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Mattis v. State Farm Fire & Casualty Co.





Appeal from the Circuit Court of Jackson County; the Hon. James Williamson and the Hon. David W. Watt, Jr., Judges, presiding.


Defendant, State Farm Fire and Casualty Company, appeals from the judgment of the circuit court of Jackson County in favor of plaintiffs and insured homeowners, Brian and B. Taylor Mattis. Plaintiffs cross-appeal from that part of the judgment denying their request for attorney fees. In a bifurcated trial, the court found defendant liable under an "all risk" homeowner's policy for structural damage to the Mattises' home. The court assessed damages in the amount of $33,086.69.

The Mattises purchased their home in 1974 and subsequently obtained a homeowner's insurance policy from State Farm with an inception date of May 20, 1974. The policy provided "all risk" homeowner's coverage for which an additional 5% premium was paid over State Farm's normal premium schedule for a named-perils homeowner's policy. This policy was renewed annually until the time when State Farm issued a second policy updating the original policy's coverage. The updated policy became effective May 20, 1979. The trial court found that "the insurance policy was in full force and effect at the time of the alleged physical loss, on or about May 15, 1979." The parties have raised an issue concerning which policy provisions control, based upon this finding by the trial court. The issue will be resolved following a greater detailed factual summary.

The Mattises' home is a conventional single-story frame structure. The home is built into the side of a hill with the front basement wall, facing north, below ground level and the back basement wall, facing south, above ground level. This arrangement is often termed a walkout basement. The north and west basement walls are made of 12-inch concrete masonry blocks; the south and east basement walls are wood frame.

Brian Mattis testified that the Mattises were first informed of the physical damage claimed under the policy on May 15, 1979. According to Brian's testimony, a termite inspector had discovered some structural damage to the north basement wall during the course of a routine inspection. In July 1979, concerned about the structural integrity of the home, the Mattises contacted Carl Hartman, an architect from the firm of Fischer-Stein Associates, and employed him to inspect their home for structural damage.

Hartman testified that he had been employed to ascertain the damage to the structure and to determine a remedy for the damage. He found evidence of a horizontal crack in the north basement wall varying from a hairline to approximately one-quarter inch in gap running the entire visible length of the wall. Hartman also found inward displacement of the same vertical wall equal to approximately one-half to five-eighths inch with the point of greatest displacement being at about mid-height. Additionally, he found evidence of binding in the walls perpendicular to the north basement wall. Remedial measures suggested by Hartman included replacement or reinforcement of the cracked wall to prevent further damage or collapse.

Plaintiffs thereafter reported their home damage to State Farm's local agent. After inspecting the premises, the agent notified plaintiffs that State Farm would not cover the loss, citing numerous policy provisions. A series of correspondence between plaintiffs and State Farm followed. Meanwhile, finding the cost of replacement prohibitive, the Mattises opted to simply reinforce the existing north basement wall. The soil adjacent to the north wall was excavated and a similar wall adjacent to the existing wall was constructed and bolted to it. The soil was backfilled and landscaped to facilitate proper drainage and runoff.

Based upon reports as to causation submitted by State's Farm's structural engineer to State Farm, the insurer continued to deny plaintiffs' claim. Plaintiff testified that by this time the loss had become aggravated. The inward deflection of the north basement wall amounted to 3 1/2 inches out of plumb to the south; mortar joints had opened; brick veneer had separated from the wall on the ground floor; the garage door was out of plumb; doors and windows at ground level were askew. Plaintiffs brought suit alleging 13 enumerated elements of damage to the structural integrity of the home and requesting compensation from State Farm under their all risk homeowner's policy.

The trial court found that at least one of the two policies mentioned at the outset was in full force and effect at times relevant. Under the broad coverage afforded by the policies issued by State Farm, the court determined that unless the cause of the damage was specifically excluded or excepted by the terms of the policy, all risks of physical loss were within the coverage. Because the proof established that one cause of the loss was inadequate or improper design or construction of the dwelling at the particular site, and because that particular cause of loss was not excluded or excepted, the court applied the principle that if more than one cause creates a loss with one cause covered, but other causes not covered, the loss will be within the coverage of an all risk policy.

The trial court found, without specific elaboration, that "the insurance policy" was in full force and effect at the time of the alleged physical loss to the Mattis home on May 15, 1979. The two policies in question differ in several significant respects and these differences, in part, form the basis for State Farm's denial of coverage. State Farm has argued that only the amended policy, effective May 20, 1979, is applicable to the loss. We reject this contention. It was on May 15, 1979, that the Mattises were informed by the termite inspector of structural damage to the insured property. Although a claim was filed after the inception date of the amended policy, the Mattises were apprised of facts sufficient to warrant the filing of a claim against State Farm on May 15, 1979, or five days prior to the expiration of the original policy. It is this date which is controlling. The applicable policy is the one in effect at the time of discovery of the loss, the original policy.

• 1 This conclusion does not, however, dispose of the question as to which of the two policy provisions will be given effect. The evidence established that the original policy contained the following liberalization clause:

"* * * If within 45 days prior to the inception of this policy, or during the term hereof, this Company adopts any revision of the form or endorsements made part of this policy which would broaden coverage presently granted hereunder without additional premium charge, such broadened coverage will automatically apply to this policy."

Thus, at the time the Mattises discovered their loss, the policy then in effect allowed them to take advantage of broadened coverage adopted by State Farm during its effective term. The original policy was revised and updated and a reissue certificate of this amended policy was prepared on March 30, 1979. The record shows premiums were paid on the amended policy on May 8, 1979. While it has been determined that the provisions of the original policy control, the liberalization clause, in effect, allows the insureds the benefit of those provisions of the amended policy which broadened their coverage.

State Farm alleged numerous defenses based on policy exclusions and exceptions and presented proof to that effect. The policies included provisions that will be referred to as an earth movement clause; water pressure-water damage clauses; a settling, cracking and bulging clause; and a latent defect clause.

We agree with plaintiffs' contention that the "earth movement" exclusion in the policy that was in force on May 15, 1979, controls for the reasons stated above. That exclusion reads as follows:

"This policy does not insure against loss:

2. caused by, resulting from, contributed to or aggravated by any earth movement, including but not limited to earthquake, volcanic eruption, landslide, mudflow, earth sinking, rising or shifting * * *."

• 2 Both expert witnesses who testified agreed that settlement and consolidation of the backfill material placed against the north basement wall contributed to the loss. That it was not the sole cause is significant and will be addressed shortly. We are not persuaded, however, that this settlement and consolidation constitutes "earth movement" under the terms of the policy. As the supreme court of Wisconsin recognized in Wisconsin Builders, Inc. v. General Insurance Co. of America (1974), (65 Wis.2d 91, 101-02, 221 N.W.2d 832, 837, "[t]he majority of the courts> which have considered this particular exclusion have found it to be ambiguous and have applied the doctrine of ejusdem generis to limit the definition of `earth movement'" to causes of the same class as earthquake and landslide. (See Annot., 44 A.L.R.3d 1316 (1972).) It is our view that the exclusions contained in this clause were not intended to cover damage resulting from something other than those causes of the type expressly stated in the exclusions. Moreover, other causes, defective design and construction, contributed to the damage resulting from the consolidation of soil placed against the north basement wall. (See Wisconsin Builders, Inc. v. General Insurance Co. of America (1974), 65 Wis.2d 91, 221 N.W.2d 832; Gullett ...

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