In a recent decision involving a claim for damage to an insured's building as a result of excavation conducted on adjoining premises, the New York Court of Appeals reversed the Appellate Division, Second Department, and dismissed the insured's claim based upon an earth movement exclusion for damages "whether naturally occurring or due to manmade or artificial causes." Bentoria Holdings, Inc. v Travelers Indemnity Company, 84 A.D.3d 1135 (2d Dept. 2011), rev'd, 20 N.Y.3d 65 (2012).
The Plaintiff's building, located in Brooklyn, New York, sustained cracks as a result of excavation work conducted on the lot next door to it. Upon being notified of the loss, Travelers rejected the claim relying on its policy's earth movement exclusion, which provided, in pertinent part:
1. We will not pay for loss or damage caused directly or indirectly by any of the following "¦.
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b. Earth Movement
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(4) Earth sinking (other than sinkhole [**2] collapse), rising or shifting including soil conditions which cause settling, cracking or other disarrangement of foundations or other parts of realty. Soil conditions include contraction, expansion, freezing, thawing, erosion, improperly compacted soil and the action of water under the ground surface;
All whether naturally occurring or due to manmade or other artificial causes.
Plaintiff commenced suit, and Travelers moved for summary judgment. Supreme Court denied the motion, and the Appellate Division affirmed, but granted leave to appeal to the Court of Appeals. The Appellate Division held that "[e]xcavation was not expressly set forth in the exclusion, while other, less common causes of earth movement were (see Pioneer Tower Owners Assn. v. State Farm Fire and Cas. Co., 12 N.Y.3d at 308). ***Thus, notwithstanding the fact that the exclusion here refers to earth movement caused by 'man made' or 'artificial' causes, we conclude that Travelers failed to demonstrate, prima facie, that the express terms of the exclusion clearly and unambiguously established that the loss at issue here was not covered by the policy."
In reversing, the New York Court of Appeals distinguished its prior holding in Pioneer Tower which involved a similar type of loss, and a similar policy exclusion with the exception that the Pioneer Tower exclusion did not contain the additional language which includes "man made or other artificial causes."
Judge Smith, who wrote the Court's decisions in both Pioneer Tower and Bentoria Holdings, pointed out that in Pioneer Tower the plaintiff argued that the policy did not clearly exclude "an excavation – the intentional removal of earth by humans". The Court of Appeals found that argument to be reasonable in Pioneer Tower, and held that the earth movement exclusion there did not apply. However, Judge Smith reasoned that the same argument was not available to plaintiff in the Bentoria Holdings case. "By expressly excluding earth movement 'due to manmade or artificial causes', the policy contradicts the idea that 'the intentional removal of earth by humans' is not an excluded event. This policy cannot reasonably be read to cover the damage on which plaintiff's claim is based."
This decision highlights the necessity of specifically limiting coverage for "man made" earth movement if the company intends the exclusion to limit coverage for excavation related activities.
If you require further information regarding the information presented in this Legal Alert and its impact on your organization, please contact John R. Casey at (518) 429-4277 or jcasey@hblaw.com.