With all of the recent rain in California, hillsides have been moving, houses slipping, and retaining walls failing. Who is liable for the damage?
Landslides, debris flows, mudslides, land subsidence, and cliff-side failures: Each of these has the potential for catastrophic failure to land and structures. In the past several months, hundreds of homes in Southern California and elsewhere have been damaged by these kinds of geological failures. They are not always caused by excessive rainfall, but the rain has definitely increased their numbers. When a hillside moves, everyone suffers: the uphill neighbor whose back yard is missing and whose house is suddenly on unstable ground, the downhill neighbor whose yard and home have been covered by debris, and the city or county whose roads may have been damaged or buried in the slide. The costs of repairing this kind of spectacular geological failure can be enormous. But the cost of failing to repair the damage may be even greater if the hillside fails to stabilize itself and causes further damage. What can a homeowner do to seek recovery?
A general overview of the categories of geotechnical failures may be helpful. They may consist of the following:
- debris flows—where wet or dry material flows over the surface of the land;
- mudslides—where internal soil components swell, change consistencies, or slip because of trapped moisture and inadequate drainage;
- erosion—where surface drainage causes earth to wash away;
- cave-ins—where adjoining land is improperly excavated; or
- rock falls—where boulders released from cliff sides fall onto land below.
Earth movement may even be associated with the change of direction, flow, or drainage of underground creeks, aboveground landscaping, or even surface grading, causing land to become saturated and expand or dry out and compact, which may differentially raise or lower a home’s foundation. There may be slumps, slips, creeps, or cracks—each with its own cause and symptoms. Failures may happen instantly or over the course of many years. One law of nature is inescapable, however: It is the habit of mountains to become flat.
Landslides and the Insurance Exclusion
When faced with a catastrophic landslide cleanup, a homeowner’s first inclination may be to call an insurance carrier and submit a claim. While it is certainly prudent to put a carrier on notice of potential claims, it may not always be in a homeowner’s best interest to submit a claim for land movement. Frequently, land movement is excluded from first-party coverage under homeowner’s insurance policies. And claims submitted, even if denied, may have an effect on insurability of the home.
There is a difference between first-party claims (those submitted to a homeowner’s own insurance carrier for his or her own damage) and third-party claims (those submitted to the carrier for the defense of claims made by others). The same landslide may cause damage to both the uphill and downhill neighbor. For example, if Mr. Uphill submits a claim to his own insurance carrier seeking coverage for the landslide loss of his entire backyard and swimming pool, he may find that the loss is specifically excluded from coverage. But if Mr. Downhill sues Mr. Uphill seeking the immediate removal of a swimming pool from Mr. Downhill’s living room, that same cause (the landslide) may be a covered event under a third-party negligence claim.
First-Party Claim Exclusion
California courts examined the “earth movement exclusion” language from two different large insurance company policies. One policy excluded coverage for any loss resulting from the following:
Earth movement, including, but not limited to, earthquake, volcanic eruption, landslide, subsidence, mud flow, sinkhole, erosion, or the sinking, rising, shifting, expanding, bulging, cracking, settling or contracting of the earth. This exclusion applies whether or not the earth movement is combined with water.
Another policy excluded coverage for losses from the following:
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, mudflow, sinkhole, subsidence and erosion.
Some courts have upheld these exclusions, so long as the language is sufficiently clear to put a reasonable person on notice that the exclusion exists and what it excludes. Other courts have found this language to be ambiguous enough that there may be coverage for some kinds of earth movement in spite of the exclusion. The language is not the same in all policies, and a review by a qualified attorney may be necessary to determine whether a first-party claim should be submitted.
Third-Party Claim Coverage
In contrast to a first-party claim, however, when Mr. Downhill sues Mr. Uphill for negligence, claiming that he failed to take reasonable steps to avoid the failure of the land supporting his swimming pool, there may be third-party negligence liability coverage available to Mr. Uphill to pay for his legal defense and, to the extent Mr. Downhill proves negligence, the damage caused to Mr. Downhill’s property. Although Mr. Uphill’s insurance carrier may not cover his own losses, it might cover him for claims of negligence regarding his maintenance of the property.
In an interesting twist, if Mr. Uphill cross-complains against Mr. Downhill, asserting that his negligent actions in failing to maintain properly the downhill retaining walls caused the landslide, Mr. Downhill’s insurance carrier may be obligated to defend and indemnify him against those allegations.
There may be numerous liable parties for geological failures. Given the variety of those failures, it would be impossible to address all of the potential types of liability in this article. But, in general, the potential liable parties could be property developers and their agents; neighboring property owners; city, county, or other governmental agencies; or prior owners of property.
Property Developers and Their Agents
The property developers, their architects, designers, engineers (of all types), contractors, geologists, and even, in some limited cases, lenders may be liable for the damage. Liability may be based on negligence, breach of warranty, fraud, or even strict liability, depending on the circumstances of the failure and the kind of developer.
In one case, a property developer affirmatively misrepresented that the property was on a “cut” site, not a “fill” site. (A cut site is one in which the lot is cut into the hillside, while a fill site is built up using compacted fill, usually removed from a cut site.) At the first rains, the property slid, and it was conclusively demonstrated that the site was a “fill” site, not a “cut” site. In that case, the buyer was entitled to rescission of the real estate transaction based on the fraudulent misrepresentation.
Neighboring Property Owners
Neighbors may owe a duty to protect against these kinds of failures between their properties. For example, both Mr. Uphill and Mr. Downhill may well have valid arguments that the other was negligent in some respect. Other kinds of liability may be based on the failure of lateral support (for example, in excavation or retaining wall failures), nuisance, or even the concentration and discharge of surface water across the neighbor’s land.
County, City, or Other Governmental Agencies
Hillside failures may be caused by the negligent cutting of roads without appropriate retaining structures in place, by inappropriate placement of drainage, or even roads that, because of their slope, gather and discharge water across the land of a downhill landowner in a way that causes damage. In dealing with these kinds of claims, it is imperative to follow any number of governmental claims statutes, which may significantly shorten the claims periods and may require that claims be presented in a specific manner before a lawsuit may be brought.
Prior Owners of Property
If a prior owner of property knew of a condition of the land that would suggest its geological instability and failed to disclose that condition upon sale of the property, the prior owner may be liable for fraud or negligent misrepresentation. In one example, a property seller knew that there was a noticeable gap growing at the intersection of sidewalk and lawn. Before selling, the seller filled the gap and placed additional sod to cover the scar. But the gap was evidence of land movement that might have put a buyer on notice of the need to investigate the stability of the hillside. The slope failed, and the buyer sued.
If indeed the prior owner misrepresented a material condition of the property, and the buyer relied on that misrepresentation, the buyer may be entitled to rescission of the sale—essentially transferring the severely damaged property (and possibly even any potential liability associated with the landslide) back to the seller, in exchange for a full recovery of all money spent in acquiring the property.
When the earth moves due to earthquake, heavy rains, poor construction, change in drainage, or loss of vegetation, the damage can be enormous. What may have seemed a simple and innocuous thing to do, such as adding landscaping to a hillside, may have catastrophic results. When that happens, it is important to stabilize the moving earth quickly and effectively to prevent further damage. It is also important to identify the potentially liable parties and put them on notice of a possible claim for damages.
Keywords: litigation, real estate, landslide liability, insurance claims
Ken Van Vleck is a partner at GCA Law Partners LLP in Mountain View, CA.