Most commercial and personal lines property insurance policies exclude damage caused directly or indirectly by the peril of “earth movement.” The ISO version of this exclusion appears in many modern policies and provides that:

  1. [Insurer] will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.

b. Earth Movement

(1) Earthquake, including any earth sinking, rising or shifting related to such event.
(2) Landslide, including any earth sinking, rising or shifting related to such event.
(3) Mine subsidence, meaning subsidence of a man-made mine, whether or not mining activity has ceased;
(4) Earth sinking (other than sinkhole 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.

(See Causes of Loss—Special Form, CP 10 30 10 00, Copyright Insurance Services Office, Inc. 1999)

For more than a decade, courts throughout the country have wrestled with the question of whether the Earth Movement exclusion applies in all circumstances where earth movement plays some part in the chain of events that produced the loss. Most of the reported decisions address the interpretation and application of subparagraph (4) of the exclusion, quoted above. The loss scenarios that typically spawn coverage litigation involve some form of damage to a building’s structure (floor slab, foundations walls, etc.) caused by the movement or depletion of supporting or surrounding soil due to, (i) demolition, blasting or heavy construction activities at neighboring properties; or (ii) water leaking from an underground supply or drainage pipe.

A number of jurisdictions have construed the Earth Movement exclusion narrowly and ruled that it applies only to earth movement associated with “natural” causes (such as an earthquake or landslide), and not to construction or other causes involving human intervention. En route to finding coverage, those courts typically rely on the historical development of the Earth Movement exclusion or resort to the doctrine of “reasonable expectations.” In the other camp lie courts that apply the exclusionary language literally to bar coverage for all property damage associated with earth movement, regardless of what caused the ground to move. Those courts often rely upon the anti-concurrent causation language of the exclusion: “Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.”

Until recently, there was no Massachusetts appellate authority addressing the breadth of the Earth Movement exclusion. That changed on September 20, 2012, when the Massachusetts Appeals Court issued its opinion in Audubon Hill South Condominium Association v. Community Association Underwriters of America, 2012 WL 4095364, Case No. 11-P-1546 (Mass. App. Ct., Sept. 20, 2012) (hereinafter “Audubon Hill”). In that case, the Court held that the ISO Earth Movement exclusion barred coverage for the sinking and cracking of a concrete floor slab where the evidence revealed that the soil beneath the slab had been gradually washed out due to a leaking water pipe. Id. at * 5.

The facts of Audubon Hill are fairly straightforward. Community Association Underwriters of America (“CAU”) issued a policy to the Audubon Hill South Condominium Association (“Audubon”) insuring the common elements of the condominium. Before CAU’s policy incepted, a unit owner discovered depressions in the floor of her front foyer and her kitchen, which she attributed to “natural settling.” During the policy term, however, the owner noticed new depressions in the floor of the master bedroom and other damage to the kitchen floor. An engineer retained by Audubon investigated the problem and determined that a broken water pipe located beneath the concrete slab had released water and caused the slab to sink several inches. Id. at * 1.

In March 2007, Audubon submitted a claim under its policy with CAU. An engineer hired by CAU investigated the cause of loss and agreed with Audubon’s engineer that water leaking from the broken pipe gradually eroded the soil supporting the floor slab, causing the slab to settle. Relying on its engineer’s findings, CAU denied coverage for the slab settlement and other damage based upon the policy’s Earth Movement exclusion, which featured the language quoted above. Id. at * 1. Audubon contested the coverage denial. However, because Audubon and CAU also disagreed as to the value of the property damage caused by the slab failure, the parties submitted the dispute to “reference,” the Massachusetts equivalent of appraisal. Ultimately, the appraisers determined that the cost to repair the slab damage was $64,000.00. Id. at *2. Relying on its coverage denial, CAU made no payment. Audubon responded by suing CAU for breach of the insurance contract and violation of the Massachusetts Consumer Protection Act, Mass. Gen. L. c. 93A.

