Title: Powell v. Liberty Mutual Fire Ins. Co.

State: nevada

Issuer: Nevada Supreme Court

Document:

4127 Nev, Advance Opinion I+
IN THE SUPREME COURT OF THE STATE OF NEVADA

MILDRED POWELL, No. 55159

Appellant, F 1 L E D

LIBERTY MUTUAL FIRE INSURANCE
COMPANY, Hat 052011
Respondent.

Appeal from a district court summary judgment in an
insurance action. Second Judicial District Court, Washoe County; Brent
TT. Adams, Judge.

Reversed and remanded,

Matthew L. Sharp, Reno,
for Appellant.

Koeller Nebeker Carlson & Haluck, LLP, and Megan K. Dorsey and Ian P.
Gillan, Las Vegas,
for Respondent,

BEFORE CHERRY, GIBBONS and PICKERING, Ji.

OPINION

By the Court, GIBBONS, J.
Appellant Mildred Powell filed an insurance claim with

respondent Liberty Mutual Fire Insurance Company to cover damage to

her house. Liberty Mutual denied the claim, stating that the damage was

excluded under the earth movement exclusion in Powell's insurance policy.

N-13205

 
Powell then filed a complaint against Liberty Mutual in the district court.
‘The district court eventually granted Liberty Mutual's motion for partial
summary judgment, concluding that the earth movement exclusion of the
Liberty Mutual policy excluded coverage of the damage.

We must determine whether the earth movement exclusion in
Powell's insurance policy with Liberty Mutual is enforceable to exclude
coverage of the damage to Powell's house and whether the district court
erred in granting summary judgment in favor of Liberty Mutual. First,
because the earth movement exclusion is ambiguous, we must construe it
against Liberty Mutual. Second, we consider whether Schroeder v. State
Farm Fire and Casualty Co,, 770 F. Supp. 558 (D. Nev. 1991), which held
that an earth movement exclusion barred recovery for similar damages to
those sustained here, was applicable to the present case. We conclude
that because the policy in Schroeder is distinguishable from the policy
here, Schroeder's holding is inapplicable. Thus, we hold that Liberty
‘Mutual's earth movement exclusion is ambiguous and must be enforced
against it, that the district court erred in granting summary judgment,
and that Schroeder's holding is case specific. Accordingly, we reverse and
remand.

FACTS AND PROCEDURAL HISTORY

Powell owns a house in Northwest Reno and has a
homeowner's insurance policy through Liberty Mutual. The policy has an
earth movement exclusion, which states in pertinent part:

We do not insure for loss caused directly or
indirectly by any of the following. Such loss is
excluded regardless of any other cause or event
contributing concurrently or in any sequence to

 
the loss. Earth movement, meaning
earthquake including land shock waves or tremors
before, during or after a volcanic eruption;
landslide, mine subsidence; mudflow; earth
sinking, rising or shifting.

The policy also has a settling clause, which further excludes losses caused
by “[slettling, shrinking, bulging or expansion, including resultant
cracking, of pavements, patios, foundations, walls, floors, roofs or ceilings.”

In July 2005, a water pipe in Powell's house exploded, flooding
the dirt sub-basement. Powell made a claim to Liberty Mutual because
her house had suffered a shift in the foundation and had suffered
extensive cracking and separation in the wall and ceiling in the area of the
entryway, kitchen, and two bedrooms. She attributed this damage to the
burst water pipe.

An expert chosen by Powell and hired by Liberty Mutual
inspected the house and concluded that “after many years of relative
foundation stability, [the house] is currently being affected by the
expansion of supporting clay soils. This expansion, while likely present in
lesser degrees in the past, has been severely aggravated by the intrusion
of a significant amount of water a short time ago...” Liberty Mutual
denied Powell's claim, citing the earth movement exclusion in her policy.
Powell asked Liberty Mutual to reconsider the claim, and it denied that
request. Then, Powell hired two professors of civil engineering at the
University of Nevada, Reno, to inspect the house, and these professors

"This lead-in clause is commonly referred to as an anti-concurrent
clause, which is meant to exclude damage caused by an excluded peril
even when covered perils also contributed to the damage. See Alamia v.
Nationwide Mut, Fire Ins. Co,, 495 F. Supp. 2d 362, 368 (S.D.N.Y. 2007),

 

 
on

 

concluded that there was “no evidence of earth movement, subsidence,
mudflow, earth sinking rising or shifting,” concluding that “the structural
cracking in the house was caused by swelling of foundation clay facilitated
by the access to water resulting from the water damage.” Powell
requested Liberty Mutual to reconsider her claim again, and Liberty

