One of the biggest considerations for parties on both sides of any lawsuit is whether insurance coverage will apply to the plaintiff’s claims. This is especially true in construction defect cases, where the cost of repairing the alleged damage can be significant, and quite often beyond the financial means of the construction professional being sued. However, many litigants in construction defect cases, on both sides of the litigation, do not understand the intricacies of the insurance policy at issue, including the Earth Movement Exclusion present in many policies.
The general liability policies of construction professionals whose work involves construction or modification of the foundation of a structure, or any type of compaction, grading, or moving of land or dirt on a construction site, will typically include the Earth Movement Exclusion (the “Exclusion”). The Exclusion is a clause in the general liability policy that removes coverage under the policy for injury or damage that is wholly or partially caused by virtually all types of earth or land movement, whether occurring naturally or as the result of human action. A common version of the Exclusion in Florida reads:
This insurance does not apply to any “bodily injury” or any “property damage” that is directly or indirectly caused by, involves, or is in any way connected or related to any movement of earth, whether naturally occurring or due to man-made or any other artificial causes.
Movement includes, but is not limited to, settlement, cracking, contraction, compaction, compression, consolidation, subsidence, shrinking, expansion, heaving, swelling, cave-in, erosion, vibration, shock, earthquake, landslide, mudflow, wind-driven, freezing, thawing or any other movement of earth, regardless of the cause.
Earth includes but is not limited to any dirt, soil, terrain, mud, silt, sediment, clay, rock, sand, fill material or any other substances or materials contained therein.
Based on the plain reading of this exclusion, one can see how it can easily cover a wide range of defect cases and/or claims. Accordingly, the Exclusion has significant implications for plaintiffs and their attorneys when bringing a construction defect claim that may be the result of some sort of earth movement believed to be caused by a construction defect.
The duty of an insurer to defend an insured is triggered when the complaint alleges facts that fairly and potentially bring the suit within policy coverage. State Farm and Casualty Co. v. Higgins, 788 So. 2d 992 (Fla. 4th DCA 2001); Smith v. General Acc. Ins. Co. of America, 641 So. 2d 123 (Fla. 4th DCA 1994). Similarly, there will be no duty to defend or indemnify an insured where the lawsuit’s claims are clearly covered by an exception to the policy. Keen v. Fla. Sheriffs’ Self Insurance, 962 So. 2d 1021 (Fla. 4th DCA); Reliance Ins. Co. v. Royal Motorcar Corp., 534 So.2d 922 (Fla. 4th DCA 1988). Therefore, plaintiffs whose complaints allege some form of damage due to settling or shifting of the foundation as a result of a construction defect may find that they have pled themselves out of having the defendant’s insurer provide coverage and/or a defense related to the claim.
For instance, suppose a plaintiff contracts with a general contractor for the construction of a new home. A few years after the home is completed and the plaintiff has moved in, she notices that her outside pavers have become uneven and cracked; she then inspects the rest of her home and finds several small cracks at the base of some of her walls. The plaintiff hires a construction professional to assess the damage to her home, and is told that it will cost at least $75,000 to repair the damage. The professional further informs the plaintiff that the damage is likely due to poor construction by the contractor who built the home, so the plaintiff hires an attorney to sue the contractor for her damages. The attorney subsequently drafts and files a complaint, alleging that, because of poor construction by the contractor, there has been soil shifting or subsidence, which has resulted in the damage to plaintiff’s home.
Upon receiving the complaint, the contractor submits the claim to his insurer, who promptly denies coverage for the plaintiff’s claim based upon the Earth Movement Exclusion contained in the contractor’s policy. While the plaintiff has a legitimate claim, and the contractor is in fact culpable for the damage, the contractor does not have assets to cover the $75,000 cost of repair (let alone additional funds to cover the plaintiff’s claim for attorney’s fees when she wins the case). As a result, plaintiff is left with the option of giving up on her suit or pursuing a claim where, when she prevails, the contractor will not be able to satisfy her judgment.
However, if the plaintiff’s attorney had alleged that there was damage to the home as the result of a construction defect, but left out the allegations of the soil shifting or subsidence, then it is likely that, when the contractor submits the claim to his insurer, the insurer will at least have to defend the contractor by providing him with an attorney. As a result, the contractor will not be paying legal fees out of his own pocket and there is a chance the claim will be covered by the contractor’s policy, both of which facts can greatly influence whether or not a timely and successful resolution can be achieved for the plaintiff. The whole status of the case has been changed and the chance for plaintiff to settle her claim favorably has been greatly enhanced. Thus, one can see that, from the plaintiff’s perspective, an understanding of the Exception can have a significant and real impact on the success of a construction defect claim.
Similarly, an understanding of the Exclusion is also important for construction professionals as well. First, the professional needs to understand his general liability policy and determine if there is an Earth Movement Exclusion and then assess whether, and how, that Exclusion might be implicated in, or otherwise affect, his current and future projects. If the professional’s liability policy includes the Exclusion, perhaps the right decision for him is to purchase a policy wherein the Exclusion is not included. Alternatively, perhaps the right decision for him is to include an earth movement waiver in his own contracts, absolving him of liability for claims arising from earth movement. Regardless of how he chooses to address the situation, it is important for any construction professional whose work involves movement, compaction, or grading of soil to understand and consider the implications of the Exclusion to his business, and how to address such implications, prior to facing a defect suit involving earth movement.
Additionally, if a construction professional finds himself being sued for a claim involving possible earth movement, it is of equal importance that he consults an attorney who understands the implications of the Exclusion to review his policy and the lawsuit. At that time, the attorney can advise the professional whether he should persist in demanding coverage for the lawsuit’s claims (up to and including a declaratory action for coverage) or, if the attorney determines that the Exclusion applies, assist the professional in educating the plaintiff and her attorneys as to the implications of the Exclusion, how it affects the plaintiff’s claims, and negotiating a favorable resolution.
In summation, the Earth Movement Exclusion is an important and little-understood provision in construction professionals’ liability policies. Failure to understand and consider its implications can carry quite serious repercussions for the prosecution or defense of a defect case.