Hey ChatGPT-4, 

Under New York law, does the earth movement exclusion of a homeowners insurance policy apply to damage caused by underground vibrations from excavation work on an adjacent piece of property?

Thanks, ChatGPT.  I am a lawyer and a qualified one in the area of New York property insurance coverage law at that.  That's a pretty accurate answer, my new chatbot friend.  Like adult diapers, whether the earth movement exclusion applies to negate coverage for damage or loss caused by off-premises excavation work depends.  On the language of the exclusion.  

Prior to 2010, most earth movement exclusions referred only to natural causes such as earthquakes, landslides, mudslides, sinkholes, and the like.  In Pioneer Tower Owners Assn. v State Farm Fire & Cas. Co. (12 NY3d 302 [2009]), the New York Court of Appeals (yes, that's our highest state appellate court in New York, ChatGBT-4) held that an "earth movement" exclusion in an insurance policy that referred only to natural events or causes of the earth movement did not unambiguously apply to excavation-caused damage or loss.

In 2012, however, in Bentoria, Inc. v. Travelers Indem. Co. (956 NY2d 456 [2012]), the New York Court of Appeals revisited the question, "confront[ing] a policy in which a similar exclusion is expressly made applicable to 'man made' movement of earth."   In that case, the Court held that the added "man-made" language eliminated the ambiguity, and that loss caused by excavation is not covered under policies containing the broadened earth movement exclusion.  

The documentary evidence conclusively establishes a defense to plaintiff's claims (CPLR 3211[a][1]; Leon v Martinez, 84 NY2d 83, 87-88 [1994]). The complaint alleges that plaintiff's property sustained damage "as a direct result of the excavation work at the [a]djacent [l]ot." The insurance policy issued by defendant contains an exclusion from coverage for "earth movement," e.g., "earth sinking (other than sinkhole collapse), rising or shifting including soil conditions which cause settling, cracking or other disarrangement of foundations or other parts of realty," and states that the exclusion applies "regardless of whether [the earth movement] is caused by an act of nature, man-made or is otherwise caused." Taken as true, the allegations in the complaint place the damage to plaintiff's property within the earth movement exclusion (see Bentoria Holdings, Inc. v Travelers Indem. Co., 20 NY3d 65, 68 [2012]).

Contrary to plaintiff's contention, the complaint did not have to use the words, "earth movement," for the exclusion to apply, given that an excavation is "the intentional removal of earth by humans" (see id.). Nor does the allegation that the damage to its property resulted from "the vibrations caused by the construction work," made for the first time in an affidavit in opposition to defendants' motion, avail plaintiff, as no separate damage has been alleged (see Jones v State Farm Fire & Cas. Co., 189 AD3d 1565, 1567 [2d Dept 2020] [insurance company did not dispute that property damage solely caused by vibrations from the backhoe was covered under the policy]).

Even if vibrations caused the damage, the excavation was still a contributing cause of the damage, and the policy states that there will be no coverage for loss or damage caused directly or indirectly by earth movement "regardless of any other cause or event that contributes concurrently or in any sequence to the loss" (see Sheehan v State Farm Fire & Cas. Co., 239 AD2d 486, 487 [2d Dept 1997]; Kula v State Farm Fire & Cas. Co., 212 AD2d 16 [4th Dept 1995], lv dismissed in part and denied in part 87 NY2d 953 [1996]).

       

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§ 3421. Homeowners' liability insurance; dogs. 

 1. With respect to homeowners' insurance policies as defined in section two thousand three hundred fifty-one of this chapter, no insurer shall refuse to issue or renew, cancel, or charge or impose an increased premium or rate for such policy or contract based solely upon harboring or owning any dog of a specific breed or mixture of breeds. 

2. The provisions of this section shall not prohibit an insurer from refusing to issue or renew or from canceling any such contract or policy, nor from imposing a reasonably increased premium or rate for such a policy or contract based upon the designation of a dog of any breed or mixture of breeds as a dangerous dog pursuant to section one hundred twenty-three of the agriculture and markets law, based on sound underwriting and actuarial principles reasonably related to actual or anticipated loss experience subject to the applicable provisions of section three thousand four hundred twenty-five of this article.

I mentioned then that the new law mentioned only underwriting functions, not claims--making it illegal to refuse to issue or renew a policy, or to cancel or charge more premium for a policy based on a policyholder's or prospective policyholder's "harboring or owning any dog of a specific breed or mixture of breeds."  There was nothing in the new statute expressly prohibiting insurers from including a canine exclusion in a New York homeowners policy or in denying coverage based on such an exclusion. 

That was then.  This is now.  