Mutual denied the reques

 

After her requests for reconsideration were denied, Powell
filed suit against Liberty Mutual in the Second Judicial District Court of
Nevada, alleging breach of contract, breach of the duty of good faith and
fair dealing, and breach of the Nevada Unfair Claims Settlement Practices
Act.? Liberty Mutual filed a motion for partial summary judgment on the
breach-of-contract and  breach-of-the-duty-of-good-faith-and-fair-dealing
claims. The district court granted the motion on the bad faith claim in
part, but denied it on the breach of contract claim, finding that there were
genuine issues of material fact as to what caused the damage to Powell's
house.

Subsequently, both Liberty Mutual and Powell hired their own
experts to inspect the house in preparation for trial, and both experts
prepared reports. Liberty Mutual's expert opined that while the plumbing
leak “may have contributed to the foundation settlement and associated
distress to the residence[,] water from other sources, such as landscape
irrigation, ponding adjacent to the foundation of the residence, and

"Nevada's Unfair Claims Settlement Practices Act has been
preempted as it applies to employee benefit plans only. Brandner v.
UNUM Life Ins, Co, of America, 152 F. Supp. 2d 1219, 1228 (D. Nev.

2001); Medford v. Metropolitan Life Ins, Co,, 244 F. Supp. 2d 1120, 1126
(D. Nev. 2003).

 
rainfall and snowfall, also contributed to the infiltration of moisture into
the soil underlying the foundations of the residence.” The expert thus
concluded that “the magnitude of water infiltration and extent of resultant
damage from the reported leak could not be evaluated.” Powell's expert
concluded that while some “lesser foundation movement” may have
occurred throughout the life of the house, it was the “sudden wetting of the
foundation soils from the water line rupture that resulted in the high level
of damage now present.”

Based on these expert’s conclusions that the earth below
Powell's house moved and was either the direct or indirect cause of the

damage, Liberty Mutual submitted its renewed motion for partial

 

summary judgment on the breach of contract claim. ‘The district court,
relying on Schroeder, granted this motion after finding that the policy
explicitly excluded coverage for any damage caused directly or indirectly
by soil movement. The district court then dismissed the remaining claim
of breach of the Nevada Unfair Clai
the two summary judgment orders. Powell appealed.
DISCUSSION

In this case, the parties’ arguments revolve around the breach

5 Settlement Practices Act based on

 

of contract claim s0 we focus our opinion on that claim. Powell argues

 

Powell also challenges the dismissal of her NRS 686A.310 claim.
Powell failed to present any argument on her NRS 686A.310 claim in her
opening brief. Issues not raised in an appellant's opening brief are
deemed waived. See Bongiovi v, Sullivan, 122 Nev. 556, 570 n.5, 138 P.3d
433, 444 n.5 (2006); see also NRAP 28(a)(8). However, it is our prerogative
to consider issues a party raises in its reply brief, and we will address
those issues if consideration of them is in the interests of justice. See
dovee v. Explosives Technologies Intern., 625 N.E.2d 446, 449 (Ill. App. Ct.

continued on next page .

  

 
that the district court erred in concluding that soil expansion caused by a
water leak from a pipe fits within the scope of the earth movement
exclusion, and that the conclusion in Schroeder should be applied and
adopted here. We conclude that because the earth movement exclusion is
ambiguous and must be construed against Liberty Mutual, soil expansion
caused by a water leak from a pipe does not fall under the scope of the
exclusion, ‘Thus, the district court erred in granting Liberty Mutual
summary judgment. We further conclude that Schroeder is case specific
and distinguishable from the present cat
I. Standard of review:

The interpretation of an insurance policy presents a legal
question, which we review de novo. Farmers Ins, Exch, v, Neal, 119 Nev,
62, 64, 64 P.3d 472, 473 (2003). We review summary judgment de novo.
Wood v, Safeway, Inc, 121 Nev. 724, 729, 121 P.8d 1026, 1029 (2005). A
court may grant summary judgment if the evidence does not create a

 

continued

1993); Paquin v. Mack, 788 N.W.2d 899, 906 (Minn, 2010). Because we
ultimately conclude that there are still genuine issues of material fact
regarding Powell's breach of contract claim and it seems that the district
court based its dismissal of her NRS 686A.310 claim off the summary
judgment of the breach of contract claim instead of considering the facts
under the NRS 686A.310 claim independently, we conclude that there are
still issues of fact regarding her NRS 686A.310 claim. Thus, we reverse
the dismissal of Powell’s NRS 686A.310 claim.

