Hurricane Matthew and Louisiana Flooding: Flood Insurance’s Earth Movement Exclusion
As Hurricane Sandy litigation winds down in New Jersey and New York, thousands of new flood insurance claims have been filed in in Louisiana, as a result of the catastrophic rains, and Florida, Georgia, South Carolina, North Carolina, and Virginia as a result of Hurricane Matthew. Inevitably homeowners and policyholders will begin to receive flood insurance checks. Many of the checks will be less than expected. One of the primary reasons that flood insurance checks are less than expected are due to denials by flood insurance companies for the Earth Movement Exclusion.
The Standard Flood Insurance Policy (“SFIP”) excludes certain losses from coverage. One of the exclusions is “loss to property caused directly by earth movement even if the earth movement is caused by flood.” 44 C.F.R. Pt. 61, App. A(1), Art. V(C). Earth movement includes earthquakes, landslides, land subsidence, sinkholes, destabilization or movement of land that results from accumulation of water in subsurface land area, and gradual erosion. Id. This exclusion has been recognized by various courts throughout the country, but in many claims this exclusion has been perverted by flood insurance companies to deny policyholders.
The earth movement exclusion has one exception which is covered by the SFIP: “losses from mudflow and land subsidence as a result of erosion that are specifically covered under our definition of flood (see II.A.1.c. and II.A.2.).” 44 C.F.R. Pt. 61, App. A(1), Art. V(C). In other words, the SFIP does not insure a loss from earth movement unless the earth movement results from mudslide or flood-related erosion. Plywood Prop. Assocs., 928 F. Supp. at 505–06.
On October 11, 2016, in an unpublished opinion in Elwell v. Selective Insurance Company, Judge Kugler, U.S.D.J., District of New Jersey, denied a flood insurance company’s summary judgment motion based on the earth movement exclusion. The Court found that a reasonable factfinder could conclude Plaintiffs’ property sustained losses that resulted from flood-related erosion.
The SFIP defines erosion as “[c]ollapse or subsidence of land along the shore of a lake or similar body of water as a result of erosion or undermining caused by waves or currents of water exceeding anticipated cyclical levels that result in a flood as defined in A.1.a. above.” Article II(A)(2). Judge Kugler found that based on a plain reading of Article II(A)(2), a plaintiff need show four elements to demonstrate flood-related erosion:
- collapse or subsidence of land;
- the land is along the shore of a lake or similar body of water;
- the collapse or subsidence resulted from erosion or undermining caused by waves or currents of water exceeding anticipated cyclical levels; and
- the waves or currents resulted in a flood as defined in Article II(A)(1)(a).
Other circuits have considered these factors when evaluating whether a loss resulted from flood-related erosion, even if those courts did not enunciate a specific test. See Armstrong v. Fid. Nat. Prop. & Cas. Co., No. Civ. G-10-202, 2014 WL 791377, at *2 (S.D. Tex. Feb. 25, 2014) (requiring land be along the shore of a body of water); Chesapeake Ship Propeller Co. v. Stickney, 820 F. Supp. 995, 999–1001 (E.D. Va. 1993) (requiring land be on the shore of a body of water and occurrence of a flood); McAlister v. Dir., Fed. Emergency Mgmt. Agency, 544 F. Supp. 15, 20 Vt. 1982) (requiring river to have risen beyond normal cyclical levels and occurrence of a flood); Woodson v. Allstate Ins. Co., No. 2:13-cv-21-BO, 2016 WL 2654390, at *5 (E.D.N.C. May 4, 2016), appeal filed (finding coverage where the plaintiffs showed subsidence of land, land was on the shore of a body of water, subsidence resulted from undermining caused by waves and an unusually high water level, and a severe storm).
According to Judge Kugler, the first factor, collapse or subsidence of land, is not defined in the SFIP or FEMA regulations. Black’s Law Dictionary defines subsidence as “[a]ny downward movement of the soil from its natural position; esp., a sinking of soil.” Merriam-Webster defines subside as “to sink or fall to the bottom.” Judge Kugler found that soil settlement qualifies as subsidence. Another circuit that has considered the question also found likewise. See Sodowski, 834 F.2d at 656 (holding that settlement of the ground from floodwaters surrounding the foundation “is clearly a type of land subsidence”).
Regarding the second factor, both parties in Elwell agreed the property was located on the edge of a bay. In weighing the third factor, Judge Kugler determined that whether waves or unusually high currents of water caused the subsidence could be presented by Plaintiffs’ expert, which attributed soil washout and undermining beneath the property’s foundations to Hurricane Sandy. Judge Kugler found that such evidence is enough for a reasonable factfinder to conclude that unusually high water levels was the cause of the subsidence. Regarding the fourth factor, Judge Kugler determined that Plaintiffs’ expert report described that Hurricane Sandy produced rising and raging waters, which was sufficient to demonstrate a flood, and Defendant insurance company did not dispute this factor.
The insurance company argued that damage to the structure of Plaintiffs’ property resulted from soil settlement, not erosion, and that soil settlement is excluded from SFIP coverage as earth movement. Judge Kugler found that the SFIP, however, does not state that flood-related erosion cannot also involve soil settlement or other earth movement. Indeed, the SFIP presents flood-related erosion as an exception within the general rule that earth movement is excluded from SFIP coverage — coverage for flood-related erosion is mentioned at the end of the provision that excludes earth movement losses, and definitions of both flood-related erosion and earth movement mention “subsidence.” Thus, flood-related erosion as contemplated by the SFIP may very well involve some movement of the earth. According to Judge Kugler, Congress simply made the decision to nonetheless include coverage of earth movement from flood-related erosion within the SFIP. See Pecarovich v. Allstate Ins. Co., 309 F.3d 652, 655 (9th Cir. 2002) (“As FEMA plainly intended to expand coverage to include land subsidence when the enumerated conditions are met, the land movement exclusion cannot bar coverage if the loss also falls within the coverage for land subsidence”). Simply because damage to property resulted from some earth movement does not take the damage out of the more restrictive category of flood-related erosion that Congress clearly intended to include within SFIP limits. As such, the Court denied Defendant’s Motion for Partial Summary Judgment in Elwell.
About the Author: Christopher W. Gerold is an attorney in Chiesa Shahinian & Giantomasi’s (“CSG”) Disaster Recovery Claims Group. Chris represents homeowners, condominium associations and businesses with their insurance claims with a special focus on flood insurance. For more information on flood insurance and ways CSG can help you with your flood insurance claim, please contact Chris at (973) 530-2061.