Earth Movement Exclusion Defeats Claim for Coverage for Damages Caused by Landslide

JKT Associates, Inc. (“JKT”) appealed the district court’s summary judgment in favor of Atain Specialty Insurance Company (“Atain”) establlishing lack of coverage for defense or indemnity decision in the insurance coverage dispute. In Atain Specialty Insurance Company, a Michigan corporation v. JKT Associates, Inc., a California domestic stock corporation, and Elizabeth Christensen, an individual; Richard Meese, an individual; Lora Eichner Blanusa, M.D., an individual; Kristi Synek, an individual; Hidden Hills Owners’ Association, a California business entity, form unknown, No. 20-16366, United States Court of Appeals, Ninth Circuit (March 11, 2022) the Ninth Circuit reached a clear and obvious decision.

FACTS

JKT was hired by Lora Eichner Blanusa in 2011 to perform landscape and hardscape work on her home in the Hidden Hills subdivision of Napa, California. In 2019, after the property had been purchased by Richard Meese and Elizabeth Christensen, a catastrophic landslide occurred that caused portions of the rear of the property to slide downhill by 15 feet.

Meese and Christensen filed sued seeking damages from JKT, Blanusa, the developers of the subdivision, and the Hidden Hills Owners’ Association (“HOA”). The owner of an adjacent property, Kristi Synek, filed a separate state-court action, naming as defendants the primary developer and the HOA. Although not expressly named, JKT fell within the Synek complaint’s description of the “Design Professional Defendants” who were sued as unnamed “Doe” defendants. Moreover, the developer had previously informed JKT that it expected JKT to accept responsibility for repairs at both properties. JKT tendered both suits to its insurer, Atain, which provided a defense to JKT subject to a reservation of rights.

Three months later, invoking the district court’s diversity jurisdiction, Atain sued JKT, Chistensen, Meese, Blanusa, Synek, and the HOA seeking declaratory relief. The district court granted summary judgment to Atain, concluding that JKT’s liability under the Messe/Christensen and Synek suits was not covered by Atain’s policies and that Atain had no duty to defend JKT in those actions. By separate order, the court directed JKT to reimburse Atain for $105,608.59 in defense costs that Atain had incurred in defending JKT under the reservation of rights.

ANALYSIS

The Atain policies contain a “Subsidence Exclusion” that unambiguously precludes any possibility of coverage for the claims asserted against JKT in the Meese/Christensen and Synek suits. Atain therefore had no duty to defend JKT in those suits and no duty to indemnify JKT for any liability arising from those suits. See Montrose Chem. Corp. v. Superior Ct., 861 P.2d 1153, 1160 (Cal. 1993) (holding that duty to defend goes beyond duty to indemnify and arises “if the underlying complaint alleges the insured’s liability for damages potentially covered under the policy, or if the complaint might be amended to give rise to a liability that would be covered under the policy”).

The Subsidence Exclusion provides, in relevant part:

This insurance does not apply and there shall be no duty to defend or indemnify any insured for any “occurrence”, “suit”, liability, claim, demand or cause of action arising, in whole or part, out of any ‘earth movement.’ This exclusion applies whether or not the ‘earth movement’ arises out of any operations by or on behalf of any insured.

‘Earth movement’ includes, but is not limited to, any earth sinking, rising, settling, tilting, shifting, slipping, falling away, caving, erosion, subsidence, mud flow or any other movements of land or earth.

The Ninth Circuit, stating the obvious, concluded that because a landslide is an “earth movement,” the plain terms of this exclusion bar any coverage for any claim “arising, in whole or part,” from the landslide at the Hidden Hills properties or from any “settling” or “slipping” that preceded that landslide, and it does so regardless of the cause of the landslide.

Accordingly, there can be a possibility of coverage, and a duty to defend, only if either the Meese/Christensen suit or the Synek suit seeks redress for non-landslide damages. Atain carried its burden to show, as a matter of law, that no such damages are at issue in either suit.

The Meese/Christensen complaint does not allege any facts or claims concerning injuries that occurred independent of the occurrence of the landslide and the earth movement that preceded it. Moreover, the only specified damages alleged in the complaint all flow from the landslide-namely, the “cost of interim and permanent repairs to the Property, a diminution in the value of the Property, the value of lost use of the Property, and other costs, fees, expenses and damages.”

Because all injuries connected to the Meese/Christensen complaint “aris[e], in whole or part, out of . . . ‘earth movement, ‘” there is no possibility of coverage under the Atain policies.

JKT does not point to any allegation in the Synek complaint that seeks compensable damage flowing from that alleged encroachment apart from its subsequent contribution to the landslide.

Because there was no potential for coverage, Atain had no duty to defend and no duty to indemnify. The Ninth Circuit concluded district court correctly granted summary judgment.

ZALMA OPINION

Insurers have never liked dealing with landslides and earth movement claims because they are difficult to evaluate, damages are hard to quantify, and a landslide will remove the place where a structure sat. The exclusions written are clear and unambiguous and even the Ninth Circuit found it necessary to rule in favor of the insurer.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

Over the last 54 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created a library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.

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