Can Appraisal Take Place Over Property That Has Been Demolished?

Erin Dunnavant | Property Insurance Coverage Law Blog | August 7, 2018

Florida’s Federal Middle District believes it can.1 After Hurricane Irma struck its commercial building in Port Charlotte, Florida, building owners Etcetera, Etc, Inc., filed an insurance claim under their policy with Evanston Insurance Company (“Evanston”). Evanston began its investigation, and as that was underway Charlotte County also inspected the building and issued a “Notice of Unsafe Building” stating the building “was in danger of collapse.”

The County’s notice gave the building owners (“the insureds”) two options: they could either repair or demolish their building. If they chose repairing it, they had to secure all necessary permits and commence the work within 30 days, complying with all applicable building codes. If they opted to demolish the building, they had to secure all permits associated with demolition, including debris removal and complete the demolition within 30 days. If the insureds failed to comply with either option, the County would demolish the building after the 30 days lapsed. The insureds opted to demolish the building.

After receiving a copy of the County’s Notice, Evanston Insurance Company sent a letter to its insureds stating that it did not believe the property needed to be demolished, and that in fact, the County’s notice made it clear that the property could be repaired. Evanston also hired an engineer who agreed the building could be repaired instead of demolished. Evanston further told its insureds that any decision to demolish the property would be voluntary and would not be related to a covered loss. The insureds responded to Evanston acknowledging that although there was some pre-existing damage, Hurricane Irma had caused more damage making it a “total loss.” The letter also notified Evanston that if they wanted to re-inspect the insureds’ building, they needed to do so right away, as the demolition would occur within the next few weeks.

At first, Evanston responded to its insureds by stating it would re-open the claim and schedule a re-inspection to occur. Nonetheless, less than a week before the re-inspection was scheduled, the insureds received correspondence from Evanston Insurance Company that although it acknowledged some covered damage, it was still their position that the property could be repaired (and did not need to be demolished), and for an amount that fell below the windstorm and hail deductible. Accordingly, Evanston did not make payment, but instead told its insureds to submit a repair estimate if it disagreed with Evanston’s position. Instead of awaiting an estimate or continuing to negotiate, Evanston Insurance Company filed a Complaint for Declaratory Judgment against its insureds asking the court to find that,

  • The insured property was not a total loss;
  • Florida’s Valued Policy Law did not apply to the Policy;
  • loss or damage caused by the enforcement of an ordinance or law (1) regulating the construction, use, or repair of any property; or (2) requiring the tearing down of any property, including the cost of removing its debris, was excluded; and
  • liability for the loss was limited to any covered damage caused by Hurricane Irma, subject to the Policy deductible and other terms and conditions.

The Defendant-insureds timely answered the complaint. They also sent a request for appraisal to Evanston. The policy here had an appraisal clause similar to many policies; it stated in pertinent part:

Appraisal

If we and you disagree on the value of the property or the amount of loss, either may make written demand for an appraisal of the loss, either may make written demand for an appraisal of the loss. In this event, each party will select a competent and impartial appraiser. The two appraisers will select an umpire. If they cannot agree, either may request that selection be made by a judge of a court having jurisdiction.

Evanston Insurance Company never responded to Defendant-insureds request for appraisal, so the insureds filed a Motion to Compel Appraisal with the court. In determining whether to grant the motion, the court compared situations where insurance carriers deny coverage to those where they acknowledge it,

[While] a dispute regarding a policy’s coverage for a loss is exclusively a judicial question . . . . when an insurer acknowledges that there is a covered loss, any dispute regarding the amount of such loss is appropriate for appraisal. Notably, in evaluating the amount of the loss, an appraiser is necessarily tasked with determining both the extent of covered damage and the amount to be paid for repairs.2

The court found that the question of what repairs are needed to restore a property is a question relating to the amount of loss and not coverage. Evanston acknowledged coverage for the damages relating to Irma, but believed they fell under the deductible, while the insureds believed the damages amounted to a “total loss.” The court found that because both parties agreed there was at least some damage due to a covered cause of loss, the remaining dispute over the scope of damage was appropriate for appraisal.

Evanston Insurance Company argued that the Defendant-insureds waived their right to go to appraisal by demolishing the building, making appraisal impossible. Although there is not much in the way of authority on this issue under Florida law (as the court acknowledged), the court did not find waiver here. The court noted these facts to supports its position:

  • Evanston had inspected the condition of the [insureds’] building 30 days prior to Hurricane Irma;
  • Evanston’s adjusters and engineers inspected again following the hurricane;
  • Evanston was given the opportunity to inspect the building prior to the demolition;

These facts outweighed Evanston’s argument that it would be impossible to appraise the property, especially when reports and estimates generated prior to demolition could be relied upon.

Although Evanston Insurance Company was unsuccessful in fighting off appraisal, the court granted its request to have the appraisal panel prepare a detailed line-itemed appraisal award that should include: 1) the actual cost value of all damages at the property prior to demolition, 2) damages resulting from the enforcement of an ordinance or law regulating construction, use, repair, tear-down or debris removal, 3) the actual cash value of covered damages that existed prior to demolition and are directly attributable to Hurricane Irma, and 4) Damages that predated the policy period, to include damages related to Hurricane Charley.

This is an important case for policyholders because it shows how important cooperating with your insurance company can be. For instance, had the insureds not permitted the initial inspection by the insurance company, the court may have come to a different conclusion, as there may have been insufficient evidence for which to conduct an appraisal without those visits. When in doubt, cooperate with your insurance company. If you aren’t sure what that entails, consult with a public adjuster or an experienced policyholder attorney.
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1 Evanston Ins. Co. v. Etcetera, Etc Inc., 2:18CV103FTM99MRM, 2018 WL 3526672 (M.D. Fla. July 23, 2018).
2 Id. at *3 (citations omitted; emphasis in original).

