Schroeder v. State Farm Fire and Cas. Co., CV-N-90-570-ECR.

• Decision Date: 09 July 1991
• Docket Number: No. CV-N-90-570-ECR.,CV-N-90-570-ECR.
• Parties: Quentin R. SCHROEDER and Frances M. Schroeder, dba Chickies Hallmark Shoppe, Plaintiffs, v. STATE FARM FIRE AND CASUALTY COMPANY, an Illinois Corporation, and Does I-X, Defendants.
• Court: U.S. District Court — District of Nevada

770 F. Supp. 558

Quentin R. SCHROEDER and Frances M. Schroeder, dba Chickies Hallmark Shoppe, Plaintiffs, v. STATE FARM FIRE AND CASUALTY COMPANY, an Illinois Corporation, and Does I-X, Defendants.

No. CV-N-90-570-ECR.

United States District Court, D. Nevada.

July 9, 1991.

Steve L. Dobrescu, Ely, Nev., for plaintiffs.

Benson, Haefner & Enzenberger, Reno, Nev., for defendants.

ORDER

EDWARD C. REED, Jr., Chief Judge.

In May, 1990, plaintiffs discovered damage to their building. At the time, they were insured by defendant under an "all-risk" type of policy. Pursuant to this policy, plaintiffs are covered for every loss except those specifically excluded. After defendants denied coverage on the claim, plaintiff filed a complaint (document # 1A) in Nevada state court, which was subsequently removed to this court (document # 1) on the basis of diversity. Plaintiffs allege that defendant breached the insurance policy by denying coverage. Further, plaintiffs assert, defendant acted in bad faith in investigating the claim and refusing coverage.

In this order, we address only the facts relevant to plaintiffs' first cause of action. The facts surrounding defendant's investigation of the claim are not relevant to the pending motions because we are not addressing plaintiffs' bad faith claim. On February 8, 1991, we entered an order (document # 11) bifurcating the insurance coverage claim from the bad faith claim, and staying discovery on the bad faith claim.

Both sides are in agreement as to the facts. Plaintiffs own a Hallmark shop in Ely, Nevada. Sometime before May 26, 1990, a city water service pipe, running underground to plaintiffs' shop, ruptured due to old age, rust and corrosion. As a result, water escaped from the pipe, saturating the soil beneath plaintiffs' building. The water caused the cementing agent in the soil to dissolve and collapse under load. The soil settled downward, causing the building to shift, resulting in damage to plaintiffs' building. At no time did water enter plaintiffs' building and cause damage.

On May 3, 1991, defendant filed a motion (document # 16) for summary judgment as to plaintiffs' first cause of action, breach of the insurance policy. On May 21, 1991, plaintiffs filed (document # 17) an opposition to defendant's motion and cross motion for summary judgment. On June 3, 1991, defendant filed (document # 19) a reply to plaintiffs' opposition and opposition to plaintiffs' cross motion for summary judgment. On June 17, 1991, plaintiffs filed a reply (document # 21) to their cross motion for summary judgment.

In a minute order dated July 1, 1991, we denied plaintiffs' motion for certification to the Nevada Supreme Court of whether Nevada recognizes the doctrine of "efficient proximate cause." Consequently, the parties' motions for summary judgment are ripe for adjudication.

Since the parties agree on the facts, we must decide, given the facts, whether the insurance policy contains a provision or provisions excluding coverage on plaintiffs' loss. If the policy contains such an exclusion or exclusions, defendant is entitled to summary judgment. If the policy does not contain an exclusion covering plaintiffs' loss, plaintiffs are entitled to summary judgment.

Section I, page 6, "Losses Not Insured," provides in relevant part:

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 cause of the excluded event; or (b) other causes of the loss; or (c) whether other causes acted concurrently or in any sequence with the excluded 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 (emphasis added).

Defendant asserts that this provision excludes plaintiffs' loss from coverage. Under the language of the provision, defendant appears correct. In this case, plaintiffs would not have sustained damage had the soil beneath their building not collapsed. While the soil would not have collapsed had the pipe not ruptured, causing water to escape and saturate the soil, the language underlined above indicates that so long as earth movement was involved, coverage is denied.

Plaintiff asserts that water damage, not earth movement, caused the damage to the building. Further, an argument exists that earth movement relates to natural causes only. Even if water damage "caused" plaintiffs' loss, which we will discuss below, the collapse of the soil was at least a cause acting "concurrently or in any sequence" with the "water damage." Thus, coverage would not lie.

Whether earth movement may include soil collapse resulting from a non-natural cause poses a more difficult question. In Village Inn Apartments v. State Farm Fire and Casualty Insurance Co., 790 P.2d 581 (Utah Ct.App.1990), a Utah court of appeals faced the same issue. In Village Inn, an underground pipe ruptured, causing water to saturate the soil beneath plaintiffs' apartment building, in turn causing damage to the building. Plaintiffs asserted that earth movement referred only to natural phenomena and did not include the effects of a ruptured pipe.

The court rejected this argument because of the language underlined above and the language reading "all whether combined with water or not." That is, the policy in Village Inn contained the same language here. The court found that since earth movement included a situation where water was involved and where such movement could be caused by another event, "earth movement" had to include both natural and non-natural processes. Id. at 583.

We find this analysis persuasive. If one event, here the rupturing of a water pipe, can cause soil to collapse, such a chain of events includes earth movement. Especially since earth movement is defined to include the subsidence of soil, no matter how caused, earth movement can include non-natural events. Since subsidence is the sinking, falling, or lowering of something, earth movement clearly was involved here.

In Village Inn, plaintiffs also argued that "earth movement" was ambiguous, and should be construed against the insurer. The court rejected that argument. In Village Inn, the insurance policy did not contain the language bolded above, further defining earth movement. Since subsidence clearly occurred in our case, earth movement happened. Consequently, the language in the policy defining and explaining earth movement is not ambiguous.

Millar v. State Farm Fire and Casualty Insurance Co., 167 Ariz. 93, 804 P.2d 822 (Ct.App.1990), involved facts identical to those before us. Further, the policy in Millar contained the identical language set out above. In concluding that earth movement includes non-natural phenomena, the court relied on Village Inn and also relied on the broadness of the definition of "earth movement." Finally, the court concluded that the definition of earth movement in the policy was exactly what occurred in the case. This is also true of our case. We conclude, therefore, that the ruptured pipe and saturated soil caused earth movement below plaintiffs' property.

Plaintiffs argue that the "efficient proximate cause" doctrine allows them to recover in this case. That doctrine, developed in California, provides that when a loss is sustained by a sequence or concurrence of at least two causes, one covered under the policy and the other excluded under...