Many Southwest Metro homeowners are looking carefully at their homeowner’s insurance policies after hearing news of some devastating mudslides and flooding at local homes (see these two stories A & B). Most homeowner’s policies cover many types of perils like fires, smoke, wind, hail, theft and glass breakage. However, these policies often have many exclusions to the coverage including some matters which arguably exclude flood and mudslide damage, meaning that if the damage comes from one of those excluded sources, the insurance company doesn’t pay. There may be a way around those exclusions. The two most important exclusions that are coming up now are a flood or water backup exclusion, and the exclusion for earthquakes or other earth movement which can include mudslides. Many homeowners don’t realize that their policy fails to cover all perils, and they don’t usually figure that out until it’s too late. Many Minnesota homeowners have come to understand that special additional flood insurance is necessary to cover flood damage, based on a long history of flood stories from the Fargo/Moorhead area. But that type of knowledge about exclusions may not be the case for mudslides – how often does Minnesota experience mudslides, right?
Two doctrines used by the court give insureds (the people that are insured) another bite at the apple to have their damages covered. The first one is called the Reasonable Expectations Doctrine. Essentially, the doctrine “protects the objectively reasonable expectations of insureds even though painstaking study of the policy provisions would have negated those expectations.” Jostens, Inc. v. Northfield Ins. Co., 527 N.W.2d 116, 118 (Minn.App.1995) (quotation omitted), review denied (Minn. Apr. 27, 1995). Factors to be considered when applying the doctrine are “the presence of ambiguity, language which operates as a hidden exclusion, oral communications from the insurer explaining important but obscure conditions or exclusions, and whether the provisions in a contract are known by the public generally.” Hubred v. Control Data Corp., 442 N.W.2d 308, 311 (Minn.1989). The second is called the Illusory Coverage Doctrine. That is basically where the policy gives a broad statement of coverage, but then the “fine print” eats away at the coverage by essentially excluding everything which might otherwise have been covered under the larger umbrella.
With a mudslide, if the policy had an exclusion about earthquakes but didn’t mention mudslides specifically, there is a good argument the mudslide should be covered because a mudslide caused by heavy rain is a lot different than a California-style earthquake. Another factor can be what the insurance agent told you (or failed to tell you) at the time of your insurance meeting, and what additional riders exist or were available to you when you purchased your insurance.