Are Damages Caused By Blasting or Other Man-Made Earth Movement Covered Under Your Insurance Policy?

Larry Bache – April 18, 2013

Insurance policies often include an exclusionary provision dealing with damages caused by Earth Movement. But does the exclusionary provision include natural and man-made earth movement, or just natural earth movement? According to FC&S, it depends on jurisdiction.1

The majority view is damage caused by natural earth movement is excluded, but damage caused by earth movement resulting from man-made disturbances do not fall within the standard exclusionary provision. An example of the majority approach is found in Steele v. Statesman Insurance Company.2

In Steele, the court held that the exclusion was limited to natural events only and found coverage for damage to a home when the hillside above it collapsed due to nearby construction. The exclusion was held to be ambiguous:

On the one hand, the provision bars coverage for natural events, i.e., earthquake and volcanic eruptions. On the other hand, the provision bars coverage for events which can be natural, man-made or both, i.e., landslide, mudflow, earth sinking, rising or shifting. Although it is arguable that the exclusion is applicable to earth movement due to natural and man-made events, a reasonable insured could conclude that the exclusion is applicable to earth movement due to natural events only. Since the earth movement exclusion is susceptible to different constructions, it is impossible to determine the intent of the parties as manifested by the written language of the contract of insurance.

Under this approach, damaged caused by vibration from blasting, large trucks, or any other man-made events are covered under an open or all-peril policy.

Another view on the Earth Movement exclusion is more broad and excludes all damages caused by movement of the earth, including both natural movement, such as settlement, and man-made earth movement, such as blasting or mining.

In Lee v. Nationwide Mutual Insurance,3 a Tennessee court of appeals ruled that the words “earth movement” mean “any change of place, position or posture of the soil.” The court applied the plain and ordinary meaning of the term because it found the words had not acquired a technical sense by commercial usage.

In 2002, Florida appeared to be fall inline with Lee and applied the Earth Movement exclusion broadly. In State Farm Fire and Casualty Company v. Castillo,4 the Castillos’ home suffered damage from nearby blasting. The Castillos argued the policy should be interpreted as applying only to natural events. The Court of Appeal refused to follow the majority position and held the provision was not ambiguous and the exclusionary provision included man-made earth movement.

Fortunately for Florida’s policyholders, the Florida Supreme Court dealt with the issue in Fayad v. Clarendon National Insurance Company,5 and Justice Pariente wrote the majority opinion stating:

We interpret [] [the] earth movement exclusion to exclude damage caused by earth movement arising from natural events from coverage rather than damage caused by earth movement arising from any cause, including man-made events such as blasting.

The Supreme Court noted the specific language of the Earth Movement Exclusion is important, and if the exclusionary provision is not ambiguous, it can include man-made events.

This is significant because man-made earth movement causes damage to many properties and it is important for insureds to understand that if nearby blasting causes damage, they may not have coverage.

Most insurers make available an Earth Movement Coverage Endorsement for an additional premium. It is important for policyholders to consider whether they want to purchase this coverage to protect their property.

1 “Earth Movement Exclusion – Opposing Views: Any Movement versus Natural and Catastrophic” FC&S Bulletin, June 7, 2012.

2 Steele v. Statesman Ins. Co., 607 A.2d 742 (Pa. 1992).

3 Lee v. Nationwide Mut. Ins., 87-357-II, 1988 WL 39567 (Tenn. Ct. App. Apr. 29, 1988).

4 State Farm Fire and Cas. Co. v. Castillo, 829 So.2d 242 (Fla. App. 2002).

5 Fayad v. Clarendon Nat. Ins. Co., 899 So. 2d 1082, 1090 (Fla. 2005).

via Are Damages Caused By Blasting or Other Man-Made Earth Movement Covered Under Your Insurance Policy? : Property Insurance Coverage Law Blog.

Claim Estimates Too Low For Sandy Storm?

Joseph A. Porcelli – April 17, 2013

Super Storm Sandy – Are Insurer’s Claim Estimates Too Low?

Many victims of Super Storm Sandy have found that the settlement offered by their insurance company falls short of the actual costs associated with rebuilding and restoring the damages incurred.  There are several reasons for this disparity.

Most insurance carriers employ outside claims adjusters to conduct site inspections of the damaged homes, condominiums and businesses.  These outside claims adjusters are typically overwhelmed with insurance claims, so there is a real incentive for them to conduct the site inspections quickly, which may result in errors in the scope and pricing of repairs.  Another reason the settlement offered falls typically short is that the software used by the insurance company to calculate the claims does not adequately reflect the reality of the devastation caused by Super Storm Sandy.

