We get some pretty interesting claim scenarios at The FC&S. But then, you must too. Remember "the tree was suddenly there in the middle of the road, so I hit it?" This is the insurance industry, after all. Just about anything that can happen to folks involves insurance coverage.
Consider, for example, this question from a Montana FC&S subscriber to editor/analyst Diane Richardson, CPCU, our HO coverage expert:
Our homeowner insured (he has an HO-3 that is not an ISO form) came home from work to find that his basement had flooded. He has a dirt basement/root cellar (the house was built in 1925). The valve connecting the water meter to the main line into the house had worn out and blown.
The city water repairman was called and he had to dig a trench to pull the water line and connect a temporary valve. By the time the water could be shut off, the hot water heater was ruined, a support beam had caved in, and the walls were starting to collapse from the saturation.
At first, the adjuster said that everything should be covered. The next day, however, he said that the earth movement exclusion applied, as well as the exclusion for "settling, cracking, etc.," and that the only parts of the loss that would be covered were the hot water heater and the cost of drying out the basement.
When we asked for a reconsideration, the insurer said that the earth movement exclusion had been upheld in circumstances when pipes had broken, and continued its denial.
We think that there is coverage for much of this loss. We do not think that it is proper to deny coverage based on the earth movement exclusion. The efficient proximate cause of the walls' and beam's collapse was a covered cause of loss: the accidental discharge of water from within a plumbing system. The policy promises to pay for collapse "of any part of a building" (which the support beam certainly is) caused by a coverage C named peril. The beam fell; hence, it collapsed.
We do have a reservation about whether or not the dirt walls, the dwelling's foundation, can properly be called "part of a building." This is where your state may have precedence. We could find no cases addressing this issue.
Again, though, we do not think that use of the earth movement exclusion is proper. The examples of earth movement described in the exclusion, with the exception of "improper compaction, site selection, or other external forces," all describe naturally occurring phenomena, and not events triggered by covered causes of loss. The exclusion in this form adds that it applies "whether or not the earth movement is combined with water." While the various jurisdictions alluded to by the adjuster have upheld the exclusion in situations involving pipes leaking below slabs, causing the earth under the house to compact and the house to settle, none have addressed a situation such as this, in which the earthen walls themselves, the home's foundation, are caving in.
We looked up the definition of earth in Webster's Collegiate Dictionary (Tenth Edition), and it is not particularly helpful: "the fragmental material composing part of the surface of the globe; esp. cultivable soil." Are dirt walls earth or, by having been formed into a foundation, have they become something else? Certainly, they are no longer cultivable soil.
The adjuster also cites the exclusion for "settling, cracking, shrinking, bulging or expansion of pavements, patios, foundation, walls, floors, roofs, or ceilings." This exclusion applies to things that will occur over time and, thus, are uninsurable. Again, in this case, we have the walls damaged by a coverage C named peril.
We would like to add two further points. First, depending upon the provision in the homeowners policy for reasonable repairs to prevent further loss to covered property, we think that there may be coverage for the expense to uncover the water line in order to stop the flow, although not to repair or replace the valve. Second, from what you mentioned in your question, this insured has been with the same insurer for 25 years. Certainly, that was long enough to determine the acceptability and insurability of a dwelling on a dirt foundation.
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