Ninth Circuit Finds ‘Sag Exclusion’ Prohibits Landslide Loss Coverage | Cozen O’Connor

The Ninth Circuit Court of Appeals recently issued an unpublished opinion in Atain Specialty Insurance Company v. JKT Associates, Inc.., Case No. 20-16366 (9th Cir., Mar. 11, 2022), finding that the “Sag Exclusion” of a liability policy excluded coverage for a lawsuit arising from a landslide.

In Atain, insured JKT was hired by a homeowner to perform landscaping and landscaping work on his home. Several years later, a catastrophic landslide occurred causing the rear of the property to slide 15 feet downward. Several lawsuits have been filed against JKT. JKT handed over the lawsuits to its insurer, Atain. Atain has agreed to defend JKT subject to rights. Subsequently, Atain filed a cover action against JKT, seeking a declaration of no cover as well as reimbursement of the defense costs it had paid. The district court granted summary judgment to Atain, finding that JKT’s liability in the lawsuit was not covered by Atain’s policy because coverage was clearly excluded by the “Sag Exclusion”. The Ninth Circuit agreed with the district court and affirmed the judgment.

The subsidence exclusion provided, in relevant part:

This insurance does not apply to, and there shall be no obligation to defend or indemnify, any “event”, “suit”, liability, claim, demand or cause of action arising out of, in whole or in part , of any “movement of the earth”. ” This exclusion applies whether or not the “movement of earth” results from operations carried out by or on behalf of an insured.

“Movement of the earth” includes, but is not limited to, any subsidence, uplift, settling, tilting, shifting, sliding, falling, subsidence, erosion, subsidence, mudslide or any other movement of land or earth.

The Ninth Circuit ruled that the landslide is a “groundslide” and therefore the clear terms of the exclusion prohibited any coverage for any claims “arising, in whole or in part”, from the landslide or of any “subsidence” or “slippage” that preceded this landslide, regardless of the cause of the landslide. The Court noted that there could only be coverage if either lawsuit sought compensation for damages other than landslides, which they did not.

JKT attempted to point to an allegation that prior to the landslide, JKT’s negligence “resulted[ed] in changes in drainage patterns on the property and unwanted accumulation of water in the back yard. The Court, however, concluded that nothing in this allegation supported the conclusion that the accumulation of water itself produced damage distinct from the movement of the earth. On the contrary, the complaint stated that the excess water made it more susceptible to failure, which linked it to the movement of the earth. Thus, the Court concluded that there was no possibility of coverage and no obligation to defend or indemnify JKT.

Although Atain is not published, the opinion provides valuable insights into how courts might analyze this issue in the future.

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