Insurance Coverage for Damage to Building Caused By Excavation Next Door?

The New York State Court of Appeals, in its 2009 decision in Pioneer Towers Owners Ass’n v. State Farm Fire & Cas. Company, held that damage to a building caused by excavation work being conducted on an adjacent property was included in the coverage of an insurance policy that insured the building against accidental direct physical loss. 12 N.Y.3d 302 (2009). In Pioneer, plaintiff, owner of a condominium apartment building, began to notice cracks in the building and called in a structural engineer to evaluate the situation. A number of cracks, separations and open joints were found and it was concluded that they were caused by work in progress next door where excavation was being performed. Id. It was found that the underpinning was flawed, allowing dirt to slide out from under the building and causing damage. Id.

Plaintiff submitted a claim to its insurance provider which disclaimed coverage pursuant to an “earth movement” exclusion in the policy. Ultimately, the Court of Appeals ruled in favor of the plaintiff, indicating that earth movement exclusions are not applicable to losses caused by excavation. Id.

However, in a recent decision of the Court of Appeals in Bentoria Holdings, Inc. v. Travelers Indemnity Co., the Court held the opposite. 20 N.Y.3d 65 (2012). Similar to Pioneer, plaintiff’s building suffered cracks and a result of excavation being conducted on the lot next door. Plaintiff submitted a claim to its insurer who in turn disclaimed coverage. Id.

Unlike Pioneer, however, the policy listing “earth movement” as an exclusion also added “whether naturally occurring or due to man-made or other artificial causes” as an additional clause. Id. The additional clause alone differentiates Bentoria from Pioneer  and the defendant was thereafter granted summary judgment dismissing the insured’s complaint. Id.

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