Insurer Can’t Deny Property Coverage Because of Nearby Excavation

June 3, 2009

An insurer can’t cite the commonly used earth movement exclusion to deny coverage to an insured whose property was damaged by excavation to a neighboring lot, a New York Appeals Court has ruled.

The case pitted the owner of condo building, Pioneer Tower Owners Association, against its insurer, State Farm Mutual Insurance Co. Pioneer filed a claim with State Farm when cracks began appearing in its building, and a structural engineer soon concluded they were due to excavation work on an adjacent lot. Although an underpinning had been built to protect Pioneer’s building, it was faulty, and as a result, earth slid away beneath condo building and damaged it.

State Farm rejected the claim, saying the earth movement exclusion — as well as several others — in the condo’s policy did not require them to pay for the damage. Lawyers for the building owner countered that the unusual circumstances of the — that is, the settling of a building due to an intentional excavation — were not within the ordinary bounds of the insurance policy’s exclusion. A lower court decided in favor of the condo owner, and State Farm appealed.

In an unusual decision, the Court of Appeals — New York’s highest court — found that both interpretations of the policy were reasonable. However, the court decided in favor of the condo owner, saying precedent required the court’s to adopt a reading of the policy that narrows the exclusion.

“This case is a close one, but we cannot say that the event that caused plaintiff’s loss was unambiguously excluded from the coverage of this policy,” wrote Judge Robert Smith in the court’s opinion.

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