Insurer Can’t Deny Property Coverage Because of Nearby Excavation

By | June 2, 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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