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A History of Why Flood Insurance Is Not Covering Foundations Damaged by Hurricane Sandy

A History of Why Flood Insurance Is Not Covering Foundations Damaged by Hurricane Sandy

By far the biggest issue that leads Hurricane Sandy victims to my office is the improper denial by flood insurance companies of foundation damage caused by Superstorm Sandy.  Consistently, from Long Island, New York to Atlantic City, New Jersey – and every town in between – flood insurance carriers are denying foundation damage that should be covered.    

These improper denials can be traced to a 1985 ruling by the Eleventh Circuit Court of Appeals in the case of Quesada v Director.  In Quesada, the victims argued that their home sustained damage due to the fill settling or compacting underneath the home’s  foundation, which occurred after the fill became saturated by the water from Tropical Storm Dennis. The flood water never touched the Quesada’s residence but saturated the soil around it. When the saturated fill compacted, the floor slab underneath the Quesada’s home shifted, causing extensive cracking of the floors and walls. The Eleventh Circuit reasoned that the compaction of the soil would not have occurred “but for” the flooding, and held that the “earth movement” exclusion was not applicable. 

 Following the Quesada decision, the “earth movement exclusion” of the National Flood Insurance Program (NFIP) flood policy was amended to exclude coverage for subsidence.The new provision added the language “even if caused by flood…”, which clearly addressed the issue in Quesada where the water never touched the insured property and the damage occurred at a later time when the soil compacted. According to the new version of the provision, the flood water must make direct contact with the insured structure and must cause immediate damage in order for coverage to apply. Under the new version of the provision, the damage in Quesada would not be covered.    

 Because of the changes in the policy to the “earth movement exclusion,” cases decided prior to this change, including Quesada, are no longer good law. Unfortunately, no court has interpreted the earth movement exclusion in its current form insofar as it may apply to cases where there is direct contact with and immediate physical changes to the insured property. 

The plain meaning of the earth movement provision however, as it is written in current flood policies, states that while gradual erosion, destabilization or natural settlement and subsidence are excluded, subsidence of land along a body of water as a result of undermining by currents of water overflowing the banks of a natural body of water is covered. Simply stated, there is express coverage for earth movement/subsidence if the damage is covered under the definition of “flood” under the Standard Flood Insurance Policy (SFIP) offered under the NFIP.

If you have been denied flood insurance coverage of a damaged foundation because of the “earth movement exclusion,” and that damage occurred as a result of overflow from a natural body of water (ocean, bay, river, stream, lake, etc.), you should speak with an attorney.  The deadline to file a Proof of Loss is quickly approaching. Failure to file a timely and complete Proof of Loss may preclude additional recovery. 

About the Author: Christopher W. Gerold is an attorney in Wolff & Samson’s Disaster Recovery Claims Group. Chris represents homeowners, condominium associations and businesses with their Sandy related insurance claims with a special focus on flood insurance. For more information on flood insurance and ways Wolff & Samson can help you with your flood insurance claim, please contact Chris at (973) 530-2061.

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