In Federated Rural Elec. Ins. Corp. v. TIG Ins. Co., 2008 U.S. App. LEXIS 20268 (9th Cir. Sept. 19, 2008), the issue was whether an excess, following form policy excluded coverage for "sinkhole collapse" under its earth movement exclusion.
TIG's excess policy excluded "earth movement," but did not define "earth movement." TIG's policy followed the underlying policy issued by Federated Rural Electric Insurance Exchange. Federated's policy was ambiguous as to whether it defined earth movement to exclude sinkhole collapse. One portion of the policy stated, "Any earth movement (other than sinkhole collapse) . . . ." This provision could be viewed as defining the term "earth movement" in the immediately preceding heading, which read, "Losses resulting from earth movement," as excluding sinkhole collapse. On the other hand, this language could be interpreted to define "earth movement" as including sinkhole collapse. The words "other than" preceding "sinkhole collapse" suggested that sinkhole collapse was a form of earth movement, but that sinkhole collapse was excepted from the earth movement exclusion. In light of these two reasonable interpretations, the Federated policy was ambiguous as to the definition of earth movement.
Because TIG's policy "follows the terms conditions and definitions" of the Federated policy, the Federated policy's definition of earth movement could be imported into the TIG excess policy. Therefore, the TIG policy covered loss due to sinkhole collapse.
