June 2, 2005

The Lot That Isn't There...

We ordinarily focus on the world of commercial insurance, but I cannot help but wonder what property insurers are going to do about the multi-million dollar homes that recently slid down a cliff in Laguna Beach, California. The LA Times has a summary of the event, which links to a compelling set of photographs. Fortunately, no deaths or serious injuries were blamed on the slide, which begain literally with a bang as wooden beams in dozens of homes just snapped. The slide, blamed on recent rains, sheared away part of the face of Laguna's Bluebird Canyon. At last count 17 homes were completely destroyed and 11 seriously damaged.

Here is my question. Let's assume that insurance companies accept the claims -- as opposed to denying at least some of them for lack of "flood" insurance. (A lot of rain does not equal a flood; it surely is "water damage.") Insurers will pay up to policy limits for the homes and their contents. But what about the lots on which the houses stood? The very expensive land on which these homes were built no longer exists. The palatial home perched on a hillside has crumbled into a muddy pit. Indeed, more that one homeowner might have a claim on the same flattened piece of real estate -- assuming, of course, that any rebuilding can take place. Will insurance cover the cost of replacing the lost lots? Or are homeowners on the hook for it? I reviewed conventional insurance offerings in California and found, not surprisingly, that they do not contemplate the risk of a building lot simply disappearing. I suspect that the homeowners may be on their own when it comes to paying for a new place to build their homes.

When in Doubt, Litigate!
Risk transfer is usually a pretty straight-forward business. But in this unusual California situation (rather likely to recur), risk transfer is nothing short of a soggy mess. With the workers comp market in that state finally tightening up, perhaps this is the opportunity that some local attorneys have been waiting for.

| 1 Comment

1 Comment

I enjoyed your comments about the loss of the homes in California. I do not believe that there is coverage under the standard homeowners insurance policy for the damage to or disappearance of land. The homeowner insurance policy "does not apply to land, including land on which the dwelling is located". Moreover, the homeowners may have an issue when trying to collect for the loss of their dwellings under the standard homeowner insurance 3 form. Section I exclusion 1.b. excludes Earth Movement, "meaning earthquake including land shock waves or tremors before, during or after a volcanic eruption; LANDSLIDE; mine subsidence, mudflow, EARTH SINKING, RISING OR SHIFTING; ...(emphasis added). As I read the policy, landslide is a separate issue, and it is not necessary to have a landslide precluded by an earthquake to trigger the exclusion. I am not familiar with California Earthquake Insurance, so I do not know if these policies would respond to the loss. It will be interesting to see if these people will be able to get anything for their claims.

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This page contains a single entry by Jon Coppelman published on June 2, 2005 12:40 PM.

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