Church vs. Church – Court Uses Dictionary to Define “Decay”

Jason Cleri | Property Insurance Coverage Law Blog | March 8, 2019

Easthampton Congregational Church submitted an insurance claim to Church Mutual Insurance Company when their roof suddenly collapsed. Church Mutual denied coverage for faulty construction after they sent their engineer, Joseph Malo, out to inspect the property. Mr. Malo noted, and the insured agreed, there was “progressive failure of the fasteners used to attach the layers of the ceiling to the ceiling joists due to the weight of the ceiling” which eventually caused the collapse.

Easthampton asked Church Mutual to reconsider their position stating that the roof was entirely effective in that it had lasted for approximately sixty years and that the loss was covered under the collapse provision which stated:

2. We will pay for direct physical loss or damage to Covered Property, caused by collapse of a [covered property]…if the collapse is caused by one or more of the following:

b. Decay that is hidden from view, unless the presence of such decay is known to an insured prior to collapse;

f. Use of defective material or methods in construction, remodeling, or renovation if the collapse occurs during the course of the construction, remodeling, or renovation. However, if the collapse occurs after construction, remodeling, or renovation is complete and is caused in part by a cause of loss listed [in the previous sections]; we will pay for the loss or damage even if use of defective material or methods, in construction, remodeling, or renovation, contributes to the collapse.

The insurer, in its denial also rejected the insured’s allegation that hidden decay contributed to the collapse.

The trial court held that “the most reasonable reading of the word ‘decay’ as it is used in the Policy is that it refers to the broader concept of the word.” That is, a “gradual decline in strength” or “progressive decline” as opposed to a narrower definition that entails organic rotting.

The appellate court, while not necessarily agreeing with the trial court’s reasoning, affirmed their decision to grant summary judgment in favor of the insured because it was clear that an ambiguity existed as to the definition of the word decay.1

Notably, the First Circuit was not too fond of the insurer’s argument that the chosen definition of decay would encompass all collapses, because “it is difficult to imagine any collapse, of any structure, being cause by something other than ‘decay.’” The court noted:

But, even if the insurance company did not intend to provide coverage for collapses like the one in question, that is a self-inflicted problem. The insurance company, which wrote the policy, could simply have defined “decay” narrowly or limited the coverage period.

I leave you with a quote from English philosopher, Thomas Hobbes:

“[i]magination, therefore, is nothing but decaying sense. . . .”
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1 Easthampton Congregational Church v. Church Mutual Ins. Co., No. 18-1881, 2019 WL 851191 (1st Cir. Feb. 22, 2019).

Deterioration Known To Insured Forecloses Collapse Coverage

Tred R. Eyerly | Insurance Law Hawaii | December 26, 2018

   The insurer properly denied coverage for collapse of a building when the insured knew from an expert’s examination that the walls of his house were deteriorating. Jaimes v. Liberty Ins. Corp., 2018 U. S. Dust. LEXIS 198224 (D. Colo. Nov. 21, 2018). 

   The insured discovered a crack in the wall of his home. He hired Anchor Engineering to inspect. Anchor found a large bulge in the south wall. Several problems with deterioration were noted in the basement. The structure of the house was unstable and dangerous.

   The insured filed a claim with his homeowners insurer, Liberty. The claim was  denied because damage to the wall was the result of deterioration. 

   The south wall of the house later collapsed. The insured submitted a second claim. Liberty again denied the claim because the collapse was the result of deterioration of the wall. The insured sued.

   The policy covered collapse of any part of a building caused by hidden decay. Liberty argued there was no coverage for the first claim because no wall had collapsed. The insured argued the cracking wall was subsumed into his second claim and should be covered as hidden decay. For purposes of this decision, the court agreed the first claim was subsumed into the second claim. 

   Nevertheless, there was no coverage. There were several statements in the Anchor letter that would put a reasonable person on notice that there was decay in the house. For example, the letter stated that in the basement, a number of floor joist ends had deteriorated. Further, mortar deterioration was severe. 

   The parties agreed that the terms deterioration and decay were interchangeable. Accordingly, there was no genuine dispute about the fact that Anchor communicated with the insured that there was decay around the wood bearing plate in the foundation wall and in floor joists. The insured should have understood the decay that Anchor observed was related to his explanation of the south wall – the wall that eventually collapsed. Therefore, the insured reasonably should have known of the decay before the collapse occurred. 

   Therefore, the collapse was not caused by hidden decay and there was no coverage under the policy. 

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.

