As evidence of climate change continues to be felt around the world in a variety of ways, one overlooked source of damage lies beneath our feet. Heat emanating from basements, train tunnels, sewers and other underground systems in major metropolises is warming the ground between city surfaces and the bedrock. According to a recent study conducted in Chicago, the temperature increased by as much as 27 degrees Fahrenheit in some areas.
Sometimes referred to as “underground climate change,” these temperature increases impact ground soil conditions, causing layers of sand, clay and rock to expand or contract by as much as half an inch beneath some buildings. These conditions are already causing structural strains on buildings and exacerbating cracks and defects in walls and foundations. If the problem goes unabated, significantly more structural damage is expected.
Whether property insurance coverage will respond to loss and damage from underground climate change will likely hinge on applying various policy exceptions including the earth movement exclusion. Determining coverage in specific cases requires a careful analysis of language that varies from policy to policy, as well as state-specific rules concerning insurance causation.
The Earth Movement Exclusion and Insurance Causation
Courts across the country generally apply a very strict and narrow interpretation of exclusionary clauses, permitting insurance companies to avoid coverage only where they can demonstrate that the exclusion applies in the case and is subject to no other reasonable interpretation. Any ambiguity in exclusionary language is generally construed against the insurance company and in favor of coverage. That principle is important when disputes arise over underground structural damage causation.
A typical earth movement exclusion states that the insurance company will not pay for any losses resulting from earth movement, meaning “the sinking, rising, shifting, expanding or contracting of earth, all whether combined with water or not.” Regarding cause, “earth movement” includes, but is not limited to, earthquake, landslide, erosion and subsidence, but not does not include sinkhole collapse.
Insurance policy writers commonly include earth movement exclusions in all-risk property insurance policies, which the insurance company then asserts to deny coverage for property losses involving structural damage to foundations. All-risk policies generally cover all causes of direct physical loss or damage unless they are expressly excluded in the policy language.
Earth movement exclusions can be a formidable barrier to obtaining insurance coverage because they are often employed alongside anti-concurrent causation (ACC) provisions. ACC provisions typically state that the insurance company “will not pay for loss or damage caused directly or indirectly by [earth movement]. Such loss or damage is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss.” Therefore, if earth movement is a contributing cause of loss, the ACC clause purports to bar coverage entirely.
If the property insurance policy does not include an ACC clause, then a court would likely use one of two causation tests to determine whether a covered cause of loss was the reason for the policyholder’s property damage.
Most states apply the efficient proximate cause rule, under which policyholders’ property losses are deemed covered if the efficient proximate cause of the loss is a covered peril under the policy. For example, the 1992 case Album Realty Corp. v. American Home Assurance Co. involved a frozen pipe (an excluded cause of loss) that resulted in water damage (a covered cause of loss). The New York Court of Appeals found the loss was covered because the water was the dominant and proximate cause of the loss. Other courts have found the originating cause of loss to be the dominant and efficient proximate cause. Courts have not reached a consensus on what “proximate cause” means for insurance purposes and have employed a variety of criteria over the years, including substantial factor, most direct and obvious cause, predominate cause, prime cause, moving cause and causes that trigger a chain of events.
The second commonly applied test for insurance causation is the concurrent cause rule, under which policyholders’ losses are deemed insured if at least one of the causes that contributed to the loss is a covered peril under the policy. In the case of buildings suffering structural damage resulting from underground climate change, if a court finds that earth movement (an excluded cause of loss) partially caused the loss while rising underground temperatures (a non-excluded and therefore covered cause of loss) also partially caused the property damage, then the loss should be covered in any jurisdiction employing the concurrent cause rule.
Exceptions to the Earth Movement Exclusion
Many earth movement exclusions include exceptions, such as providing coverage where earth movement causes a fire or explosion. This provision might result in coverage for damages from the fire or explosion but not for damages directly caused by earth movement.
Further, depending on the applicable jurisdiction and the policy language, whether earth movement is human-caused or natural might matter. In most jurisdictions, damages resulting from human-caused earth movement might be covered if the policy terms do not expressly state that human-caused earth movement is excluded. Some courts have cited policy reasons when finding in favor of coverage for human-caused earth movement. For example, the Florida Supreme Court noted in Fayad v. Clarendon National Insurance Co., “When losses are caused by human activity, insurers have the opportunity to recover some of the payments made to their insured by asserting subrogation rights against the entity responsible for the activity.” However, insurers can forestall such interpretations with policy language that categorically states that damage caused by earth movement is excluded regardless of cause.
Coverage for an Abrupt Collapse
Another potential avenue to coverage is an abrupt collapse, which is generally not listed as an exception to the earth movement exclusion. Rather, it is an exception to the collapse exclusion typically contained in first-party property insurance policies or as additional coverage in either the policy form or in a standalone endorsement.
A policy typically defines and applies abrupt collapse coverage if the collapse results from delineated causes, which often include a variation of the language “building decay that is hidden from view unless the presence of such decay is known to the insured prior to collapse.” If underground climate change is causing unknown, hidden damages to a building’s below-grade structure and an abrupt collapse of the building results, there is an argument that the damages from the abrupt collapse are covered, notwithstanding the presence of an earth movement exclusion in the policy. Construing the policy as a whole and giving effect to all terms wherever possible should, at a minimum, result in an ambiguity in the policy that is construed in favor of coverage.
To determine if a particular loss stemming from underground climate change is covered, the specific language in the policy at issue must be examined in conjunction with state-specific rules of insurance policy interpretation, insurance causation and other jurisprudence in connection with the earth movement exclusion, collapse and other policy provisions. Should underground climate change go unabated, these issues will be litigated in most, if not all, states with major cities and underground systems within the next decade.