Landslides in California: What Are Your Insurance Options When You Feel the Earth Move?
| Publication year | 2017 |
| Author | Jonathan F. Golding and Christina R. Sansone |
Jonathan F. Golding and Christina R. Sansone
Jonathan Golding is a partner with the firm Golding + Lamothe with over 25 years of experience in civil litigation and problem-solving primarily focusing on real estate, insurance, construction, corporate, business, and healthcare matters. Jonathan practices in all California courts, Federal court, arbitrations, and mediations.
Christina Sansone has over 25 years of experience as a municipal attorney, primarily for the City of Glendale, California, where she was the chief legal adviser for the Public Works Department, and appeared on numerous occasions at public meetings before the City Council, boards, and commissions. Christina currently provides guidance and legal counsel for both private and public clients on public works matters. Christina is the Managing Editor for the California Real Property Law Journal and is a member of the Executive Committee for the California Lawyers Association Real Property Section.
California is as well known for slope instability as it is for sushi, Hollywood, and the Golden Gate Bridge. If you own residential real property in certain areas of California, slope instability is a fact of life. Late night talk show hosts joke that earthquakes and mudslides are two of the four seasons in California, and California residents might have a hard time challenging that thesis.
The purpose of this article is to consider the options that a residential property owner has when earth movement causes damage to real property.2 The damage may be to the land itself, structures and other improvements on the land, or both. In any case, a property owner may seek to look first to his or her own homeowners' insurance company to pay for the damage. When a property owner files an insurance claim on his or her own insurance policy, it is known as a "first-party claim." As will be set forth in more detail below, in recent years insurance companies have included language in their homeowners' policies that make it difficult to prevail on a first-party claim for property damage arising out of earth movement.
An alternative, although not an exclusive option, is for the property owner to look to others to blame for the property damage. When a property owner sues a third party, causing the third-party to tender the lawsuit to his or her liability insurance carrier, that is known as a "third-party claim." Although third-party claims for property damage arising out of earth movement are not without their difficulties, the authors have had more success with those types of claims than with first-party claims. The reason for this relates to the different legal standard for causation in third-party claim cases, as well as the relative costs and risks for insurance companies in adjusting third-party claims.
As a preface to any analysis of insurance policies, the first step always is to read the policy and all of its endorsements. Although most policies, including homeowners' policies, tend to be issued on standard insurance company forms, different policy forms and/or endorsements are commonly used. Moreover, insurance companies periodically update their policy and endorsement forms to address changes in legislation, case law, and insurance company risk profiles.
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Most property insurers do not intend to cover landslides or other earth movement of any type.3 In determining whether first-party coverage exists for a certain set of circumstances and a certain policy, the two fundamental issues are (1) is the property covered, and (2) is the cause covered.
Most property policies cover buildings (e.g., houses) and other real property improvements (e.g., paved areas, retaining walls, swimming pools, etc.). Most modern homeowners' policies exclude "land" as covered property, even if the land supports covered property.
A. Is the Property Covered?To give an illustration of these types of provisions, consider the following policy language taken from a State Farm Fire and Casualty Company ("State Farm") Homeowners' Policy (FP-7955 CA) (the "State Farm Policy").4 That policy, under Coverage A, provides coverage for a Dwelling. A "Dwelling" is defined as "the dwelling used principally as a private residence on the residence premises shown in the Declarations," and also includes: "structures attached to the dwelling;" "materials and supplies located on or adjacent to the residence premises for use in the construction, alteration or repair of the dwelling or other structures on the residence premises"; "foundation, floor slab and footings supported by the dwelling"; and "wall-to-wall carpeting attached to the dwelling."