On December 15, 2022, New York Governor Kathy Hochul signed into law A9284/S8315A, amending subsection 1 of section 3421 as follows (added language in red CAPS):

1. With respect to homeowners' insurance policies as defined in section two thousand three hundred fifty-one of this chapter, no insurer shall refuse to issue or renew, cancel, or charge or impose an increased premium or rate for such policy or contract, OR EXCLUDE, LIMIT, RESTRICT, OR REDUCE COVERAGE UNDER SUCH POLICY OR CONTRACT based solely upon harboring or owning any dog of a specific breed or mixture of breeds.

The bill's Summary explained that the bill "[c]larifies the insurance law in such a manner as to prohibit insurance companies from excluding, limiting, restricting, or reducing coverage on a homeowners' insurance policy based on ownership of a particular breed of dog." (my emphasis)  

Clarifies, my ass.  It ADDS to the insurance law.  We'll call it a legislative mulligan.  Wouldn't be the first and won't be the last time legislative drafting missed its intended mark.  

In any event, the amended Insurance Law §3421 took effect on March 15, 2023.

Does someone in Albany read my blog?  Probably not, but the original 3421's scope clearly was limited only to the underwriting function.  That's been enlarged to include the claims function.

It is important to note, however, that the amended law:

• applies only to "homeowners' insurance policies" as defined in New York Insurance Law § 2351; and 
  
  
• proscribes certain underwriting and claims acts and practices "based solely upon harboring or owning any dog of a specific breed or mixture of breeds."

Solely upon harboring/owning a dog of a specific breed or mixture of breeds.

What about excluding liability coverage under a homeowners insurance policy for all breeds of dogs?  A categorical canine exclusion?  Does Insurance Law §3421 prohibit such an exclusion?

On the face of the statute, the answer has to be no.  Specific ≠ all.  

I learned this morning that the NYSDFS is reviewing HO policy forms for compliance with the amended law.  But you, New York HO insurers, may already know that.  

     

Government Employees Insurance Company and GEICO General Insurance Company (collectively “GEICO”) appeal the judgment of the Circuit Court of Jackson County confirming an arbitration award finding against GEICO’s insured—M.B. (“Insured”)—and in favor of M.O.  Insured and M.O. were in a romantic relationship. After M.O. contracted anogenital human papillomavirus (“HPV”), she submitted a settlement offer to GEICO, asserting Insured negligently infected her with the disease during sexual encounters in his automobile, and that Insured’s GEICO-issued automobile  insurance policy provided coverage for her injuries and losses. GEICO denied coverage and rejected her settlement offer.

Insured and M.O. entered into an agreement pursuant to section 537.065, RSMo,1 and agreed to arbitrate M.O.’s claims. The arbitrator found Insured negligently infected M.O. with HPV and awarded her $5.2 million in damages. Thereafter, M.O. filed this action in the trial court. GEICO moved to intervene and M.O. moved to confirm the arbitration award. The trial court granted both motions on the same date and entered judgment in favor of M.O. consistent with the arbitration award. GEICO appeals, asserting the trial court erred in confirming the arbitration award without giving GEICO a meaningful opportunity to defend its interests. For the reasons stated below, we affirm.

        In November of 2017, M.O. and Insured began a romantic relationship. Effective at that time was an automobile insurance policy issued by GEICO to Insured.

        On February 25, 2021, M.O. submitted to GEICO a copy of a petition she intended to file against Insured, and made a final settlement offer to resolve her “claims against [Insured] for the applicable limits of $1m.”2  The petition attached to the settlement offer alleged that during “November and early December of 2017,” Insured and M.O. engaged in unprotected sexual activities in Insured’s vehicle, and during those sexual encounters, Insured “negligently caused or contributed to cause [M.O.] to be infected with HPV by not taking proper precautions and neglecting to inform and/or disclose his diagnosis,” despite “having knowledge of his condition.” M.O. alleged that as a result of Insured’s negligence, she incurred, and will incur, “past and future medical expenses,” as well as “past and future mental and physical pain and suffering.” On  April 7, 2021, GEICO denied coverage and refused M.O.’s settlement offer. GEICO also initiated a declaratory judgment action in federal court to establish the parties’ rights and obligations under the insurance policy.

2  It is unclear from the record when M.O. first submitted her claim to GEICO. However, in January 2021, GEICO informed M.O. via letter that it had “completed [its] coverage investigation” and  determined “there was no coverage” because the  damages claimed did not arise out of the normal use of the vehicle.” GEICO “disclaim[ed] any and all liability or obligation to [M.O.] and to others under” Insured’s automobile policy and advised that it would “take no further action with respect to any claim . . . and hereby withdraws from the matter entirely.” 