CAU and Audubon filed cross-motions for summary judgment addressing the applicability of the Earth Movement exclusion. The trial court agreed with CAU that the damage fell within the Earth Movement exclusion and entered summary judgment in CAU’s favor. Id. at * 2. After the trial court denied Audubon’s motion for reconsideration of the summary judgment ruling, Audubon appealed.

The Appeals Court affirmed the trial court’s orders granting summary judgment for CAU and denying Audubon’s motion for reconsideration. The Court’s analysis of the Earth Movement exclusion was short and to the point. Relying on the anti-concurrent causation language of the exclusion, the Court reasoned that, “once [Audubon’s] engineer acknowledged the causal role of earth movement, the loss moved out of the policy coverage.” Id. at * 5. This statement is significant, as it reflects the view that the Earth Movement exclusion applies to all damage that involves the peril of earth movement, regardless of what forces or conditions produce the earth movement.

According to the logic adopted in Audubon Hill, the Earth Movement exclusion also should apply to the hypothetical scenario where a building’s foundation sustains damage from the displacement of surrounding soil due to vibrations from nearby construction. Under Justice Sikora’s analysis, the anti-concurrent causation language renders the cause of the earth movement moot. So long as the peril of earth movement (as defined in the policy) is part of the chain of causation that produces the damage, the loss is not covered.

The Appeals Court’s decision in Audubon Hill stands as the only Massachusetts appellate authority addressing the breadth of the Earth Movement exclusion. However, it is not the only decision applying Massachusetts law to that exclusion in this particular factual scenario (depletion of underlying soils due to a water leak). In March 2012—approximately six months before the Appeals Court issued its ruling in Audubon Hill—a federal court sitting in Massachusetts ruled that the identical Earth Movement exclusion did not apply to damage to a floor slab caused by the erosion of soil from a leaking pipe. Espedito Realty, LLC v. National Fire Ins. Co. of Hartford, 849 F.Supp.2d 179 (D. Mass. 2012). In Espedito Realty, the water that eroded the soil beneath the floor slab of the insured warehouse was released suddenly when a pipe on the second floor of the warehouse burst and went undetected over a weekend. The insurer denied coverage based upon the Earth Movement exclusion, and Espedito Realty filed suit for breach of contract.

The district court (a federal trial court) rejected the insurer’s argument that the Earth Movement exclusion applied in every situation where earth movement played some part in causing the loss. Finding no Massachusetts authority to guide it, the district court examined case law from other jurisdictions. The court found “particularly helpful” a 2011 decision in which the Nevada Supreme Court held that the ISO Earth Movement exclusion was ambiguous and did not apply to property damage caused by soil movement from a ruptured pipe. Powell v. Liberty Mutual Fire Ins. Co., 252 P.3d 668 (Nev. 2011). To bolster its conclusion that the Earth Movement exclusion did not apply to a scenario in which water below the ground causes earth movement and resulting damage, the district court in Espedito Realty: (a) relied upon the historical development of the Earth Movement exclusion; (b) acknowledged authorities from other jurisdictions holding that the exclusion applies only to earth movement traceable to “natural” as opposed to “man-made” causes; and (c) applied the so-called “reasonable expectations” doctrine of policy interpretation. Id. at 184-185. Judge Ponsor’s reasoning in Espedito Realty plainly revealed his discomfort with the anti-concurrent causation preamble of the exclusion and a preoccupation with what he believed a “reasonable person” would think when reading the policy:

The unavoidable fact is that pipes burst rather frequently. It is a rare property owner who has not dealt with the problem, or at least suffered anxiety over the possibility, and it is hardly intuitive that an “earth movement” exclusion would bar coverage for the homely situation where a pipe bursts and a floor sinks as a result. No objectively reasonable insured reading the policy would think so, especially when the only reference to the impact of water is to “water flowing underground.” If the policy truly intended to cover this commonly recurring situation, it should have said so.

Id. at 185. Based on this reasoning, Judge Ponsor denied the insurer’s motion for summary judgment.

