Also known as the earth movement or land subsidence exclusion, the subsidence exclusion has been added by some insurers to certain commercial general liability (CGL) policies issued to contracting accounts. However, courts are divided as to its application.
The subsidence exclusion has a decidedly mixed history. A typical subsidence exclusion wording may read as the following.
This insurance does not apply to 'bodily injury,' 'property damage' or 'personal and advertising injury' claims caused by, resulting from, attributable or contributed to, or aggravated by the subsidence of land as a result of earthquake, landslide, mudflow, earth sinking, earth rising, or earth shifting.
But beware—the subsidence exclusionary wording often varies significantly. For example, some insurers stipulate that subsidence must result "from your operations or your subcontractor's operations." 1 Other insurers will add that the exclusion applies to the movement of land "regardless of whether emanating from, aggravated by, or attributable to any operations performed by or on behalf of any insured." 2 Still other insurers will add "however caused, and whether by natural, man-made, accidental or artificial means." 3
Mixed History
Courts regularly find the subsidence exclusion to be ambiguous. In many cases, the courts look at the exclusion and hold that the list of events purported to be excluded are naturally occurring events. Often relying on case law interpreting the earth movement exclusion applicable to first party insurance, courts tend to hold that the subsidence exclusion applies only to natural phenomena. However, the interpretation of the subsidence exclusion may turn on the actual exclusionary wording and the allegations against the insured.
For example, at least one court recognized that "earth movement exclusion clauses apply only to earth movement by natural causes unless the language of the exclusion explicitly states otherwise." See Nautilus Ins. Co. v. Vuk Bldrs., Inc., 406. F. Supp. 2d 899 (N.D. Ill. 2005).
Ambiguity of the Subsidence Exclusion
The subsidence exclusion enumerates different types of earth movement. For example, earthquake, landslide, mudflow, earth sinking, rising, or shifting are types of earth movement. But simply listing these events does not address the causes of the earth movement that are purported to be excluded. Because it is often the causes that the court is looking at, failure to identify the cause is viewed as an ambiguity. According to many courts, because the cause of the subsidence could be either man-made or naturally occurring, the exclusion is ambiguous.
Example 1: Man-Made or Naturally Occurring Earth Movement
An excavation contractor dug a trench in which piping was being installed. The trench collapsed, injuring a worker in the trench. The injured worker brought suit against the contractor for his injuries. The contractor's CGL policy contained the following exclusionary wording.
EXCLUSION—INJURY OR DAMAGE FROM EARTH MOVEMENT
…
This insurance does not apply to 'bodily injury,' 'property damage,' 'personal and advertising injury' arising out of, caused by, resulting from, contributed to, aggravated by, or related to earthquake, landslide, mud flow, subsidence, settling, slipping, falling away, shrinking, expansion, caving in, shifting, eroding, rising, tilting or any other movement of land, earth or mud.
The insurer argued that this earth movement exclusion included any earth movement, and thus the bodily injury that resulted from the trench collapse was excluded. The insured contractor argued that the exclusion applied only to naturally occurring events, which the trench collapse was not. Citing several first-party insurance cases, the court ultimately found the exclusion was ambiguous because the exclusion could apply to either man-made or naturally occurring earth movement. Applying the reasonable expectations doctrine, the court then ruled the exclusion applied only to earth movement that was naturally occurring—and that the exclusion did not apply to the trench collapse. 4See Broom v. Wilson Paving & Excavating, Inc., 356 P.3d 617 (Okla. 2015).
Example 2: Subsidence However Caused
A commercial rock drilling and blasting contractor was alleged to have caused structural damage to a group of nearby homeowners as a consequence of blasting for a construction project. The CGL policy for the blasting contractor included the following (in pertinent part) subsidence exclusion wording.
'Bodily injury' or 'property damage' directly or indirectly arising out of caused by, resulting from, contributed to, aggravated by or related to the subsidence, settling, settlement, expansion, sinking, slipping, falling away, tilting, caving in, shifting[,] eroding, rising, heaving, landslide, flood or mud flow, earthquake, volcanic eruption or other tectonic processes or any other movement, of land or earth, however caused, and whether by natural, manmade, accidental, or artificial means.
The insurer's coverage position was that the allegations in the complaint filed by the homeowners all fell within the terms of the subsidence exclusion. The insured blasting company argued the exclusion was ambiguous as to whether blasting operations were excluded. The court ruled that, while earthquakes and landslides can be triggered by human activity, the plain meaning of the exclusion was that it applied only to natural phenomena. The court also dismissed the specific wording in the exclusion "however caused, whether natural or manmade," referring to the phrase as a "catch-all" and holding an ambiguity still existed as to what types of man-made subsidence fell under the exclusion. See National Quarry Servs. v. First Mercury Ins. Co., 372 F. Supp. 3d 296 (M.D.N.C. 2019).