In the past decade, there have been computer software programs used by insurers to estimate construction costs.  These programs calculate structural damage, repair and rebuilding expenses.  Unfortunately the models are based on tract housing and do not take into consideration such things as historic, custom or expensive dwellings.  Furthermore, Super Storm Sandy ravaged areas and communities comprised of high valued real estate.  As a result, the estimates produced by these software programs will most likely be insufficient to reimburse you for the actual cost of rebuilding or replacing your home.

Builders and contractors retained by property owners do not use this type of software program to produce their estimates.  They base their cost estimates on sub-contractor bids and their general knowledge about the costs and time involved in a potential job as well as the current cost of materials found locally.

Another factor that these software programs do not take into consideration is the principal of supply and demand.  The amount of damage produced by Super Storm Sandy was cataclysmic.  As a result, contractors are inundated with requests for bids and estimates.  The demand for skilled labor far exceeds the supply, so contractors and builders are not able to compete for work.  Therefore those left to rebuild have little room to negotiate pricing, often creating a gap between the claim settlement offered by the insurance company and the actual cost of restoring and repairing their homes.

Retaining an attorney with expertise and knowledge in the area of insurance settlements can provide you with the protection and guidance necessary for a successful claim.

via Claim Estimates Too Low For Sandy Storm?.

Florida Second DCA Rules That Payment Of Appraisal Award Satisfies The “Favorable Resolution” Requirement For A Bad Faith Action

Ben Adams – April 19, 2013

In Florida, bad-faith actions against insurers pursuant to Section 624.155 cannot be brought until (1) the insured files a civil remedy notice (CRN) accepted by Florida’s Department of Financial Services; and (2) the underlying breach of contract lawsuit is “resolved in the insured’s favor.” See Blanchard v. State Farm Mut. Ins. Co., 575 So. 2d 1289, 1291 (Fla. 1991). Recently, Florida’s Second Distruct Court of Appeal ruled that (1) the insured’s CRN did not require the inclusion of a specific cure amount; and (2)  payment of an appraisal award by the insurer satisfied the condition precedent to the insured’s bad-faith action.

In Hunt v. State Farm Florida Ins. Co., 2013 Fla. App. LEXIS 5528 (Fla. 2d Dist. Ct. App. Apr. 5, 2013), the insured, Hunt, sustained sinkhole damage in July 2006. Hunt disagreed with State Farm’s damage estimate, and in April 2007 sued for breach of contract and filed a CRN, which was accepted by the Department of Financial Services. The court granted State Farm’s motion for appraisal and abated the lawsuit pending an appraisal award. In October 2008, an appraisal award of $162,571.61 was entered in Hunt’s favor, and State Farm  paid that amount. Following the payment of the appraisal award, Hunt voluntarily dismissed his breach of contract lawsuit but subsequently filed a bad-faith action. State Farm moved for summary judgment, arguing that Hunt had not obtained a “judgment” in the first lawsuit, which was a condition precedent to maintaining his bad faith action. The Second DCA disagreed, ruling that the payment of the appraisal award satisfied the “favorable resolution” requirement under Blanchard. Noting that prior courts have held that “a judgment is not the only way of obtaining a favorable resolution,” and that arbitration awards have previously established the insured’s condition precedent, the court concluded that an appraisal award similarly satisfied the validity of Hunt’s claim.

The Second DCA’s decision in Hunt provides the latest in a series of cases in Florida on the issue of what constitutes a “favorable resolution” to maintain a bad faith action. As discussed in our earlier blog entries, the Fourth DCA recently issued conflicting opinions on this very issue. Those courts that consider an appraisal award a “favorable resolution” do not appear to recognize the differences between appraisal, which resolves valuation only, and arbitration, which more fully addresses the coverage issues in dispute. Those Florida courts that have reached the opposite conclusion refuse to allow an insured to use a preemptive, early demand for appraisal as a  basis for a bad faith claim.

It should be noted that State Farm also claimed that Hunt’s CRN was invalid because there was no specified “cure” amount claimed in his notice. The Second DCA disagreed, ruling that the plain language of Section 624.155 does not require a specific amount to be included in the notice, and that State Farm was otherwise sufficiently apprised of the assertion made by Hunt.

via Florida Second DCA Rules That Payment Of Appraisal Award Satisfies The “Favorable Resolution” Requirement For A Bad Faith Action | Property Insurance Coverage Insights.

Statutory Limitation Periods can be Reduced Contractually under Nevada Law

Tamara Boeck – April 15, 2013

The Nevada Supreme Court has answered a question that developers and contractors have been asking for years:  can the statutory limitation period for a construction defect action be shortened?  The court answered in the affirmative but held that there must be no statute to the contrary and that the reduced limitation period must be reasonable and not violate public policy.