Powell did not challenge the partial summary judgment on the
breach-of-good-faith-and-fair-dealing claim. Thus, we only reverse the
summary judgment of the breach of contract claim and the dismissal of
the NRS 686A.310 claim.

 
os

 

genuine issue of material fact. Id. When considering a motion for
summary judgment, the court must view the evidence and any reasonable
inferences in the light most favorable to the nonmoving party. Id.

Il, Because the earth movement exclusion is ambiguous and must be

int inst_Liberty Mutual, the district court erred_in
granting Liberty Mutual summary judgment

Powell contends that the district court erred by deciding that
the earth movement exclusion applied here. We agree and conclude that
not only is the earth movement exclusion ambiguous and must be
interpreted against Liberty Mutual, but also, if Liberty Mutual had
intended for the earth movement exclusion to exclude damage caused by
soil movement from a ruptured pipe, then it would have had to clearly
include that in the earth movement definition and show that the earth
movement exclusion unmistakably applied to the damage here. Thus, the
district court erred in granting Liberty Mutual summary judgment,

If provision in an insurance contract is unambiguous, a court
will interpret and enforce it according to the plain and ordinary meaning
of its terms, Neal, 119 Nev. at 64, 64 P.3d at 473. “The question of
whether an insurance policy is ambiguous turns on whether it creates
reasonable expectations of coverage as drafted.” United Nat'l Ins. Co, v,
Frontier Ins, Co,, 120 Nev. 678, 684, 99 P.3d 1153, 1157 (2004). Because
the insurer is the one to draft the policy, an ambiguity in that policy will
be interpreted against the insurer. National Union Fire Ins. v. Reno's
Exec, Air, 100 Nev. 360, 365, 682 P.2d 1380, 1383 (1984). “While clauses
providing coverage are interpreted broadly so as to afford the greatest
possible coverage to the insured, clauses excluding coverage are
interpreted narrowly against the insurer.” Id, Ultimately, a court should

 
 

interpret an insurance policy to “effectuate the reasonable expectations of
the insured.” Id.
A. The earth movement exclusion is ambiguous

Earth movement exclusions were historically included in
insurance policies to protect insurance companies from having to pay out
on policies when a catastrophic event caused damage to numerous
policyholders. Peters Tp. School Dist. v. Hartford Acc, & Indem,, 833 F.2d
32, 85-36 (8d Cir, 1987). Quoting Wyatt_v. Northwestern Mutual
Insurance Co, of Seattle, 304 F. Supp. 781, 783 (D. Minn. 1969), the Peters
court noted that

“the reason for the insertion of the exclusionary

clause .. . in all risk insurance policies is to relieve

the insurer from occasional major disasters which

are almost impossible to predict and thus to insure

against. There are earthquakes or floods which

cause a major catastrophe and wreak damage to

everyone in a large area rather than an individual

policyholder. When such happens, the very basis

upon which insurance companies operate is said to

be destroyed. When damage is so widespread no

longer can insurance companies spread the risk

and offset a few or the average percentage of

losses by many premiums.”
Id. at 35 (alteration in original).

In considering earth movement exclusions, other jurisdictions

 

have concluded that there is often an ambiguity as to what type of damage
earth movement exclusions apply because such exclusions typically only
list naturally occurring events in their definitions of what constitutes
earth movement, but earth movement can be caused by unnatural events
as well. See Sentinel Associates v. American Mfrs. Mut. Ins., 804 F. Supp.
815, 818 (B.D. Va. 1992); Favad v. Clarendon Nat. Ins. Co., 899 So. 2d
1082, 1088 (Fla. 2005); Henning Nelson Const. Co. v. Fireman's Fund, 383

 

8

 
N.W.2d 645, 653 (Minn, 1986); United Nuclear Corp. v. Allendale Mut,
Ins, 709 P.2d 649, 652 (N.M. 1985). Therefore, these courts interpret
earth movement exclusions broadly and in favor of the insured party. See,
eg, Sentinel Associates, 804 F. Supp. at 818, Using the rule of
construction ejusdem_generis* as a guiding principle, these courts have
construed earth movement exclusions as referring only to naturally
occurring events because the examples included in the definitions of earth
movement are only natural events. See, e.g. id.