Example 3: Subsidence of Land
An excavation contractor was alleged to have negligently performed its services by removing soil, sand, and other materials beneath the footings of certain property, which caused neighboring properties to shift. The shifting caused damage to neighboring properties' foundations, footings, and masonry walls. The excavation contractor's CGL policy included the following subsidence of land exclusion.
This insurance does not apply to 'bodily injury,' 'property damage,' 'personal and advertising injury' or 'medical payments' caused by, resulting from, contributed to or aggravated by the 'subsidence' of land.
'Subsidence' means 'earth movement, including but not limited to landslide, mud flow, earth sinking, rising, or shifting.'
The insurer argued that because the property damage was caused by subsidence of soil under the neighboring properties, the damage was excluded by the subsidence of land exclusion. The insured excavation contractor asserted that subsidence was not subject to the exclusion.
Considering case law from other jurisdictions because the state court had few opportunities to rule on similar exclusions, the court relied on another court's determination that the "majority of courts that have considered earth movement exclusions have found them to be ambiguous. Unless the exclusion explicitly states otherwise, the exclusion applies only to natural causes." The court held that the exclusion covered only earth movement due to natural causes, finding that the omission of "regardless of cause" to be significant. See Nautilus Ins. Co. v. Vuk Bldrs., Inc., 406 F. Supp. 2d 899 (N.D. Ill. 2005).
Reasonable Expectations of the Insured
In at least one instance, even though the court ultimately found the exclusion was not ambiguous, it still did not apply because the exclusion was not in keeping with the insured's reasonable expectations. In this case, a bicyclist was injured in a development's roadway when she hit a sinkhole and was propelled forward onto the pavement. The bicyclist sued the developer for negligence in the management and maintenance of the development. The developer tendered the suit to its insurer, which disclaimed coverage due to a subsidence exclusion.
The trial court found the exclusion was ambiguous. However, the appellate court disagreed with the trial court, concluding that the exclusion plainly excluded from coverage any losses from the movement of the land—citing the exclusionary wording "however caused, and whether natural or manmade, accidental or artificial means." The court went on to concede that the wording was not limited to soil migration by natural causes. Nonetheless, the appellate court held that the exclusion did not apply because it was in discord with the reasonable expectations of a developer regarding the type of coverage provided to them under the CGL. The court did not favor an exclusion that would apply to the "mere act of putting shovel in the ground, digging a hole, and failing to cover it up." See Matchaponix Est., Inc. v. First Mercury Ins. Co., No. A-4784-15T4, 2017 N.J. Super. Unpub. LEXIS 1697 (Super. Ct. App. Div. July 10, 2017).
Exclusion Not Applied because of the Allegations Against Insured
Sometimes the allegations in the complaint are deemed to fall outside of the subsidence exclusion, even if the bodily injury or property damage was caused by subsidence. In other words, whether the exclusion applies may be dependent on the specifics of the allegations in the complaint when harmonized with the specific wording in the exclusion.
Land Movement Caused by the Insured's Operations
A contractor was engaged by a homeowner to repair the home's foundation—to raise, level, and stabilize the foundation. Several years later, the homeowner found cracks in the walls and ceiling of the home and filed suit, alleging that the contractor's negligence in performing the foundation repairs caused the cracks. The foundation repair contractor's CGL policy included the following subsidence exclusion.
It is agreed that this policy shall not apply to any claim of liability … 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 your operations or your subcontractor's operations.
The trial court found the exclusion applied because the alleged foundation movement would not have occurred but for the faulty repair. In reversing, the appellate court held that the trial court's focus on the movement of the foundation was improper. The subsidence exclusion applied only to the movement of land, not the movement of the foundation. Furthermore, for the exclusion to apply, the appellate court noted the "resulting from your operations …" limited the exclusion to land movement caused by the insured's operations. As it was not alleged in this matter that earth movement was caused by the foundation repair contractor's operations, the exclusion did not apply. The foundation repair contractor did not cause the earth to move. SeeWilshire Ins. Co. v. RJT Const. LLC, 581 F.3d 222 (5th Cir. 2009).
