe Homeowners Policy" which provided that
Allstate would pay for any "sudden and accidental physical loss to the property
described in the Dwelling Protection Coverage, except as limited or excluded by this
policy."
The State Farm Homeowners Policy (Special Form 3) provided to the
Murrays and Rees indicates that the policy "insure[s] for accidental direct physical
loss to the property described in Coverage A except as provided in SECTION 1 -- LOSSES NOT
INSURED."
Footnote: 5 5 A provision in an insurance policy may be deemed to be ambiguous if courts in other jurisdictions have interpreted the provision in different ways. This rule is based on the understanding that "one cannot expect a mere layman to understand the meaning of a clause respecting the meaning of which fine judicial minds are at variance." C. Marvel, Division of Opinion Among Judges on Same Court or Among Other Courts or Jurisdictions Considering Same Question, as Evidence That Particular Clause of Insurance Policy is Ambiguous, 4 A.L.R.4th 1253, § 2[a] (1981).
Footnote: 6 6 While every
insurance policy must be analyzed based upon its own language, numerous courts faced with
analogous policy language have reached nearly identical conclusions. A clear majority of
courts continue to find earth movement exclusions ambiguous, and limited in application
only to naturally-occurring catastrophic events such as earthquakes. However, a few
jurisdictions have concluded that earth movement exclusions are not ambiguous, and apply
to absolve the insurance company from any liability under the policy regardless of the
cause or type of earth movement.
A collection of these cases is found in Appendix A, attached to
this opinion.
Footnote: 7 7 As one court indicated, the efficient proximate cause rule is "a rule of construction because certain consequences follow from the terms of the contract and from a legal policy applicable to the situation. Insurers cannot circumvent the rule by redefining causation." Sunbreaker Condominium Association v. Traveler's Ins. Co., 79 Wash. App. 368, ___ n. 8, 901 P.2d 1079, 1082 n. 8 (1995)(citations omitted).
Footnote: 8 8 Courts use
varying terms such as "proximate cause," "efficient proximate cause,"
"efficient cause," "predominant cause" or "moving cause." As
one court grappling with the meaning of the efficient proximate cause doctrine noted,
Regardless of the name of the doctrine or
number of adjectives within it, the law requires a decision as to what event will be held
accountable as the cause of the loss. . . . Given the weight of authority, [and]
the similarity if not identicalness of efficient proximate cause to proximate cause . . .
the Court finds that the predominating cause of the loss is the appropriate standard.
Pioneer Chlor Alkali Co., Inc., v. National Union Fire Ins. Co. of Pittsburgh, Pa.,
863 F. Supp. 1226, 1231 (D.Nev. 1994). The court went on to say in a footnote that:
Although perhaps containing an
unnecessary adjective, and not at all making the doctrine more clear, the Court will use
the majority term "efficient proximate cause." To invent a new term would only
add to the confusion in this legal nebula where case precedents filled with the legal
jargon of efficient proximate cause offer little guidance in the doctrine's application
and result.
Id., n. 6. We believe this reasoning is equally applicable to the instant case.
Footnote: 9 9 By one commentator's count, 34 jurisdictions (including West Virginia in LaBris v. Western National Ins. Co., 133 W.Va. 731, 59 S.E.2d 236 (1950)) have adopted some form of concurrent or proximate cause analysis in examining coverage under first-party and/or third-party insurance policies. See F. MacLaughlin, Third-Party Liability Policies: The Concurrent Causation Doctrine and Pollution Exclusions, 24 Brief 20, 22-23 (1995).
Footnote: 10 10 A current
revision to Appleman holds similarly:
Various problems occur where there is
dual, concurring or intervening causation leading to the loss of claim for which coverage
is sought. In such a situation, the reasonable expectations of the insured should be
considered and upheld which usually means that coverage will be found. . . . [T]he court
may utilize the rule that the efficient proximate cause rule permits a recovery under the
policy where the loss occurs due to a loss from a covered peril which also sets into
motion a chain of events occurring in an unbroken sequence culminating in damage from an
excluded peril.
E. Holmes, 2 Appleman on Insurance 2d § 6.2 (1996).
Footnote: 11 11 An example of
the efficient proximate cause doctrine in action is Frontis v. Milwaukee Ins. Co.,
156 Conn. 492, 242 A.2d 749 (1968). The policyholder owned the Frontis building, a
four-story building sharing a common wall with an adjoining building. A fire in the
adjoining building destroyed the building, requiring its demolition and removal. The only
fire damage caused to the Frontis building was a broken window. However, without the
lateral support of the adjoining building, the shared common wall could no longer support
the Frontis building, requiring the removal of the third and fourth floors of the Frontis
building.