‘The earth movement exclusion in Liberty Mutual’s insurance
policy lists mine subsidence,* and earth sinking, rising, and shifting as
examples of earth movement. Because mine subsidence is caused by
human intervention from previous years, and a generalized reference to
earth sinking, rising, and shifting without clarifying the cause for such
sinking, rising, or shifting could include both natural and human-caused
events, not all of the examples listed are naturally occurring events.
‘Therefore, the earth movement exclusion in the Liberty Mutual policy is
even less clear than most earth movement exclusions regarding what is

‘Bjusdem generis is “[a] canon of construction that when a general
word or phrase follows a list of specific persons or things, the general word
or phrase will be interpreted to include only persons or things of the same
type as those listed.” Black's Law Dictionary 535 (7th ed. 1999).

©[Mline subsidence is the lowering of strata overlying a... . mine,
including the land surface, caused by the extraction of underground
[minerals}.” Keystone Bituminous Coal Ass'n v. DeBenedictis, 480 U.S.
470, 474 (1987).

"See Peters, 833 F.2d at 36 (concluding that mine subsidence is a
man-made event, not a naturally occurring event).

 

 
excluded because earth movement exclusions have historically applied to
natural catastrophic events, but the Liberty Mutual policy includes a list

of examples of mostly naturally occurring events as well as possibly

 

human-caused events, Thus, the Liberty Mutual policy is ambiguous as to

 

what precisely earth movement is when it is not a type of widespread,
calamitous event.
Liberty Mutual argues that the settling clause would exempt

coverage here. However, the district court based its decision on thé

 

rth

 

movement exclusion, not the settling clause. Further, the ambiguity in
the earth movement exclusion is not clarified by the language in the
settling clause. Other jurisdictions have interpreted similar settling
clauses that exclude damage caused by settling, shrinking, bulging, or
expansion of soils as referring to gradual, natural processes that cause
damage. See Boston Co, Real Estate Counsel v. Home Ins. Co,, 887 F.
‘Supp. 369, 373 (D. Mass. 1995); Winters v, Charter Oak Fire Ins, Co,, 4 F.
Supp. 2d 1288, 1295 (D.N.M. 1998); Holy Angels Academy v, Hartford Ins,
Group, 487 N.Y.S.2d 1005, 1007 (N.Y. Sup. Ct. 1985). Thus, in accordance
with other jurisdictions’ interpretation of similar settling clauses, the
language of the settling clause in Powell's policy would seem to support an
interpretation that the earth movement exclusion only applies to naturally
‘occurring events, instead of clarifying that it applies to both naturally
‘occurring events and man-made events. Yet, Liberty Mutual’s earth
movement exclusion lists both naturally occurring events and man-made
events as examples. We conclude that not only is the earth movement

exclusion ambiguous and must be interpreted against the insurer, Liberty
‘Mutual, but the settling clause does not help clarify that ambiguity.

 

 
B.  If.an insurance company wishes to deny coverage under an
scalusionin_tie_inguxance_policy. it_munt-ahow that the
Because ambiguities in insurance policies must be interpreted
against the insurer, if an insurer wishes to exclude coverage by virtue of
an exclusion in its policy, it must (1) write the exclusion in obvious and
unambiguous language in the policy, (2) establish that the interpretation
excluding covering under the exclusion is the only interpretation of the
exclusion that could fairly be made, and (8) establish that the exclusion
clearly applies to this particular case, See Alamia v, Nationwide Mut, Fire
Ins. Co,, 495 F. Supp. 2d 362, 367 (S.D.N.Y. 2007). This is especially
important in policies that include anti-concurrent clauses, such as the one
included in Powell’s policy, because anti-concurrent clauses are often
broad and used to deny coverage in numerous different instances, While
such clauses are valid, they require sufficient clarity as to what
specifically excluded from the policy, Because the anti-concurrent clause
in Powell's policy is not sufficiently clear, it does not clear up the
ambiguity of the earth movement exclusion,
If Liberty Mutual had wished to exclude damage sustained

 

fa result of soil movement from a burst pipe under its earth movement
exclusion, it should have drafted a more explicit exclusion. Some
insurance policies have clarified exactly what is excluded by their earth
movement exclusion. ‘These policies specify that earth movement can be
due to either natural or unnatural causes. See Alamia, 496 F. Supp. 2d at
365; Liebel v, Nationwide Ins. Co, of Florida, 22 So. 3d 111, 113 (Fla. Dist.
Ct. App. 2009). Some insurance policies have also specified that earth
movement is not limited to a list of examples, and that no matter what

causes the earth movement, if the earth moves, the damage is excluded.

