Insurance policies commonly contain an exclusion for losses caused by “earth movement” or “subsidence.” Such exclusions typically exclude coverage for losses caused by earthquakes, landslides, mudflows, and earth sinking or shifting. Absent language to the contrary, “[e]arth movement exclusions are often interpreted to refer to only natural, non-human events.” See, e.g., El-Ad Group v. Northbrook Property & Casualty Insurance Company, 2006 WL 8406838 (D.N.J. March 15, 2006); see also Ariston Airline & Catering Supply Co. Inc. v. Forbes, 211 N.J. Super. 472 (Law Div. 1986) (“the words ‘earth movement’ must be interpreted as referring to a natural phenomenon akin to earthquakes, landslides, mud flows, earth sinkings, and earth risings or shiftings. An earthquake, for example, is not the result of human activity.”). However, some exclusions specifically provide that they also apply to non-natural, man-made events.
One such exclusion was addressed by the New Jersey Appellate Division several years ago in Essex Insurance Company v. New Jersey Pan-African Chamber of Commerce & Industry, Inc., 2013 WL 515934 (N.J. Super Ct. App. Div. August 27, 2013). Essex involved both property damage and personal injury claims arising out of the collapse of a building. Construction activity on a neighboring property allegedly caused the collapse.
Essex Insurance Company, the general liability insurer for the property where the construction work was being performed, commenced a declaratory judgement action seeking a ruling that it had no obligation to defend the property owner, among others, based on an earth movement exclusion contained in its policy. The exclusion provided that there was no coverage for “‘movement of land or earth’ regardless whether emanating from, aggravated by, or attributable to any operations performed by or on behalf of any insured . . . .” Id. at *2. Based on that language, the court held that the exclusion applied to man-made events and, therefore, Essex was not required to provide coverage to its insured. The court reasoned as follows:
We reject defendants’ contention, based upon the cases they cite, that the exclusions at issue here apply only to natural phenomena. All of the cases cited by defendants are distinguishable because they involved exclusions that did not explicitly, as is the case here, define earth movement as including non-natural activities. Here, the definition specifically includes earth movement “emanating from, aggravated by, or attributable to any operations performed by or on behalf of any insured[.]”
Id. at *4. The court further observed:
earth movement exclusions are not universally interpreted to encompass only naturally occurring earth movement. Rather, such exclusions are interpreted on a case-by-case basis in accordance with the specific exclusion’s language.
Id. at *5.
Essex later added the insurer for the general contractor (Navigators Specialty Insurance Company) as a party to the action, seeking a ruling that Navigators was required to defend the property owner. Navigators, in turn, commenced a third-party action against the insurer for the subcontractor (Scottsdale Insurance Company), seeking a ruling that Scottsdale was obligated to defend the general contractor. Prior to the collapse the subcontractor had been performing pile driving activities at the construction site.
The case recently made its way to the Appellate Division a second time. See Essex Insurance Company v. New Jersey Pan-African Chamber of Commerce & Industry, Inc., 2017 WL 4051726 (N.J. Super Ct. App. Div. Sept. 14, 2017). The court was asked once again to decide whether a subsidence exclusion precluded coverage for the loss. The exclusion at issue, which was contained in Scottsdale’s policy, provided:
This policy does not apply to “bodily injury” or “property damage” caused by, resulting from, attributable or contributed to, or aggravated by the subsidence of land as a result of landslide, mudflow, earth sinking or shifting, resulting from operations of the named insured or any subcontractor of the named insured.
Id. at *2. Like the exclusion in the Essex policy, the last clause of the Scottsdale exclusion made it clear that it also applied to man-made events. Thus, the court was not required to address that issue again. Rather, the question before the court was whether the collapse of the neighboring building was caused by “subsidence of land” within the meaning of the above-quoted exclusion.
Navigators and Scottsdale both cross-moved for summary judgment in the court below. The trial court granted partial summary judgment in favors of Navigators, finding that Scottsdale had a duty to defend the general contractor. The court rejected Scottsdale’s argument that the subsidence exclusion barred coverage. The trial court observed that “the complaints in the underlying actions alleged the subcontractor’s conduct caused vibrations and erosions to the surrounding land.” Id. at *2. According to the court, in order for the exclusion to apply, Scottsdale was required to prove “that the subsidence was caused by an earth movement, which includes earth rising, sinking, shifting, or subsiding, landslide, or mudflow.” Id. The court concluded:
Reasonable minds can disagree as to whether vibrations mean earth shifting or sinking. The policy does not provide for a definition of earth shifting. Additionally, the policy does not negate coverage for all “earth movements,” which would have encompassed vibrations.
Id. Consequently, the court found the exclusion to be ambiguous and construed it against Scottsdale.
On appeal, the Appellate Division reversed the granting of partial summary judgment in favor of Navigators. The court began its analysis by noting that the duty to defend is determined by comparing the allegations in the complaint with the policy language to determine whether the complaint states a potentially covered claim. Id. at 2. The court next determined that the allegations in the property damage and personal injury complaints did not meet that standard:
These complaints allege the pile-driving activity caused vibrations which in turn caused the soil beneath the Pan–African building’s foundations to “erode and subside down into the excavation”; and caused “erosion to the surrounding land.” The allegations fall within the clear import and intent of the Scottsdale policy’s exclusion for subsidence of land caused by earth sinking or shifting, resulting from operations of the pile subcontractor.
Id. at 4.
The court went on to note:
Although we do not necessarily disagree with the trial court’s observation that “[r]easonable minds can disagree as to whether vibrations mean earth shifting or sinking,” that statement is incomplete. The property damage and personal injury complaints did not merely allege vibrating sand or soil beneath the Pan–African building’s foundation caused the collapse. Rather, they allege the vibrations generated by construction activity caused the sand or soil to “erode and subside down into the excavation.” The earth’s erosion and subsiding down into the excavation constituted earth “sinking or shifting” and thus fell within the policy’s exclusion.
Id. Thus, Navigators, whose policy apparently did not contain such an exclusion, was left holding the bag.
As noted, for many years the general rule was that earth movement and subsidence exclusions were interpreted to refer only to natural, non-human events. The Appellate Division’s 2013 decision made it clear that despite the general rule, such exclusions will not be limited to losses caused by natural phenomena as long as they explicitly refer to non-natural, man-made activities. Its most recent decision shows the importance of carefully pleading a cause of action. The Appellate Division agreed with the trial court that “[r]easonable minds can disagree as to whether vibrations mean earth shifting or sinking.” In this particular case, however, the plaintiffs specifically plead that the vibrations caused the soil “to erode and subside down into the excavation.” Use of those particular words led to a finding that Scottsdale had no duty to defend the general contractor. Had the allegations been phrased differently, the court may have ruled otherwise. Nonetheless, even if a duty to defend had been found, whether there would have been a duty to indemnify is an entirely different issue. Under New Jersey law, the duty to defend is much broader than the duty to indemnify.
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