Specifically, in Holcomb Condominium Homeowners’ Association Inc. v. Stewart Venture (April 4, 2013), the Nevada Supreme Court evaluated the applicability of a shortened statute of limitations in an arbitration agreement that was incorporated into a purchase and sale agreement.  The arbitration agreement limited the statute of limitations for negligence and warranty claims to two years.  The Nevada Supreme Court evaluated NRS 116.4116, which expressly permits contractual reduction of its six-year limitation period for warranty claims to not less than two years for residential units, if the limiting agreement is contained in a “separate instrument.”  Here, the court found that because the limiting provision was within an arbitration agreement that was attached to and incorporated into the purchase contract, the limiting provision did not qualify as a “separate instrument” and was therefore invalid.

As for the negligence-based claims, the court did not address the applicability of the contractual two-year limitation period, but remanded the issue to the district court to evaluate (in light of the newly stated rule) whether any statute is contrary to the shortened period, whether the shortened period is reasonable, and whether the provision itself, or its terms and placement in the agreement, is unconscionable or in violation of public policy.

Given the implications of possibly reducing Nevada’s lengthy statutes of limitations in construction defect actions, the subsequent decision by the district court, along with any ruling in an appeal of that decision, will be closely watched by development/contractor counsel and association/homeowner counsel.

via Statutory limitation periods can be reduced contractually under Nevada law – Lexology.

‘Reprehensible’ Practice Sparks Call for Insurance Commissioner, Lawmakers to Act

Charles Elmore – April 18, 2013

Florida’s insurance consumer advocate is calling for the state’s top regulator and legislators to send a clear message that property insurers should not be allowed to deny claims and cancel policies based on consumer credit information more than 90 days after taking a policy.

“This practice is reprehensible and should cease immediately,” Robin Westcott said.

As The Palm Beach Post reported last month, a growing number of customers say that is what is happening at the state’s largest private insurer, Universal Property and Casualty Insurance Co. of Fort Lauderdale. They say the company took premiums for years but canceled policies when they filed claims.

Delray Beach customer Michael Wyman described as “horrible” Universal’s decision to void his policy after he reported more than $10,000 in water damage because he neglected to disclose a paid-off tax lien in another state from years before.

One Gainesville woman lost her house to a fire that Universal wouldn’t cover because her husband had, unknown to her, been considered responsible for debt long since resolved with an elderly family member, Westcott said.

Universal is Florida’s biggest insurer after state-run Citizens with 550,000 customers, with more in Palm Beach (66,373) than any other county, records show.

In a letter this week, Westcott told Florida Insurance Commissioner Kevin McCarty she believes the practice violates current law but seeks a clear statement — such as by amendment to pending legislation — to make “crystal clear” such information should not be used to deny claims.

Westcott has been trying to get the amendment added to legislation such as SB 1046, now in the appropriations committee.

On Thursday a spokeswoman said McCarty’s office supports the concept.

“The Office is well aware of the allegations of post-claim underwriting in the homeowners market and has thoroughly and comprehensively been inquiring into the matter,” spokeswoman Amy Bogner said. “The Office supports the responsibility of companies to appropriately underwrite policies within the first 90 days of the policy period and for legislation that would provide stronger protections for consumers.”

A Universal spokesman said Thursday, “The insurance underwriting process inherently depends on applicants providing accurate information in their insurance applications. This is the case in the substantial majority of applications received by Universal Property & Casualty Insurance Company, and the company believes its underwriting process allows it to serve its customers in a cost-effective manner for the benefit of all Floridians.”

Universal’s parent company reported profits rose 50 percent to $30 million last year.

Last November, Universal CEO Sean Downes wrote to regulators, “We are not insensitive to the adverse impact on consumers when inaccurate statements or omissions result in our decision to rescind coverage.” The company has “chosen to trust our applicants and react only when that trust is breached,” he wrote.

A panelist at a Post insurance roundtable last month backed tougher action.

“We need some stronger regulation, from the insurance commissioner and (Chief Financial Officer) Jeff Atwater — the Legislature needs to do something, “said William “Chip” Merlin, president of Merlin Law Group, which represents policyholders against insurers and has offices in Tampa and West Palm Beach.

Westcott said using information from credit reports or public records can be appropriate at sign-up, but unjust and “heart-wrenching” if used to deny claims later.

“Florida consumers deserve protection from this unfair practice,” Westcott said.

via ‘Reprehensible’ practice sparks call for insurance… |