        Meanwhile, on March 11, 2021, M.O. and Insured entered into a Contract to Limit Recovery to Specified Assets and Arbitration Agreement Pursuant to Section 537.065 RSMo (“065 Agreement”).3 On May 17, 2021, M.O. and Insured arbitrated M.O.’s claims, and the arbitrator thereafter issued his “Findings, Conclusions, and Award.”

3  The 065  agreement was not made part of the record on appeal, nor was it presented to the trial court. Any reference to the title or the contents of the 065 Agreement we take from filings that were included in the  record. Section 537.065, which will be discussed extensively in our analysis, allows an injured party and tortfeasor to enter into an agreement to limit the injured party’s recovery to the tortfeasor’s applicable insurance limits if the insurer has refused to defend the tortfeasor.

        The award first described procedural aspects of the arbitration proceeding, including that: (1) Prior to the arbitration, Insured submitted an Arbitration Statement detailing his defense; (2) Both parties presented opening statements at the arbitration; (3) Insured was given the opportunity to cross-examine M.O.’s witnesses and elicit testimony for Insured’s defense; (4) Insured submitted as exhibits three internet articles discussing HPV; (5) M.O. requested an award of $9.9 million in damages in her closing argument; and (6) In his closing argument, Insured disputed that he was aware he could transmit HPV to M.O., M.O. received HPV from him, he had a duty to disclose such diagnosis to M.O., and the amount of damages.

        As to his substantive findings, the arbitrator determined that: (1) “there was sexual activity in [Insured’s] automobile in November/December of 2017 which occurred in Jackson County, Missouri”; (2) the sexual activity in Insured’s vehicle “directly caused, or directly contributed to cause, M.O. to be infected with HPV”; (3) Insured knew he had “been told that his throat cancer tumor was diagnosed as HPV positive”; (4) Insured should have disclosed his diagnosis to M.O. prior to the sexual activity that occurred, but he did not; and (5) Insured “was negligent and is liable for causing M.O. to contract HPV.” The arbitrator found that “an amount that would fairly and justly compensate Plaintiff, M.O., for all of her damages and injuries is $5,200,000,” and entered an award in that amount “in favor of Plaintiff M.O. and against the Defendant [Insured].”

        On May 24, 2021, M.O. provided written notice to GEICO that she and Insured had entered into an agreement pursuant to section 537.065. The following day, M.O. initiated this action by filing her Petition for Damages in the trial court.4 On June 10, 2021, GEICO discovered the existence of this lawsuit by monitoring Case.net (Missouri state courts’ automated case management system). On June 18th, GEICO filed a motion to intervene.

        On June 22nd, M.O. filed a response to GEICO’s motion to intervene and a motion to confirm the arbitration award. In her motion to confirm the award, M.O. asserted she and Insured had agreed “that after an arbitration award is issued, [M.O.] will immediately seek to have the award confirmed . . . and reduced to judgment . . . and that neither party will seek judicial review of the award or attempt to have the award set aside, modified, amended or changed in any way unless by express written agreement of each party.” On June 29th, GEICO filed a reply in support of its motion to intervene. On July 2nd, the trial court granted M.O.’s motion to confirm the arbitration award and entered judgment in favor of M.O. and against Insured in the amount of $5,200,000. The trial court adopted and incorporated the findings and conclusions of the arbitration award, and stated the award was attached to the judgment as Exhibit A. No exhibit was attached to the judgment. Also on July 2nd, after entering judgment, the trial court entered an order granting GEICO’s motion to intervene.

        On July 30th, GEICO filed a motion for leave to conduct discovery, a motion for new trial, and a motion to vacate the arbitration award. In the latter two motions, GEICO asserted that the arbitration award and judgment confirming it should be vacated because the award “was procured by collusion, fraud, [and] undue means,” it was “contrary to public policy and §§ 537.065 and 435.350,” it was the result of an invalid and unenforceable arbitration agreement, and it violated GEICO’s due process rights and right to access the courts. The parties submitted additional briefing on GEICO’s motions. On September 8, 2021, the trial court summarily denied all of the motions and entered a “Judgment Nunc Pro Tunc,” attaching the arbitration award that was inadvertently omitted from the original judgment.

        GEICO appeals, asserting three claims of error relating to the trial court’s confirmation of the arbitration award—specifically, to the timing of the trial court’s confirmation.5 GEICO asserts that by confirming the arbitration award without giving GEICO a meaningful opportunity to defend its interests and develop facts and arguments pre-judgment, the trial court acted in contravention of section 537.065 and Rule 52.12 (Point I), section 435.405 (Point II), and state and federal constitutional provisions guaranteeing due process and access to the courts (Point III).

    14.    On February 25, 2021, M.O. sent GEICO a demand letter. The body of the letter stated, in its entirety:

Here’s the Petition that will be filed against your insured, [M.B.]. Before doing so, we have been authorized to make one final attempt to resolve [M.O.’s] claims against your insured for the applicable limits of $1m. Let me know.