Loss Due to Faulty Workmanship
In a motion for reconsideration, a trial court stood by its holding that a subsidence exclusion did not apply to liability arising out of poor workmanship. In other words, as poor workmanship was alleged, the court found the subsidence exclusion did not apply. The court has also found that subsidence exclusion was ambiguous because the exclusionary wording did not expressly state it applied to man-made subsidence—and, therefore, applied only to naturally occurring phenomena. SeeFairfield Homes, Inc. v. Granite State Ins. Co., No. CV 09-360 TUC DCB, 2011 U.S. Dist. LEXIS 31738 (D. Ariz. Mar. 24, 2011).
Subsidence Exclusion Enforced
Loss from Seismic Activity/Earthquake
An oil and gas operator was sued by several plaintiffs alleging their operations resulted in seismic activity that caused bodily injury to the plaintiffs and/or property damage to their property. The operator's CGL policy included the following subsidence exclusion.
This insurance does not apply to 'property damage,' whether direct or indirect, arising out of, caused by, resulting from, contributed to, or aggravated by the subsidence, settling, expansion, sinking, slipping, falling away, tilting, caving in, shifting, eroding, mud flow, rising or any other movement of land or earth, whether or not any of the foregoing emanate or arise from or are related to the operations of the insured or any other person for whose acts the insured is legally liable.
The insured oil and gas operator argued that because the term "earthquake" was omitted from the exclusion (but added to later editions of the exclusion), the seismic activity alleged in the complaints was not excluded. The insured also argued that its reasonable expectations should be honored, citing two prior cases in which the high court found the subsidence exclusion was ambiguous as to whether the earth movement was caused naturally or by human activity. Nonetheless, the high court affirmed the trial court, holding the subsidence exclusion clearly and unambiguously precluded coverage for property damage claims alleged by the plaintiffs.
The high court did not directly address whether the exclusionary wording, which did not explicitly include "regardless of cause" or "whether man-made or naturally occurring," was ambiguous. SeeNational Am. Ins. Co. v. New Dominion LLC, 499 P.3d 9 (Okla. 2021).
Loss from Nonnatural Activities
In the construction of a condominium, an excavation contractor exposed an area of an adjacent building, which apparently did not have support for its wall. The wall collapsed, ultimately requiring the complete demolition of the adjacent structure. In addition, injuries were sustained as a result of the wall collapse. The contractor's CGL policy included the following exclusion.
'Movement of land or earth' regardless whether emanating from, aggravated by, or attributable to any operations performed by or on behalf of any insured, and regardless whether first manifestation of same occurs during the policy period or prior or subsequent thereto.
'Movement of land or earth' includes instability, subsidence, settling, sinking, slipping, falling away, caving in, shifting, eroding, rising, tilting, bulging, cracking, mud flow, mudslide, earthquake, shrinking or expansion of ground, slabs, footings, foundations, walls, roofs, floors, ceilings or any other real property or part thereof[.]…
The insured argued that exclusion applied only to natural phenomena and cited a number of cases as support for its position. The court found that all of the cases were distinguishable as the wording on which the cited cases were based did not explicitly define earth movement as including nonnatural activities as the insurer did in this matter. The court specifically pointed to earth movement "emanating from, aggravated by, or attributable to any operations performed by or on behalf of any insured" as including caused by nonnatural activities.
Accordingly, the court ruled that the exclusion clearly and unambiguously applied and went on to comment that earth movement exclusions were not universally interpreted to encompass only naturally occurring earth movement but that such exclusions were interpreted on a case-by-case basis "in accordance with the specific exclusion's language." SeeEssex Ins. Co. v. New Jersey Pan-African Chamber of Commerce & Ind., Inc., No. A-1178-11T4, 2013 N.J. Super. Unpub. LEXIS 2119 (Super. Ct. App. Div. Aug. 27, 2013).
Exclusion Clearly Applied to Natural or Man-Made Cause
An appellate court affirmed a trial court's holding that the subsidence exclusion applied. Property damage to two adjacent properties was excluded because the court found the following exclusion was "susceptible to no other reasonable interpretation."
This policy does not apply to any liability for 'Bodily Injury,' 'Personal Injury,' disease or illness, including death, or 'Property Damage' or loss of, damage to, or loss of property, directly or indirectly arising out of, caused by, resulting from, contributed to or aggravated by the subsidence, settling, sinking, slipping, falling away, caving in, shifting, eroding, mud flow, rising, tilting, bulging, cracking, shrinking, or expansion of foundations, walls, roofs, floors, ceilings, or any other movements of land or earth, regardless of whether the foregoing emanates from, or is attributable to, any operations performed by or on behalf of any insured.
