The West Virginia Supreme Court recently issued an opinion interpreting common exclusionary language in a policy’s earth movement exclusion, as well as an ensuing loss clause in the same policy. The opinion was the result of a declaratory judgment action brought by the owners of a commercial property in St. Albans, West Virginia, after the property was damaged by a soil and rock slide. After inspecting the damage, the owners’ insurer, Erie Insurance Property and Casualty Company (“Erie”), denied coverage pursuant to an exclusion in the policy for damages caused by earth movement. The trial court entered judgment in favor of the owners, finding the exclusion was ambiguous and, therefore, the damages were covered under the policy. The trial court further found that the policy’s ensuing loss clause was also ambiguous and provided coverage for the loss.
On appeal, the West Virginia Supreme Court reversed the trial court. The supreme court held that exclusionary language in the policy, which contained the phrase “caused by an act of nature or is otherwise caused,” specifically precluded recovery for earth movement, whether naturally occurring or from manmade causes. In doing so, the court noted that all other courts which had construed this language reached the same conclusion. Further, the supreme court stated that the language in question was developed by the Insurance Services Office in 2013 specifically to address potential ambiguities in prior language utilized in insurance policies. Therefore the court held that the exclusionary phrase “clearly and unambiguously excludes coverage for a landslide resulting from a natural event or otherwise.”
The court went on to address whether the ensuring loss provision in the exclusion, which agreed to provide coverage for “fire, explosion, sprinkler leakage, volcanic action, or building glass breakage . . . for the ‘loss’ or damage caused by such perils,” was ambiguous and, therefore, provided coverage for the owners’ loss. Although the trial court found coverage for the owners’ entire loss based on this provision, the supreme court held that the trial court’s “interpretation of the ensuing loss provision is unjustifiable, based upon the purpose and express language of the ensuing loss provision.” Following the reasoning of courts in other jurisdictions, the West Virginia Supreme Court held that “an ensuing loss provision must not be applied to make an excluded loss reappear as a covered loss.” Instead, the ensuing loss provision “simply carves out a narrow exception to the exclusion, limiting the scope of what is otherwise excluded under the policy.” Thus, the ensuing loss provision could not provide coverage for losses unambiguously excluded by the policy.
Although this opinion deals specifically with a policy’s earth movement exclusion, the “or otherwise caused” language addressed in this opinion is language commonly used in other policy exclusions. Similarly, the ensuing loss provision (also sometimes called a resulting loss provision) is a common feature in many insurance policies. Thus, the principles utilized by the West Virginia Supreme Court in construing these policy provisions are likely to have applicability to a broader range of insurance policy provisions and exclusions.
The case is Erie Insurance Property and Casualty Company v. Chaber, No. 16-0490 (Jun. 1, 2017), in the Supreme Court of Appeals of West Virginia. Please contact us if you would like a copy of the opinion or would like to discuss the case further.