    15.    M.O.’s proposed state court petition sought from M.B. damages for negligence and negligent infliction of emotional distress.

    16.    In it, M.O. alleges M.B. and M.O. entered into a sexual relationship in November  2017 and early December 2017, including that the two “engaged in unprotected sexual  activities, including intercourse, in Defendant [M.B.’s] home and in his 2014 Hyundai Genesis car.”

    17.    M.O. further alleges that M.B. negligently failed to tell M.O. that he was infected  with anogenital human papillomavirus (HPV), and that he failed to use adequate protection and take proper precautions to prevent its transmission to her.

     

Sometimes the best way to understand what could happen, is to see what has happened.  And so, for your review and rumination, I offer the following as what paper discovery typically looks like in a first-party, water-damage-from-a-roof-leak New York state court property insurance action (taken from an actual, pending case):

Plaintiff's Demand for Discovery & Inspection and Combined Demands Directed to [ABC] Insurance Company:

     6. The entire claim file maintained by [ABC] for Plaintiff or in any way relating to Plaintiff, including but not limited to electronic notes, computer entries, emails, memorandum, telephone messages, correspondence, account information, billing information, contact information, file jacket notes, contracts, agreements and applications.

NOTE: “[T]he payment or rejection of claims is a part of the regular business of an insurance company. Consequently, reports which aid it in the process of deciding which of the two indicated actions to pursue are made in the regular course of its business” (Landmark Ins. Co. v. Beau Rivage Rest., 121 A.D.2d 98, 101, 509 N.Y.S.2d 819). Reports prepared by insurance investigators, adjusters, or attorneys before the decision is made to pay or reject a claim are thus not privileged and are discoverable (see Landmark Ins. Co. v. Beau Rivage Rest., supra at 101, 509 N.Y.S.2d 819; see also Bertalo's Rest. v. Exchange Ins. Co., 240 A.D.2d 452, 454, 658 N.Y.S.2d 656; Roman Catholic Church of Good Shepherd v. Tempco Sys., 202 A.D.2d 257, 258, 608 N.Y.S.2d 647; Paramount Ins. Co. v. Eli Constr. Gen. Contr., 159 A.D.2d 447, 553 N.Y.S.2d 127), even when those reports are “mixed/multi-purpose” reports, motivated in part by the potential for litigation with the insured (see Landmark Ins. Co. v. Beau Rivage Rest., supra at 102, 509 N.Y.S.2d 819; see also McKie v. Taylor, 146 A.D.2d 921, 536 N.Y.S.2d 893).

    7. The entire non-privileged underwriting file for this matter stated in the Complaint (or most current pleading, if amended).

     8. True and complete copies of all documentation, correspondence, reports, notes, or memorandum regarding any inspections, or investigations of the instant claim by [ABC] or a third-party on [ABC]’s behalf.

     9. All correspondence regarding the matter alleged in the Complaint sent to any governmental entity, including, but not limited to, the Department of Financial Services or Secretary of State.

     10. A complete electronic copy of each and every audio recording of any representative of Plaintiff or any Defendant herein. If it will be claimed that said recordings are no longer in existence, provide an affidavit with regard to the date and time of their destruction, including the name of the individual who destroyed same, reference to the rule or directive pertaining to the destruction of the recording, and a transcript of said recording.

     11. True and complete copies of all documentation, correspondence, reports, notes, emails, or memorandum between [ABC]and Plaintiff or anyone on Plaintiff’s behalf.

     12. True and complete copies of all documentation, correspondence, reports, notes, emails, or memorandum between [ABC] and any other party (with the exception of post disclaimer communications with legal counsel) with reference to Plaintiff and/or the Subject Claim.

     13. True and complete copy of the entire file maintained with regard to Plaintiff and/or the subject property, previous properties, or vehicles.

     14. True and complete certified copies of each insurance policy issued to the Plaintiff by [ABC] or its agents.

     PLEASE BE ADVISED, to the extent that any documents are claimed privileged, a privilege log is demanded to be furnished.

If you think many or most of these things are not discoverable, think again.  

If you're not familiar with the scope of discovery in coverage litigation, take a few minutes and read my blog posts for the Attorney-Client Privilege label and Discovery label.  See, also, Devaul v. Erie Ins. Co., 2019 N.Y. Slip Op. 34261(U) (Sup.Ct., Onondaga Co., 2019) and my Communications Between Outside Coverage Counsel and His Insurer Client Regarding "the Investigation and Potential Rescission of a Claim" Ordered Disclosed post from this past February.

Be advised and guided accordingly.

Cordially, 

Your Favorite (and Perhaps Only) Logophile Friend, 

Roy