When the road cut into the hillside above Edward Jones’ home in Maggie Valley collapsed in December 2003, one of the first things Jones did after being freed from the rubble was call his insurance agent.

Rescue workers were still looking for his wife, Patricia, when the insurance agent showed up and joined the hordes of people swarming over his property: state geologists probing the exposed cross-section of soil, road engineers inspecting the collapsed roadbed, waterline engineers examining broken pipes, plus dozens of deputies, firemen and rescue workers taking shifts with shovels to remove the huge mound of mud that fell on the home and buried Jones’ wife.

While time was crucial, workers decided using machinery to dig her out was too risky. It could cause the soil to shift and collapse further, or the excavating equipment could strike her when it got to where she was.

But by day’s end, Jones would learn that his wife, who was in the back of the house when the hillside collapsed, had been killed. He would also learn by day’s end that his insurance company would not cover the losses incurred in the catastrophe due to the “earth movement” exclusion in his policy.

Jones had a separate policy on his wife’s jewelry for $20,000, which the insurance company was prepared to pay. But when the jewelry was found and ultimately salvaged in the cleanup, Jones called his insurance agent and told him they’d found the jewelry, to cancel the claim.

Now, 18 months later, Jones is taking State Auto Insurance to court demanding not only the cost of his home and possessions, but retribution for the “unnecessary mental pain and suffering, emotional distress and discomfort” Jones suffered.

“The body isn’t even to the funeral home yet and they are denying his claim,” said Mark Melrose, a Sylva attorney representing Jones. “The insurance companies should not force a man like Mr. Jones who is now homeless and penniless to hire a lawyer to get back what is his.”

Melrose added that the insurance company will regret the day it denied Jones’ claim by the time he’s done with them. Melrose is hoping for a jury trial. He has a reputation for winning big settlements with a specialty in malpractice and personal injury lawsuits.

Jones will ask for about $500,000 in tangible costs to cover the house, possessions, cleanup and temporary housing.

“On top of that, we would ask the jury for punitive damages to punish the insurance company and make an example out of them to deter them from doing this to someone else down the road. That amount can be whatever the jury thinks is fair,” Melrose said. He said an award in the millions would be reasonable.

Exclusion delusions

Jones’ policy — and all homeowner policies in North Carolina — don’t cover “earth movement,” including mudflows, landslides, and earth sinking, rising or shifting, unless the landslide was the result of an earthquake.

“There is no insurance coverage available for purchase in North Carolina for damage to a home caused by a landslide or mudslide that is not the direct result of a confirmed earthquake,” Steve Davis, Jones’ insurance agent, said in an affidavit on file in the Haywood County courthouse.

But Melrose argues the damages weren’t a result of earth movement, not directly anyway. Melrose alleges the cause of the landslide was a ruptured waterline, which saturated the soil in the hillside above Jones’ home and caused the collapse. (See related story.)

“If the water pipe had not leaked, the landslide would not have happened and Mrs. Jones would not have been killed and the house would not have been destroyed,” Melrose said.

The landslide was merely an intermediary event in a chain reaction, Melrose said. The root cause was the waterline rupture, and damage resulting from a water leak is covered in the policy, Melrose said.

It’s a theory the victims of the floods of 2004 know well. If a tree smashed into a victim’s home during the flood, insurance companies denied the claim. While a tree falling on a house would normally be covered, in this case the flooding was the root cause. And since floods aren’t covered, neither was the tree damage. It’s a double standard when insurance companies cite the root cause when it’s to their advantage, and ignore it when it’s not, Melrose said.

The attorney representing State Auto Insurance in this case did not return phone calls requesting comment.

In a rebuttal to Melrose, State Auto Insurance wrote there is no proof that the water line was the root cause of this landslide.

“The question of what is the cause of the loss remains a question of fact to be determined by a jury,” an attorney for State Auto Insurance claims in court files. “The case of the loss cannot be unilaterally determined by the defendant.”

Melrose said the burden of proof falls on the insurance company.

“They have to prove the landslide was natural,” Melrose said. It’s not Jones’ job to prove it was man-made.

Ground-breaking precedent

In more recent court filings, State Auto Insurance has claimed that the earth movement exclusion applied to this case regardless of whether the landslide was man-made or natural. Even if the slide was triggered by a water leak, it wouldn’t be covered, the insurance company claims.

But Melrose said if the insurance company wanted to exclude man-made landslides, they needed to say that specifically in their policy. He points to a similar case that went to the Florida Supreme Court in 2002. A building was damaged when blasting gone awry triggered a landslide. The homeowner’s insurance company refused to cover the damages, citing the “earth movement” exclusion.

While the definition of earth movement included landslides, the policy did not specify whether it applied to man-made landslides or just naturally occurring landslides. In the absence of clear language, the victim, not the insurance company, is entitled to the benefit of doubt, according to the Florida Supreme Court ruling.

“If Clarendon (the Florida insurance company) intended to exclude damage from earth movement caused by man-made events from coverage as it now contends, it could have done so clearly and unambiguously,” the Florida Supreme Court opinion stated. “Ambiguous provisions in insurance contracts are strictly construed against the insurer and ambiguous exclusionary clauses are construed even more strictly.”

In their opinion, the Florida Supreme Court justices stated that they weren’t the first ones to come to such a conclusion, but that “the overwhelming majority of courts interpreting earth movement exclusions” have ruled in the victims’ favor unless the wording in the policy specifically excludes earth movement “regardless of its cause.”

Melrose said insurance companies’ behavior overall is downright shameful.

“It is really complicated and that’s what the insurance company is counting on,” Melrose said. “They write something so complicated even lawyers can’t understand them. So they can wiggle out of everything. So how is the consumer being protected?”

As a result of this case, insurance companies this year convinced the North Carolina Rate Bureau to approve new policy wording to clear up the confusion over natural versus man-made landslides. It now specifies that any earth movement “caused by or resulting from human or animal forces or any act of nature” is not covered. This move by a state agency upset Melrose.

“I don’t know why the Commissioner of Insurance won’t protect the consumer,” Melrose said. “We need to get some legislative help on this.”

Meanwhile, the suit against State Auto Insurance will go before a Haywood County judge for a summary judgment on July 25. State Auto Insurance will claim that Jones’ policy did not cover landslides, period. The judge will attempt to interpret the insurance policy. If the judge decides the policy is clearcut and doesn’t include landslides, regardless of the root cause, he could dismiss the case, which means Melrose will appeal.

If the judge decides there are grounds for a trial, the case will go to a jury trial in Haywood County as early as August. While State Farm could settle the claim out of court between now and then, Melrose said he has gotten no indication that the company will take that step.

Regardless of the outcome in the first round of court, both parties would likely appeal. If Melrose wins, given the amount of damages Melrose will likely push for, it could be cheaper for the insurance company to keep appealing. If the insurance company wins, Melrose will likely appeal on Jones’ behalf.

Jones, who lost his wife, his home and all his possessions, has nothing to lose. His list of losses on file at the courthouse include a $10 art deco lemonade pitcher, a $79 electric knife sharpener, $500 in toiletries that were in the medicine cabinets, a $35 leather prayer book, a $35 1977 Mickey Mouse commemorative crystal plate, even telephones and throw pillows. He’s received no money to start over — and he paid out of pocket for the cost of the debris removal to haul off his house.