 

 
ne

See Chase v. State Farm Fire and Cas, Co,, 780 A.2d 1128, 1126 (D.C.

2001); Boteler v, State Farm Cas. Ins. Co., 876 So. 2d 1067, 1068-69 (Miss.
Ct, App. 2004); Alf v. State Farm Fire and Cas, Co,, 850 P.2d 1272, 1273
(Utah 1998),

Because the Liberty Mutual policy does not include clear and
unambiguous language, subject to only one interpretation, that clearly
excludes the damage here, Liberty Mutual is unable to deny coverage of
the claim if the district court determines that the claim stems from
damage caused by soil movement as a direct result of the ruptured pipe.
Thus, we conclude the district court erred in granting Liberty Mutual
summary judgment.’

TI. The district court erred by relying on Schroeder v, State Farm Fire
and Casualty Company

Powell contends that the district court erred by relying on
Schroeder, 770 F, Supp. 558, to support its conclusion that Liberty Mutual
properly disclaimed coverage. We agree.

In Schroeder, a pipe ruptured, saturating the soil with water
and causing the soil to settle, which ultimately damaged a building
insured by a State Farm insurance policy. Id. at 559. ‘The policyholder’s
claim was denied under the earth movement exclusion in the policy, which
stated:

"Powell also argued in the alternative that even if the earth
movement exclusion was unambiguous, there was a genuine issue of
‘material fact concerning what the proximate cause of the damage was. As
we conclude that the district court erred in granting Liberty Mutual
summary judgment because the earth movement exclusion was
ambiguous, we do not address Powells alternative argument.

12

 
 

We do not insure under any coverage for any loss
which would not have occurred in the absence of
one or more of the following excluded events. We

do not insure for such loss regardless of: (a) the
sause of the excluded event; or (b) other causes of
the _loss;_or_(c) whether _other_causes acted

concurrently or in any sequence with
event to produce the loss:

b, earth movement, meaning the sinking, rising,
shifting, expanding or contracting of earth, all
whether combined with water or not, Earth
movement includes but is not limited to
earthquake, landslide, erosion, and
subsidence but does not include sinkhole
collapse ....

Id. at 560. Schroeder concluded that earth movement can include non-
natural events, and that no matter what the cause, if earth movement is
involved, coverage is denied. Id.

The district court granted Liberty Mutual summary judgment
under the rationale that there was no reason to depart from the holding in
Schroeder, especially because the facts were similar to those in Schroeder.
However, the earth movement exclusion in Schroeder is distinguishable
from the earth movement exclusion in Powell's policy. First, the policy in
Schroeder was drafted differently than the policy here, and many courts
have concluded that certain damage is excluded under earth movement
exclusions in policies similar to the one in Schroeder. See, e.g., Chase, 780
A.2d at 1126, Schroeder's earth movement definition is not all-inclusive
because it contains the language “includes but is not limited to,” whereas
Liberty Mutual's policy simply states “including.” As such, the earth
movement exclusion in Schroeder clearly applies to other events than

 

those listed as examples in its earth movement definition and Liberty
Mutual's does not. Second, Schroeder's lead-in clause clearly states that it

13.

 
does not matter what caused the earth to move, if there is earth
movement, the damage caused by that movement is excluded. When
reading Schroeder's le:
discern what damage was excluded. Further, Schroeder's earth movement

 

-in clause and earth movement definition, one can

definition includes earth movement combined with water, whereas Liberty
‘Mutual's earth movement definition does not.

‘The conclusions reached by the court in Schroeder were based
on the specific language of the policy at issue in that case. Simply because
the damage to Powell's house might be excluded under the Schroeder
policy does not mean it is excluded under the Liberty Mutual policy at
issue in this case. Thus, we conclude the district court erred in relying on
Schroeder.

CONCLUSION

In summary, we reverse the order of the district court
concluding that (1) whether soil movement caused by a ruptured pipe is
included in the scope of the earth movement exclusion is ambiguous, thus
the exclusion must be interpreted against Liberty Mutual; (2) the district
court erred in granting Liberty Mutual summary judgment on the breach
of contract claim; and (3) the district court erred in relying on Schroeder
because it is factually distinguishable. As such, in the interests of justice,
we also reverse the district court's dismissal of the Nevada Unfair Claims

Settlement Practices Act claim as it was based on the summary judgment
of the breach of contract claim. Accordingly, we reverse the judgment of

 

 
the district court and remand this matter for proceedings consistent with

this opinion.

 

 

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