Court finds that structural damage at property was caused by settlement over time, culminating in sudden event, rather than sinkhole or subsidence, such that exclusion in Policy applied to oust coverage

The insurer’s denial of the insureds’ claim for structural and water damage to their home was upheld by the Court as it found that the structural damage was not caused by subsidence, but rather occurred when conditions in the area caused the integrity of the residence’s foundation to diminish over time, culminating in a sudden event.  The policy’s settlement exclusion applied.

Insurance law – Property insurance – All-risk insurance – Earth settlement – Exclusions – Interpretation of policy – Bad faith

Swaine v. Intact Insurance Co., [2024] M.J. No. 258, Manitoba Court of King’s Bench, September 27, 2024, C. Grammond J.

The insureds’ home (the “Property”) suffered structural and water damage, for which they sought coverage from their insurer pursuant to an “All Risks” policy (the “Policy”). The insureds initially took the position that recent very hot and dry weather, and tree roots, were the proximate cause of the loss, which had given rise to a “sudden and accidental” event. The insurer denied coverage for the structural damage on the basis it was caused by “settling”, which was specifically excluded under the Policy.

At trial, the insureds disputed the coverage denial and argued that the loss was caused by a sudden occurrence, namely a sinkhole or subsidence, and not by settling. The insurer maintained its position that the structural damage was caused by settling and thus the exclusion applied. 

The insureds retained a civil engineer who testified that, initially, he believed the structural damage was caused by settling of the Property over time. He testified, however, that after the insureds completed the remedial work he had recommended, the insureds provided him with several articles on the concept of subsidence, of which he was not previously aware, and he conducted an additional review and determined that subsidence was the only possible cause of the loss. The engineer’s report concluded that the foundation movement was the result of the development of a sinkhole in the soil stratum above bedrock.

The insurer called two expert witnesses at trial – a geotechnical engineer and a structural engineer. The geotechnical engineer concluded that the movement of the foundation at the Property was directly related to drying of the clay soil that was present at the site resulting from dry weather conditions, and tree roots, which drew moisture from the area. The structural engineer similarly opined that the cause of the foundation displacement at the Property was long-term shrinkage in the underlying clay due to a loss of moisture, and not artesian or groundwater effects in the soil as stated by insureds’ expert. 

The structural engineer further testified that a sudden, downward movement of a structure is not uncommon because desiccation of clay on an ongoing basis will cause a continuing loss of support of the footing, such that eventually the concrete fails and drops suddenly. The structural engineer testified that this is so because structural displacement is resisted through load redistribution in the structure until a section of the structure can no longer support the imposed loads and a sudden displacement occurs – a process he referred to as “creep failure”, the timing of which is unpredictable.

The Court held that, on a balance of probabilities, the cause of the damage was soil desiccation and a resultant loss of foundation support as opined by the insurers’ experts. In arriving at its decision, the Court found that:

The Court found that the language in the Policy excluding loss caused by “settling” was not ambiguous, and that what is meant by the word “settling” is a downward movement of a home. The Court concluded that the loss experienced by the insureds was caused by “settling” and fell directly within the language of the exclusion. The Court stated:  “The fact that the foundation failed slowly, followed by a sudden drop…does not change that conclusion, because [the exclusion] does not speak to the speed of the settling…in a given case.”

This case was digested by Tricia M. Milne and edited by Steven W. Abramson of Harper Grey LLP and first published in the LexisNexis® Harper Grey Insurance Law Netletter and the Harper Grey Insurance Law Newsletter. If you would like to discuss this case further, please feel free to contact them directly at [email protected] or s[email protected].