Connecticutt Class Action on Collapse Claims Faces Motion to Dismiss

Tred Eyerly | Insurance Law Hawaii | November 28, 2018

    The federal district court dismissed some insurers from a class action suit alleging failure to provide coverage for collapse claims. Halloran v. Harleysville Preferred Ins. Co., 2018 U.S. Dist. LEXIS 179807 (D. Conn. Oct. 19, 2018).

    A class of homeowners brought suit in 2016 against their homeowners insurance companies (“defendants”) for failure to cover collapse claims. Plaintiffs alleged they bought their homes between 1984 and 2015. Each of the homes had basement walls that were “crumbling and cracking due to the oxidation of certain minerals contained in the concrete.” As a result of the deteriorating concrete, plaintiffs claimed that their basement walls were in a state of collapse. 

    Plaintiffs alleged that the Insurance Services Office, Inc. (“ISO”) and the insurance companies were aware of the concrete issues in Connecticut at least as early as 1996, when claims began to be filed. Defendants and the ISO deliberately changed their policies’ definitions of “collapse” to try to avoid or minimize liability for potential claims brought by plaintiffs. The new language excluded losses to a foundation or retaining wall and “settling, cracking, shrinkage, bulging or expansion” from coverage of collapse. 

    The standard policy language produced by the ISO and adopted by the insurers went through several iterations between 1990 and the present. Originally, the coverage provided for the “direct physical loss to covered property involving collapse of a building  . . .”  The term “collapse” was undefined.

    In 1999, ISO language allegedly changed and defined collapse as “an abrupt falling down or caving in of a building or any part of a building with the result that the building or part of the building cannot be occupied for its current intended purpose.” Further, a building “in danger of falling down or caving in” or that “is standing” is “not considered to be in a state of collapse.” Plaintiffs alleged that each defendant changed the language of their policies over time and that these changes attempted to delete coverage.

    The defendants moved to dismiss the fourth amended complaint. The court looked at specific policy language to determine whether the term “collapse” was ambiguous. The first set of claims submitted by plaintiffs arose under language adopted by the ISO in 1997. The policies provided for coverage of “direct physical loss to covered property involving collapse of a building or any party of a building” when the result of several different causes, such as “hidden decay,” “use of defective materials,” etc. Prior Connecticut cases had found the term “collapse” in these policies to be ambiguous. Plaintiffs with claims arising under the older policy language therefore properly alleged a “collapsed” that could be covered under the policies. 

    Plaintiffs who alleged that their policy included collapse provisions without temporal modifiers such as “abrupt” also survived a motion to dismiss because the policy language was sufficiently ambiguous.

    A second category of policies also included temporal modifiers, requiring the collapse to be “abrupt’ and the building to be unusable for its normally intended purposes. Still other policies required the collapse to be “sudden and accidental.” Under these policies, the “collapse” provision was not ambiguous, requiring a “sudden” collapse. The defendants’ motion to dismiss was granted as to these policies. 

    The third category of policies, over time, adopted more restrictive language. The motion to dismiss as to these policies was denied. There remained issues of fact and law as to whether the insurers were obligated to notify the insureds of changes in the policy definition of collapse and whether the insurers did so. 

    Defendants also moved to dismiss plaintiffs’ claims for breach of he implied covenant of good faith and fair dealing. Because several plaintiffs had not pled a plausible claim for breach of contract, their claims for breach of the implied covenant of good faith and fair dealing also failed. For plaintiffs who survived dismissal of their breach of contract claims, however, the motion to dismiss the breach of the implied covenant of good faith and fair dealing was denied. Plaintiffs alleged that defendants knew that plaintiffs’ claims were covered. Further, defendants misled plaintiffs in order to receive their premiums without providing the requisite coverage. 

    Finally, the arguments of certain defendants to strike the class allegations was denied. The issues would be better addressed when the motion for class certification was considered, after more development of the record in the case.