The italicized phrase in the exclusion was supplied by the court, suggesting that this phrase resolved any dispute that the subsidence exclusion applied to only naturally occurring subsidence or earth movement. SeeRego Park Holdings LLC v. Aspen Specialty Ins. Co., 2016 NY Slip Op 05137, 140 A.D.3d 1147, 35 N.Y.S.3d 217 (App. Div. 2nd Dept. 2016).
First-Party versus Third-Party Insurance
It is troubling that courts rely on first-party insurance earth movement exclusions to interpret a third-party subsidence exclusion. In such cases, there is seemingly no recognition of the fundamentally different purpose of each policy. While first-party policies are concerned with the causes of loss, liability policies are concerned not only with the causes but also who caused the loss. Liability policies pay only when an insured has a legal obligation to pay. Absent legal liability, the insurer is not obligated to pay—regardless of whether the loss may be a covered event.
It should be obvious, then, that a subsidence exclusion attached to a CGL policy is intended by the insurer to apply only if an insured is legally obligated to pay for the results of the subsidence. In other words, an insurer's subsidence exclusion plainly is not targeting only naturally occurring earth movement but rather any earth movement that causes bodily injury or property damage for which the insured may be liable.
Insurers have argued this point, but such arguments have generally been brushed off by the courts. For example, one insurer argued that reading an implied "natural causes" limitation into a subsidence exclusion contained in a liability policy was nonsensical since liability policies do not insure against losses resulting from "natural causes" and further that the only reasonable construction of the exclusion is that the parties agreed that the insurer would not provide coverage for risk of construction-related subsidence. Any other reading would effectively eliminate the subsidence exclusion altogether. The court readily dismissed the notion, speculating that an insurer may want to exclude natural causes for hazards to which the construction business is not generally subject. See Nautilus Ins. Co. v. Vuk Bldrs., Inc., 406 F. Supp. 2d 899 (N.D. Ill. 2005).
In another case, the insurer asserted that a general liability policy would never cover a contractor for damage caused solely by natural phenomena and, therefore, the exclusion necessarily required some person's acts or omissions to have contributed to the damage. Construing the exclusion as being limited solely to damages caused by natural phenomena would render the exclusion meaningless. The court responded that the insured's arguments that the exclusion did not state that the exclusion applied to man-made subsidence was equally persuasive. SeeFairfield Homes, Inc. v. Granite State Ins. Co., No. CV 09-360 TUC DCB, 2011 U.S. Dist. LEXIS 31738 (D. Ariz. Mar. 24, 2011).
Finally, a strongly worded dissent by a state supreme court justice shows some understanding, albeit in the minority, that consideration of the fundamental purpose of the policy cannot be ignored when interpreting the subsidence exclusion.
To construe the exclusion as ambiguous and to interpret it to apply only to naturally occurring earth movement is a tortuous reading of its words. The entire case should turn on the purpose of the insurance policy and the plain language of the exclusion. The Court confuses this liability policy with a homeowner's or all-risk policy and then gives only a passing analysis to the actual language at issue. The endorsement applies to events related to earth movement. The cause of the event is not limited by the policy; this Court cannot in turn choose to limit those causes. The plain language establishes that the parties intend to extend the endorsement to earth movement whether natural or man-made. Yet, the Court chooses to rewrite the exclusion and to ignore the intent of the parties apparent from the endorsement's plain language.
— Broom v. Wilson Paving & Excavating, Inc., 356 P.3d 617 (Okla. 2015).
Conclusion
While some courts have summarily dismissed insurers' arguments that the subsidence exclusion is rendered meaningless if it is deemed to apply only to natural phenomena and not to any man-made earth movement, this may not always be the case. In other words, it may not be wise to rely on past cases finding an ambiguity. For example, in 2015, in Broom v. Wilson Paving & Excavating, Inc., the Oklahoma Supreme Court found that subsidence exclusions were ambiguous and, therefore, should be interpreted to apply to only natural phenomena. Yet in late 2021, in National Am. Ins. Co. v. New Dominion LLC, that same court, in what it labeled a "similar" exclusion, found the subsidence exclusion clearly and unambiguously applied.
Even if the subsidence exclusion is found to apply to both man-made and naturally occurring earth movement, that does not end inquiry as to its scope. For example, will the exclusion only apply if the insured causes the actual earth movement? Or will the exclusion apply to any earth movement, even if not caused by the insured, if (as most exclusions preamble states) the bodily injury or property damage was contributed to or aggravated by the subsidence. In other words, will the exclusion be applied even if the allegations are that the insured failed to properly construct a structure to withstand normal and expected subsidence?
These answers will depend on the actual exclusionary wording as well as the specific allegations against an insured.
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