Managing Insurance Risks from Underground Climate Change

Managing Insurance Risks from Underground Climate Change

According to an article by Risk Management Magazine, an emerging but often overlooked infrastructure risk is underground climate change. In major cities, heat from basements, tunnels, and other subterranean infrastructure is warming the ground, causing expansion and contraction of soil layers. This phenomenon has already led to structural strains, exacerbating cracks and defects in buildings. If left unaddressed, the article says the problem could result in significant structural damage, raising questions about property insurance coverage. 

Determining insurance coverage for damage caused by underground soil movement is complex. Many property insurance policies include earth movement exclusions, which bar coverage for losses due to soil shifting, sinking, or expanding. Insurers often invoke these exclusions alongside anti-concurrent causation (ACC) clauses, which exclude coverage when earth movement contributes to a loss, even if another covered cause is also involved. 

However, the article notes that courts tend to construe exclusionary language narrowly, interpreting ambiguities in favor of policyholders. Jurisdictions differ on causation standards, with some applying the efficient proximate cause rule, providing coverage if a covered peril is the dominant cause, while others follow the concurrent cause rule, allowing coverage if any contributing factor is covered under the policy.

Exceptions within the earth movement exclusion may also provide avenues for coverage. Some policies cover damages if earth movement leads to a fire or explosion. Additionally, human-caused earth movement may be covered in certain jurisdictions unless explicitly excluded. Another potential basis for coverage is the abrupt collapse provision found in many property policies, which could apply if hidden structural decay, aggravated by underground climate change, results in sudden building failure.

Given the increasing impact of underground climate change, risk managers must proactively assess policy language, exclusions, and state-specific legal interpretations. As litigation on this issue is expected to rise, organizations should carefully evaluate their coverage and consider potential mitigation strategies to address this evolving risk.