A New York state appeals court has rejected State Farm's effort to avoid paying damages from construction activity under a policy exclusion for "earth movement" generally linked to natural conditions.
The New York State Supreme Court Appellate Division First Department in Manhattan, ruling in the case of Deborah Lee vs. State Farm Fire & Casualty Co., rejected the insurance carrier's denial of a claim stemming from the collapse of a rental unit building as a result of nearby excavation.
State Farm had argued for an expanded interpretation of the so-called "earth movement" exclusion contained in most first-party property insurance policies.
Ms. Lee's attorney, Brian T. Valery of Anderson Kill & Olick, P.C., said the insurance industry has repeatedly interpreted this "earth movement" provision, which typically excludes coverage for damage caused to property by "sinking, rising, shifting, expanding, or contracting of earth, all whether combined with water or not," to exclude coverage for a wide range of occurrences, including damage caused to a property by human activity rather than by an act of nature.
In the case in question, Deborah and Sutin Lee own a three-story building in the Corona section of New York's Queens County that suffered physical damage when an adjacent property owner removed the lateral support of the Lees' building during construction.
Mr. Valery said the Lees' claim was over $500,000 for the property damage, which did not include lost rental income.
Specifically, excavation at the adjacent property below the Lees' foundation caused damage to their property and impaired its structural integrity, causing a collapse. The Lees' building was insured under an all-risk rental dwelling insurance policy sold by State Farm.
The Lees provided State Farm with notice of the collapse and requested coverage. State Farm denied coverage based on the earth movement exclusion policy.
After the Lees filed a lawsuit to secure their rights to insurance coverage, the trial court granted State Farm summary judgment, finding it properly denied the Lees insurance coverage for the collapse of their building based on the earth movement exclusion.
The Appellate Division found that the earth movement exclusion does not exclude coverage for earth "excavated from underneath the [policyholder's] dwelling."
In reaction, Mr. Valery said: "In New York and nationwide, insurance companies have cut the ground out from under property owners in their relentless drive to stretch the earth movement exclusion to the point of absurdity. This case shows that policyholders can prevail if they refuse to accept the overbroad application of this and other exclusions."
State Farm did not return a call for comment, but Mr. Valery said that as late as last week the company had not made a decision on whether to seek a review by the Court of Appeals, New York's highest tribunal.
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