Prior to Espedito Realty, another Massachusetts federal court was faced with a dispute over the breadth of the ISO Earth Movement exclusion. In Mulhern v. Philadelphia Indemnity Ins. Co., 802 F.Supp.2d 317 (D. Mass. 2011), Philadelphia Indemnity insured a commercial building in Boston’s Roxbury neighborhood that was across the street from a site where a new warehouse was being built. Because the neighborhood lies atop a fairly deep layer of fill material placed in the early part of the 20th century, the warehouse was built atop hundreds of piles that were driven into bedrock. Shortly after the pile driving began across the street, Mulhern’s building began to suffer cracks in certain walls and other signs of damage. As the pile driving continued during the next two months, the damage to Mulhern’s building worsened, with the concrete floor slab settling and cracking. Id. at 319. Mulhern submitted a claim under his tenant’s policy with Philadelphia Indemnity, seeking more than $1 million for structural and cosmetic repairs. The insurer denied the majority of the claim based upon the ISO Earth Movement exclusion. Id. at 320.

In the ensuing lawsuit, the parties filed cross-motions for summary judgment. As part of their motion practice, the parties stipulated that vibrations from the nearby pile driving shook the layer of soil that directly supported the floor slab, causing the soil to sink and depriving the floor slab of its vertical support. Having no structural support, the floor slab settled and cracked. At summary judgment, Philadelphia Indemnity argued that because the displacement of the soil beneath the slab constituted “earth sinking” (within the meaning of the exclusion), the resulting damage to the building was excluded “regardless of any other cause or event [like pile driving] that contributed concurrently or in any sequence to the loss.” In his attempt to avoid application of the Earth Movement exclusion, Mulhern argued that the exclusion was ambiguous, and that it applied only to “natural” earth movement (such as earthquake). He also argued that the loss fell within the policy’s “Collapse” additional coverage.

The district court rejected Mulhern’s argument that the ISO Earth Movement exclusion was ambiguous, and found that it applied to earth movement caused by both “natural” and “manmade” forces. Id. at 322-323. The court also acknowledged that Massachusetts enforces anti-concurrent causation language in such exclusions. The remainder of the decision is somewhat perplexing, however. In spite of the parties’ stipulation as to the precise cause of the building damage, the district court found that, “there is a material dispute of fact as to whether ‘improperly compacted soil’ was the cause of the damage or whether vibrations emanating from the pile driving were the exclusive cause. This is an issue of fact for the jury to resolve.” Id. at 323. Based on this logic, the court denied both parties’ motions for summary judgment.

The Mulhern decision is puzzling because in its motion papers and at oral argument, Philadelphia Indemnity did not argue that the loss was caused by “improperly compacted soil.” Similarly, Mulhern never argued that vibrations from the pile driving directly damaged the building without the intervention of earth movement. Thus, it is unclear how the district court could find a disputed material fact as to the cause of loss. For this reason, the insurer sought clarification and/or reconsideration of the district court’s decision, but its motion was denied.

It is tempting to ponder how Espedito Realty and Mulhern might have turned out had Audubon Hill preceded them. Under the logic of Justice Sikora’s opinion in Audubon Hill—which is now binding Massachusetts precedent—the Earth Movement exclusion would exclude the damage to the floor of Espedito Realty’s warehouse even though the water from a broken pipe—and not an earthquake or other “natural” event—caused the soil beneath the floor slab to move. Of course, Judge Ponsor’s philosophical objection to a broadly-applied Earth Movement exclusion suggests that he might have searched for some way to distinguish or limit Judge Sikora’s opinion in Audubon Hill if given the opportunity. Moreover, it seems doubtful that Mulhern would have turned out differently, since the district court’s refusal to grant summary judgment for either party was predicated on what the court perceived as a dispute over whether the building damage was caused by vibrations (a covered peril) or improperly compacted soil (an excluded form of earth movement).

Looking forward, one thing is certain: Audubon Hill provides some much needed clarity in Massachusetts as to the breadth of the Earth Movement exclusion.