March 20, 2015

“Earth Movement” Coverage in Builder’s Risk Policy Interpreted by Western District

By John Parnass

The Western District this week issued a ruling in an insurance coverage dispute that related mainly to the “earth movement” coverage provided by a Builder’s Risk policy (MKB Constructors v American Zurich Ins Co.).  The “earth movement” at issue was settlement of a building pad in soft spongy ground at a project in Alaska.  The policy defined “earth movement” as any “rising, sinking or shifting” of the earth.

The insurance company argued that the pad sank due to excessive loading of gravel by the contractor, and that such “man made” earth movement is not covered.

The District Court held that “earth movement” – even if caused by a “man made” force – was covered:

• “Nothing in the language of the policy requires that the earth movement at issue not be man-made. (See AZ Policy at 10.)  Indeed, the policy language refers to “any” earth movement and does not specifically reference any distinction between a natural or man-made event. (AZ Policy at 10.) Thus, even if the court were to accept American Zurich’s premise that the sinking of the tundra under the building pad was “man-made,” there is nothing in the policy language that negates coverage on that basis or undermines the jury’s verdict.”

The ruling also addresses IFCA and bad faith issues in detail.