Written by Gary Reinhardt, Esq.
Recently, the United States District Court for the Eastern District of Virginia revisited the workmanship and earth movement exclusions of a Commercial General Liability policy and how the ensuing loss provisions impact coverage. In Taja Investments, LLC v. Peerless Ins. Co., 2016 U.S. Dist. Lexis 95760 (July 21, 2016), a wall collapsed during renovation of a row house. The construction company performing the renovations sought coverage for emergency measures to prevent further damage and the cost to restore the property to pre-collapse condition.
Investigation revealed that the insured intended to expand a crawl space to create a living area basement. However, the contractors doing the work ignored warnings about performing underpinning during the excavation process. Engineers determined that this failure to underpin the work coupled with unstable soil and clay below the surface caused the collapse. The insured did not dispute this finding. The carrier denied coverage for the loss asserting that the damage was excluded.
The insured sued for breach of contract. The Court granted summary judgment for the insurer on both the workmanship and earth movement exclusions. First, the Court stated that the workmanship exclusion “is applicable when the insured’s loss is attributable to the quality of the constructed property and arises from defects in the materials or process used by the insured or its agents to construct the property.” Id. at 9. Because “the cause of the collapse is directly attributable to the acts and omissions of Plaintiff in excavating the entirety of the basement without performing any underpinning to secure the foundation of the walls” the workmanship exclusion precluded coverage. Id.
Plaintiff countered this by arguing that the wall collapse amounted to an “ensuing loss” and thus covered under the policy’s collapse coverage. The Court also dismissed this argument because it was clear that “the [sole] cause of the collapse was due to the acts and omissions of the Plaintiff.” Id. at 15-16. “Virginia law requires that an additional covered peril is needed to trigger the ensuing loss provision.” Id. A mere passage of time between the act that triggered damage and the damage itself did not amount to an independent cause of loss required to be an “ensuing loss.” In order for an “ensuing loss” to trigger coverage, a separate and independent incident subsequent to the insured’s excavation had to cause the damage. This separate incident must be a covered cause of loss. Because the insured could not separate its own conduct (workmanship) from the loss itself, the ensuing loss exception failed to restore coverage.
Despite already deciding the case, the Court addressed the earth movement exclusion. The plaintiff argued that the exclusion did not apply because the earth movement occurred below grade. The plaintiff suggested that the exclusion only applies to earth movement or vibration at the earth’s surface. The Court turned to the policy itself and noted that policy had no limitation regarding the earth’s surface. Further, the policy broadly excluded earth movement damage, using the language “including but not limited to” to expand the scope of the exclusion beyond specifically listed incidents excluded from coverage. The Court rejected the plaintiff’s argument finding that “the Earth Movement exclusion covers Plaintiff’s conduct because the terms of the policy are unambiguous and Plaintiff may not introduce ambiguity in an attempt to alter the meaning of the Policy.” Id.
While “collapse” may be covered, workmanship and earth movement often exclude coverage for the “collapse.” An engineer can give you the reason for the collapse and support for asserting an exclusion. As in this Taja case, the engineer should examine all aspects of the collapse essentially on a timeline to counter any claims of “ensuing loss.” Remember, without a separate act or action, there is no ensuing loss coverage.