The settlement exclusion clause in an all-risk policy may be limited to settlement caused solely by natural causes

In an all-risk property insurance policy “settlement exclusion” excludes earth settlement caused by natural causes only.

Engle Estate v. Aviva Insurance Co. of Canada, [2008] A.J. No. 1193, Alberta Court of Queen’s Bench, G.C. Hawco J., October 21, 2008

The Insured owned commercial property in Calgary.  It sought a declaration that it was entitled to coverage and indemnity from the Insurer for damages to its building caused by construction work on an adjacent property.  The Insurer had denied coverage on the basis of an exclusion for settlement which provided as follows:

This form does not insure against loss or damage caused directly or indirectly:

 1.  To “buildings” by:
…
(iii)  settling, expansion, contraction, moving, shifting or cracking unless concurrently and directly caused by a peril not otherwise excluded…

Construction commenced on the adjacent property in July 2006.  The construction work included excavation, pile driving, and shoring work.  In January 2007, the floors, walls and ceilings of the building began to crack and separate in multiple locations.  The cracking and separation progressed with the continuing excavation and construction.  The parties agreed that the damage and destabilization were a result of the construction activities on the adjacent property.  The issue therefore was only whether the settlement exclusion applied.

The Court concluded that for damage to be caused by settlement, the settlement must be due to natural causes.  Otherwise, the non-natural cause is properly considered the cause of the damage and the type of damage happens to be settlement.  The Court concluded that the settlement exclusion clearly excludes settlement due to natural causes only and does not exclude settlement which results from non-natural causes.

This case was originally summarized by Cameron B. Elder and originally edited by David W. Pilley.

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