Trial Court Sides with Insurers Over Cracked Concrete Foundation

Jason Cleri | Property Insurance Coverage Law Blog | December 15, 2018

In March of 2017, I wrote a blog post about the crumbling foundations in Connecticut due to a concrete company, J.J. Mottes & Company, using concrete that contained pyrrhotite, that cause the concrete to lose integrity and collapse. Many insurance companies have been denying these claims for various reasons. One insured, Lawrence and Karen Cockill, sought to have their claim against Nationwide covered by arguing that the structural integrity of the concrete was diminished due to a “chemical reaction.”1

Nationwide denied coverage citing to the policy provision that stated:

We do not cover loss to property described in Coverages A and B resulting directly from any of the following. . . .

(f)(1) wear and tear, marring, deterioration

(2) inherent vice, latent defect, mechanical breakdown;

(3) smog, rust. . . .

(5) release, discharge, or dispersal of contaminants or pollutants;

(6) settling, cracking, shrinking, bulging or expansion of pavements, patios, foundations, walls, floors, roofs or ceilings.

In ultimately ruling for Nationwide and granting their motion to dismiss, the District Court reasoned that “although loss from ‘chemical reaction’ was not specifically listed among the exclusions in the policy…many of the exclusions were broad enough to include chemical reactions.” For example, “wear and tear,” “deterioration,” “inherent vice,” “latent defect,” “rust,” and “cracking” all were terms “that may encompass the ‘chemical reaction’ ” described.

The trial court also noted that the only manifestation of the loss that the insured observed was “cracking in the basement walls,” but that loss from cracking was excluded under the policy’s “collapse” provision.

I leave you with a quote from Hall of Famer Connie Mack, who said: “Humanity is the keystone that holds nations and men together. When that collapses, the whole structure crumbles. This is true of baseball teams as any other pursuit in life.” Unfortunately, it doesn’t seem that humanity can help the Cockill’s pay for their crumbling foundation.
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1 Cockill v. Nationwide Property and Casualty Ins. Co., No. 3:18-cv-254 (D. Conn. Nov. 27, 2018).

“Abrupt Falling Down of Building or Part of Building” as Definition of Collapse Found Ambiguous

Tred R. Eyerly | Insurance Law Hawaii | October 10, 2018

The federal district court predicted the California Supreme Court would find the definition of collapse, calling for the abrupt falling down or caving in of a building or part of a building, to be ambiguous. Hoban v. Nova Cas. Co., 2018 U.S. Dist. LEXIS 139116 (N.D. Cal. Aug. 15, 2018).

The insureds’ bowling center had two roof trusses that helped support the roof. The truss failures caused the building ceiling, overhead monitors, and disco ball to drop approximately six to ten inches, and also caused ceiling tiles and a layer of insulation to fall from the ceiling. A general contractor, named Tom Powers, and the county building inspector inspected the damage. The building inspector immediately ordered the business closed until necessary repairs could be completed. Powers was hired to shore up the roof support system to prevent a complete collapse. Thereafter, the insureds were able to re-open the bowling alley.

The insureds’ policy with Nova covered an abrupt collapse. This was defined as the 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 could not be occupied for its intended purpose. After hiring a structural engineer, Nova denied coverage, deciding the roof did not collapse and the building was still standing.

The insureds sued and motions for summary judgment were filed by both parties. There were no California cases interpreting the exact language of the policy on collapse. The court therefore determined that the policy language was ambiguous because there was more than one reasonable interpretation of its intended meaning. One reasonable meaning of “caving in” was Nova’s understanding that the building must completely collapse to the ground. However, a building could “cav[e] in . . . with the result that the building . . . cannot be occupied for its intended purpose” by having its roof or ceiling fall an appreciable distance, even if the building as a whole did not completely collapse to the ground.

Further, coverage that applied to the “abrupt” collapse of either “a building” or “any part of a building”  suggested the policy was intended to cover a partial collapse of part of the building, so long as it occurred abruptly, not only a total or complete collapse. Moreover, specifying that the collapse must render the building or part of the building so that it “cannot be occupied for its intended purpose” would be unnecessary and redundant if the policy required the building or any part of a building to have collapsed to the ground.

Because the policy language was ambiguous, California law required it be interpreted in favor of the insured. Therefore, the court granted the insureds’ motion for summary judgment.

Nova also moved for summary judgment on the insureds’ claim for breach of the covenant of good faith and fair dealing. The court granted Nova’s motion because its decision that there was no coverage for collapse was based on a genuine dispute about coverage.