• California's Fourth Appellate District Upholds Land Subsidence Exclusion in a Commercial General Liability (CGL) Policy
  • February 5, 2010 | Authors: William K. Enger; Jennifer Moon; Robert M. Young
  • Law Firm: Wilson Elser Moskowitz Edelman & Dicker LLP - Los Angeles Office
  • A recent decision by the Fourth Appellate District of the California State Court of Appeal, City of Carlsbad v. Insurance Co. of the State of Pennsylvania (2009 Cal.App. LEXIS 2025), has upheld a land subsidence exclusion to a CGL insurance policy, finding that the exclusion, which precludes coverage for “property damage arising out of land subsidence for any reason whatsoever,” is not ambiguous and does not violate Insurance Code Sec. 530.   This published decision should prove to be extremely useful to insurers seeking to assert such exclusions upon tender of a third-party landside claim.


    In March 2005, approximately 15 condominiums and the common area of the La Costa de Marbella Condominium Complex in the City of Carlsbad (the City) were destroyed or damaged when an earthen slope above the complex became saturated with water and slid into the complex below.  The saturation and subsequent landslide were apparently caused by the City’s negligent maintenance and repair of a fire hydrant and water line located within the complex.  When the homeowners sued the City for property damage and emotional distress, the City tendered the claims to the Insurance Company of the State of Pennsylvania (ISOP), which had issued back-to-back general liability policies to the City.  ISOP defended the lawsuit pursuant to a reservation of rights, ultimately paying to settle the homeowners’ emotional distress claims; however, it denied any obligation to indemnify the City for the property damage claims based on the policy’s land subsidence exclusion, which read in pertinent part: “We will not defend or pay under the Policy for claims or suits against you...(f)or property damage arising out of land subsidence for any reason whatsoever.”  The policy defined “land subsidence” as “the movement of land or earth, including, but not limited to, sinking or settling of land, earth movement, earth expansion and/or contraction, landslide, slipping, falling away, caving in, eroding, earth sinking, and earth rising or shifting or tilting.”

    Upon ISOP’s denial of an indemnity obligation for the property damage claim, the City sued ISOP, alleging breach of contract and breach of the implied covenant of good faith and fair dealing.  The City and ISOP filed cross-motions for summary judgment regarding the applicability of the land subsidence exclusion.  The City argued that, first, it was entitled to indemnification based on the “concurrent cause doctrine;” second, the exclusion was illegal in that it conflicted with Ins. Code Sec. 530 (which codifies the efficient proximate cause doctrine); and, third, the exclusion did not apply to landslides caused by man-made forces.  ISOP argued that the exclusion unambiguously barred coverage for all property damage arising out of landslides, the concurrent proximate cause doctrine was inapplicable; and, even if it were applicable, the exclusion still applied.  The trial court granted ISOP’s motion and denied the City’s.  The City appealed.

    The appellate court affirmed the trial court’s ruling.  First, it found that the exclusion unambiguously barred coverage for property damage caused by a landslide, regardless of the cause of the landslide, noting “the plain language of (the exclusion) applies to any causes, man-made, or otherwise.”  Next, the court held that the efficient proximate cause doctrine, which is codified in Ins. Code Sec. 530 and provides that, “An insurer is liable for a loss of which a peril insured against was the proximate cause, although a peril not contemplated by the contract may have been a remote cause of the loss; but he is not liable for a loss of which the peril insured against was only a remote cause,” was irrelevant to the analysis since the doctrine is limited to first-party claims.  Even if it was applicable, it would not create an indemnity obligation, though, since an insurer is free to exclude “...some manifestation of a covered peril, provided the exclusion plainly and precisely communicates to the insured which manifestation the policy does not cover.”
    In third-party cases, the court noted that the “concurrent proximate cause” doctrine applies.  This doctrine only applies, though, where there are “two negligent acts or omissions of the insured, one of which, independent of the excluded cause, renders the insured liable for the resulting injuries.”  The court held that this did not apply to the situation at hand as there was only one cause of the landslide.  
    Finding that the exclusion “plainly and precisely explained to the City that the peril of land subsidence, including landslides, was not covered, regardless of cause,” the court held for ISOP, finding it had no duty to indemnify the City for the property damage claims.