Workmanship and Earth Movement Exclusions Preclude Coverage for Collapse As a Matter of Law

House collapseA U.S. federal district court recently granted Peerless Insurance’s summary judgment motion, concluding that, as a matter of law, under Virginia law, a property policy insuring a building under renovation would not provide coverage for a collapsed basement wall due to a subcontractor’s lack of shoring,. Taja Investments LLC v. Peerless Ins. Co. a/k/a Liberty Mutual Ins. Co., Civ. No. 1:15-cv-01647, 2016 U.S. Dist. LEXIS 95760 (E. D. VA, July 21, 2016).

The plaintiff insured, Taja Investments, was a construction company, which was excavating a 4-5 foot crawlspace under a building to create a space with a 9 foot depth in order to allow for additional living areas. The insured’s claim arose out of the collapse of one of the basement walls due to the failure of the insured’s subcontractor’s  to follow construction recommendations and provide shoring as the excavation progressed. Litigation followed after Peerless declined plaintiff’s claim.

In ruling on cross summary judgment motions filed by the insured and Peerless, the court rejected the insured’s arguments that: (1) while the basement wall collapse may be excluded by the workmanship exclusion, the cost of building repair was a covered ensuing loss;  and that (2) the collapse occurred “underground,” and, therefore, the earth movement exclusion did not apply.   

The district court first concluded that the collapse was the result of the insured’s own acts or omissions in failing to underpin the basement as the excavation progressed and as the construction plan required. The court noted that the over excavation coupled with the lack of underpinning caused the collapse, which the insured’s own witnesses even tacitly admitted.  In following well established Virginia insurance precedent that an additional independent covered cause of loss is required in order to trigger a policy’s ensuing loss provision, the court found that no such independent subsequent loss existed in the instant case. See Travco Ins. Co. v. Ward, 715 F. Supp. 2d 699, 718-19 (E.D. Va. 2010), aff’d, 504 Fed. Appx. 251 (4th Cir. 2013) (declining to find the ensuing loss provision applicable because the relevant damage occurred gradually over a period of time and was merely a single discrete loss from a single discrete injury). In doing so, the court also departed with the recent cases that decline to require an independent and additional covered cause of loss before restoring coverage under an ensuing loss exception. See Selective Way Ins. Co. v. National Fire Ins. Co. of Hartford, 988 F. Supp. 2d 530, 538 (D. Md. 2013); see also Vision One, LLC v. Philadelphia Indem. Ins. Co. 276 P.3d 300, 308-09 (Wash.  2012).

The court was also unpersuaded by plaintiff’s attempt to distinguish the cost of replacing the workmanship (which the plaintiff, itself, conceded was not covered) from the cost of replacing the structure (which the plaintiff argued was an ensuing loss), as plaintiff’s argument was merely an erroneous attempt to separate cause and effect.

The court was likewise unpersuaded by the plaintiff’s argument that the earth movement exclusion did not apply since the collapse occurred “underground.” Essentially, the plaintiff contended that the earth movement exclusion is only applicable to movements or vibrations at the earth’s surface, yet, here, the relevant earth movement activity occurred “below grade.”  Based on the particular exclusionary language in the Peerless policy the court determined that the policy plainly indicates that the exclusion was applicable to both man-made and naturally occurring earth movement. The court then concluded that, regardless of the fact that the loss involved “below grade” damage (i.e., in the basement area under the building), the plaintiff’s relevant conduct still occurred at the earth’s surface and earth movement still occurred at the earth’s surface. The policy’s unambiguous earth movement exclusion, therefore, applied. The policy provided no indication that it was meant to exclude below grade activity. As the trial judge stated, “while the movement that caused the east wall’s collapse occurred below grade (in the basement, below the ground level of the structure), it still involved movement of the earth surface (the uppermost layer of the soil and clay).” As a result, Peerless prevailed on its motion for summary judgment; and the court denied the insured’s motion for summary judgment.

This recent decision is another example of the common coverage issues that can arise in the context of collapse.  In relation to ensuing loss, this opinion demonstrates how, under Virginia law, an additional and independent covered loss is still a prerequisite to trigger an ensuing loss, though not all jurisdictions are in agreement with this analysis.  This case further demonstrates that, regardless of the case law cited in support of the applicability or inapplicability of an exclusion like the earth movement exclusion here, a court will still look to the plain language of the particular exclusion at issue.  If that exclusion is clear and unambiguous, a court is unlikely to attempt to re-write the exclusion and overall intent of the policy, but, instead, apply it. Here, and regardless of other court decisions interpreting similar yet different earth movement exclusions, the court looked to the specific exclusionary language at issue here and applied it in the true meaning of its terms.

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Posted in Coverage, Earth Movement, Exclusions, Faulty Workmanship or Design
About The Property Insurance Law Observer
For more than four decades, Cozen O’Connor has represented all types of property insurers in jurisdictions throughout the United States, and it is dedicated to keeping its clients abreast of developments that impact the insurance industry. The Property Insurance Law Observer will survey court decisions, enacted or proposed legislation, and regulatory activities from all 50 states. We will also include commentary on current issues and developing trends of interest to first-party insurers.
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