Coverage B of the State Farm Policy covers "Dwelling Extension," which is defined as "other structures on the residence premises, separated from the dwelling by clear space." This includes "[s]tructures connected to the dwelling by only a fence, utility line, or similar connection. . . ."5
Virtually all insurance policies contain limitations and exclusions to coverage, including covered property. Significantly, the State Farm Policy excludes "land, including the land necessary to support any Coverage A property"; "any costs required to replace, rebuild, stabilize, or otherwise restore the land"; or "the costs of repair techniques designed to compensate for or prevent land instability to any property, whether or not insured under Coverage A."
B. Is the Cause Covered?The State Farm Policy has a section entitled "LOSSES NOT INSURED." That section excludes, among other things, losses caused by "Earth Movement," which is defined as "the sinking, rising, shifting, expanding or contracting of earth, all whether combined with water or not." Examples of excluded Earth Movement are "landslide, mudflow, mudslide, sinkhole, subsidence, erosion or movement resulting from improper compaction, site selection or other external forces. . . ."6
In evaluating whether policies such as the State Farm Policy provide coverage for a given loss caused, in whole or in part, by earth movement, courts consider the plain language of the policy, as well as public policy set forth in statutory provisions. Moreover, courts have developed well-honed rules of interpretation applicable specifically to insurance policies.
C. Statutory Framework Applicable to Insurance PoliciesSection 530 of the California Insurance Code provides:
An insurer is liable for a loss of which a peril insured against was the proximate cause, although a peril not contemplated by the contract may have been a remote cause of the loss; but he is not liable for a loss of which the peril insured against was only a remote cause.
At first blush, this language seems to suggest that where a loss is proximately caused by a covered peril, such as fire, the fact that "a peril not contemplated by the contract" is a remote cause of the loss should not preclude coverage so long as the covered peril (e.g., fire) is not a remote cause of the loss. However, section 532 of the Insurance Code clarifies that "a peril not contemplated by the contract," as set forth in section 530, must be distinguished from "a peril . . . specially excepted in a contract of insurance:"
If a peril is specially excepted in a contract of insurance and there is a loss which would not have occurred but for such peril, such loss is thereby excepted even though the immediate cause of the loss was a peril which was not excepted.7
Based on these sections, since earth movement usually is "specially excepted" as a cause of loss in homeowners' policies, California appellate courts have had many opportunities to interpret insurance policy coverage and exclusion language under the prism of public policy enacted in sections 530 and 532.8
D. Rules of Interpretation for Insurance PoliciesIn MacKinnon v. Truck Ins. Exchange,9 the California Supreme Court10 summarized the rules of interpretation for insurance policies, as follows:
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Interpretation of an insurance policy is a question of law and follows the general rules of contract interpretation. "The fundamental rules of contract interpretation are based on the premise that the interpretation of a contract must give effect to the 'mutual intention' of the parties. Under statutory rules of contract interpretation, the mutual intention of the parties at the time the contract is formed governs interpretation. Such intent is to be inferred, if possible, solely from the written provisions of the contract. The "clear and explicit" meaning of these provisions, interpreted in their "ordinary and popular sense," unless "used by the parties in a technical sense or a special meaning is given to them by usage, controls judicial interpretation. A policy provision will be considered ambiguous when it is capable of two or more constructions, both of which are reasonable. But language in a contract must be interpreted as a whole, and in the circumstances of the case, and cannot be found to be ambiguous in the abstract."11
In MacKinnon, the Supreme Court went on to explain that insurance coverage is interpreted broadly, but exclusionary clauses are interpreted narrowly, so that insurance policies will meet the reasonable expectations of the insured:
Moreover, insurance coverage is "interpreted broadly so as to afford the greatest possible protection to the insured, [whereas] . . . exclusionary clauses are interpreted narrowly against the insurer." "[A]n insurer cannot escape its basic duty to insure by means of an exclusionary clause that is unclear. As we have declared time and again 'any exception to the performance of the basic underlying obligation must be so stated as clearly to apprise the insured of its effect.' [Citation.] Thus, 'the burden rests upon the insurer to phrase exceptions and exclusions in clear and unmistakable language.' [Citation.] The exclusionary...
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