The court in Frontis was asked to address whether the
removal of the top two floors of the Frontis building was a "direct loss by
fire" within the meaning of an insurance policy. The court concluded that the loss
was covered, holding that a fire can be the proximate, dominant, active and efficient
cause of a loss even if the fire starts outside the insured premises and never extends to
them in the form of combustion. 156 Conn. at 497, 242 A.2d at 752.
Another example is Brian Chuchua's Jeep, Inc. v. Farmers Ins.
Group, 10 Cal. App. 4th 1579, 13 Cal. Rptr. 2d 444 (1992). The policyholder purchased
earthquake insurance. An earthquake damaged an underground gasoline tank, and leaking
gasoline damaged the soil. The insurance carrier refused coverage for the gasoline
clean-up costs citing a pollution exclusion. The court determined that because the risk of
earthquake was insured against, if "the trier of fact determines the earthquake was
the efficient proximate cause of the leakage, the cleanup expenses will be covered."
10 Cal. App. 4th at 1583, 13 Cal. Rptr. 2d at 446. Insurance companies sought to have Brian
Chuchua's Jeep "depublished" by the California Supreme Court arguing its
publication would compromise their pollution exclusions because it "mandates an
analysis of whether, despite the exclusion, the cause of the loss is covered." The
Court refused to depublish the opinion. See Third- Party Liability Policies: The
Concurrent Causation Doctrine and Pollution Exclusions, 24 Brief 20, 43 (1995).
For other examples, see Pioneer Chlor Alkali Co., Inc., v.
National Union Fire Ins. Co. of Pittsburgh, Pa., 863 F. Supp. 1226 (D.Nev. 1994) (rag
negligently left in pipeline diverted flow of brine; brine concentrated in pipes corroding
small holes; brine then mixed with chlorine creating acidic solution that corroded main
pipelines, causing release of chlorine gas; insurance company refused coverage citing
exclusion for losses caused by "corrosion;" district court ruled that jury
question existed over whether rag or corrosion was the efficient proximate cause of loss);
State Farm Fire & Cas. Co. v. Von Der Lieth, 54 Cal. 3d 1123, 2 Cal. Rptr. 2d 183, 820 P.2d 285 (1991) (policyholder alleged that third-party negligence by the state, county,
developer and homeowners' association proximately caused landslide that damaged home;
insurance carrier refused coverage under "earth movement" and "water
damage" exclusions; court held that issue of whether third-party negligence was the
efficient proximate cause of the loss was jury question); Wallach v. Rosenberg, 527 So. 2d 1386 (Fla.App. 1988) (next-door-neighbor failed to maintain sea wall and it collapsed
during storm; collapse caused policyholder's sea wall to collapse; insurance carrier
denied coverage under exclusion for "earth movement" or "water
damage;" court held that jury question was created whether neighbor's negligence, a
covered event, was the efficient proximate cause of the loss); and Vormelker v.
Oleksinski, 40 Mich.App. 618, 199 N.W.2d 287 (1972) (contractor disregarded engineer's
report that soil was unstable and built policyholder's house on soil; soil shifted and
house damaged, and insurance carrier denied claim citing earth movement exclusion; court
held that jury was properly instructed that if earth movement was the sole proximate cause
of the collapse, it should return a verdict for defendants).
Footnote: 12 12 "Before the doctrine of reasonable expectations is applicable to an insurance contract, there must be an ambiguity regarding the terms of that contract." Syllabus Point 2, Robertson v. Fowler, 197 W.Va. 116, 475 S.E.2d 116 (1996). As noted previously, the policy language at issue in the State Farm policy is subject to several interpretations, and is therefore ambiguous.
Footnote: 13 13 Another
commentator reviewing similar State Farm policy language stated:
This [lead-in] clause, applied at face
value, would clearly negate coverage in case of a concurring excepted cause. The clause
may clear up any ambiguities in the minds of insurance counsel, but whether it would do so
for the insurance consumer is questionable. Indeed, whether such a clause would actually
be read by the insurance consumer is questionable. The change should have little impact on
the objectively reasonable expectations of the insurance consumer. If anything, the clause
is more confusing to the layman than was the old "contributed to, or aggravated
by" exception.
Many courts allow recovery when an
excepted cause acts concurrently with a covered cause despite increasingly explicit
exclusionary language. This trend seems likely to continue regardless of the insurance
industry's persistent efforts to refine their policies. Courts appear to look at the
exclusionary language only to determine which causes or events are covered and which are
not, and pay little attention to surplus verbiage. This approach is most likely explained
as a sub silentio application of the doctrine of reasonable expectations.
R. Fierce, Insurance Law--Concurrent Causation: Examination of Alternative Approaches,
1985 S.Ill.U.L.J. 527, 538 (1986).
Footnote: 14 14 We acknowledge
that jurisdictions are in conflict over the effect of the State Farm lead-in clause in
landslide cases. At least two jurisdictions hold the clause has no effect on limiting
coverage: California (Howell v. State Farm Fire & Cas. Co., 218 Cal. App. 3d 1446, 267 Cal. Rptr. 708 (1st Dist. 1990)); and Georgia (Cox v. State Farm Fire &
Cas. Co., 217 Ga.App. 796, 459 S.E. 446 (1995)). At least five jurisdictions hold that
the lead-in clause is enforceable: Alaska (State Farm Fire & Cas. Co. v. Bongen,
925 P.2d 1042 (Alaska 1996)); New York (Kula v. State Farm Fire & Cas. Co., 628 N.Y.S.2d 988 (Sup.Ct. 1995)); Utah (Alf v. State Farm Fire & Cas. Co., 850 P.2d 1272 (Utah 1993) and Village Inn Apartments v. State Farm Fire & Cas. Co., 790 P.2d 581 (Utah App. 1990)); Nevada (Schroeder v. State Farm Fire & Cas. Co.,
770 F. Supp. 558 (D.Nev. 1991)); and Arizona (Millar v. State Farm Fire & Cas. Co.,
167 Ariz. 93, 804 P.2d 822 (1990)).
We question the holdings of these latter jurisdictions, as they
found the earth movement policy language to be unambiguous and clear, and suggested that
the policyholder's reasonable expectations were more in line with being a "fervent
hope usually engendered by loss." Millar, 167 Ariz. at ___, 804 P.2d at 826.
These latter jurisdictions also suggest that the policyholder and insurance company freely
negotiated and defined the scope of coverage, and intended to exclude the efficient
proximate cause doctrine. Such a position is contrary to the position we have taken in our
case law that "[i]nsurance contracts are notoriously complex . . . and border on the
status of contracts of adhesion. Under this view the insured and insurer do not stand in pari
causa, and therefore, the insured's assent to the agreement lacks completeness in
relation to that of the insurer." Bell v. State Farm Mut. Auto Ins. Co., 157
W.Va. 623, 628-29, 207 S.E.2d 147, 150-151 (1974) (citations omitted). As we said in
National Mut. Ins. Co. v. McMahon & Sons, Inc., 177 W.Va. 734, 741-42 n. 6, 356 S.E.2d 488, 495-96 n. 6 (1987):
While this rule may equitably be enforced
with regard to a contract negotiated at arm's length between parties of reasonably
equivalent bargaining power and signed by each, it would be unfair to apply the general
rule in the case of the modern insurance contract. These policies are contracts of
adhesion, offered on a take-it-or-leave-it basis, often sight unseen until the premium is
paid and accepted, full of complicated, almost mystical, language. "It is generally
recognized the insured will not read the detailed, cross-referenced, standardized,
mass-produced insurance form, nor understand it if he does." C & J Fertilizer,
Inc. v. Allied Mutual Insurance Co., 227 N.W.2d 169, 174 (Ia.1975); accord, 3 Corbin on
Contracts § 559 (1960); Keeton, [Insurance Law Rights at Variance with Policy
Provisions,] 83 Harv.L.Rev. [961] at 968 [1970]. The majority rule is that the insured is
not presumed to know the contents of an adhesion-type insurance policy delivered to him, 7
Williston on Contracts § 906 B (1963), and we hereby adopt the majority view.
We therefore decline to follow these latter jurisdictions.
Footnote: 15 15 See, e.g., Sentinel Management Co. v. New Hampshire Ins. Co., 563 N.W.2d 296 (Minn.App. 1997) (contamination of apartment building by release of asbestos fibers constituted direct, physical loss to property under all-risk policy); Farmers Ins. Co. of Oregon v. Trutanich, 123 Or.App. 6, 858 P.2d 1332 (1993) (landlord-policyholder's house contaminated by odors from methamphetamine lab run by subtenant in basement; cost of removing odors was a direct physical loss under policy); Western Fire Ins. Co. v. First Presbyterian Church, 165 Colo. 34, 437 P.2d 52 (Colo. 1968) (policyholder-church, which was rendered unusable due to saturation of soil under and around church with gasoline, sustained a direct physical loss under policy).
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