When the Insurance Company Labels Your Loss a Collapse, Can It Still Deny Your Collapse Claim?

Nicole Vinson | Property Insurance Coverage Law Blog | June 28, 2018

At least one Michigan court has ruled that even when the execute general adjuster calls a building’s damage a collapse and labels it as a “cave in,” the denial will stand where the policy language supports an exclusion.1 This case arises out damages that occurred to a large commercial shop that repairs commercial trucks. There was a failure of the trusses and the roof began to sag, causing one of the walls to bulge outward due to the sudden pressure. Following the policy’s duty to mitigate the loss, the insured retained a company to install temporary shoring to support the roof and prevent further damage.

Community Garage made a claim with Auto-Owners for collapse and agreed the building could not be safely operated until repairs were made.

The policy Auto-Owners provided Community Garage excluded collapse coverage but provided “Additional Coverage – Collapse.” Under this coverage the policy required the collapse to be abrupt: “Abrupt collapse means 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 intended purpose.”

The policy goes on to explain Additional Collapse coverage does not apply to something that is nearly a collapse.

Here is the exact policy language:

D. Additional Coverage- Collapse

3. This Additional Coverage- Collapse does not apply to:

a. A building or any part of a building that is in danger of falling down or caving in;

b. A part of a building that is standing even if it has separated from another part of the building; or

c. A building that is standing or any part of a building that is standing, even if it shows evidence of cracking, bulging, sagging, bending, leaning, settling, shrinkage, or expansion.

Auto-Owners denied the claim and said even though the building was not safe, the building was still standing and the denied the claim.

In court filings, Community Garage argued that the roof did abruptly cave in and the building cannot be used for it intended purpose. Community Garage set forth policy construction and interpretation arguments that are often helpful to policyholders. The Michigan cases cited in support show that the policy should be given its plain and ordinary meaning and any ambiguity that is reasonably susceptible to more than one meaning will be resolved in favor of coverage for the insured.

Community Garage also pressed the court to require Auto-Owners prove this exclusion applied to this loss.

To assist in its argument, Community Garage had emails from defendant’s Executive General Adjuster and testimony of an expert who referred to the damage as “collapse” or “caving in.”

Both the trial court and the appellate court disagreed with Plaintiff and found that the property damage was not a covered loss and not considered a collapse. The court found no ambiguity and instead said that the policy included a provision that outlined what doesn’t qualify as collapse. The court explained that along with the explanation of collapse, the policyholder must also read Subsection D 1 and Subsection D (3)(a) that excludes coverage for any part of the building that is simply “in danger of falling down or caving in.”

The court addressed the emails by saying that collapse and caving was being used in the common usage and not specifically the way the policy details collapse and caving in—meaning the adjuster was using a general term. Further, the adjuster had recommended additional consideration of the policy form and called out Subsection D (3) for review.

Whether other courts will have different rulings depends on cases like this will depend on policy language and factual circumstances of the loss. Much of the analysis here seemed to center around whether the sagging roof was actually caving it. A drooping roof is what the court found was happening at Community Garage but the quick action of the owners to shore up the building may have been what stopped a traditional cave in and also protected the workers and occupants.

Interested in more posts about collapse coverage? Check out:

Investigators Explain Focus on Pre-Collapse Cracking in Florida Bridge

Scott Judy and Richard Korman | ENRSoutheast | May 24, 2018

A final determination of the deadly accident’s cause could take 24 months

Bridge_collapse_elevation.png
Elevation of the pedestrian bridge that collapsed in March, recently released by the National Transportation Safety Board. It shows the location of cracks in photos in the text below (a third image of the cracks is not shown).

The National Transportation Safety Board’s preliminary report on the fatal collapse in March of a pedestrian bridge at Florida International University in Sweetwater focuses attention on the widely discussed pre-collapse cracking in the main span. The report also confirms accounts about what the construction crew working on the bridge was doing before the structure fell.

But the report contains no definitive explanation of what occurred. Additional months, and possibly years, will be needed to determine the probable cause of the failure, which killed five motorists and one project worker.

Issued May 23, the NTSB report states that while the board “is evaluating the emergence of cracks” in diagonal members located at both ends of the bridge, it is also studying “the propagation of cracks” near diagonal member 11, located at the structure’s north end.

crack
Photo 1: An image accidentally released by the National Transportation Safety Board earlier this month to the Miami Herald showing a crack in the region of bridge diagonal 11.

A video of the collapse appears to show the failure starting at that part of the concrete truss bridge’s main span.

Seven vehicles beneath the 174-ft-long bridge were occupied at the time of the collapse early in the afternoon of March 15. The partially constructed pedestrian bridge was being built by a design-build joint venture called MCM-FIGG, consisting of contractor MCM Construction and FIGG Engineers, both based in Florida.

Following the design plan, five days before the collapse construction crews “de-tensioned the bridge diagonal members on the north and south ends of the bridge,” the report states. At the time of the accident, a construction crew was busy “re-tensioning the number 11 diagonal member connecting the canopy and the deck at the north end of the bridge,” according to the report.

crack
Photo 2: A second photo of a crack in the region of diagonal 11 of the failed Florida International University pedestrian bridge. The cracks are a focus of federal investigators.

Much speculation about the cracks has been published.

The project team’s knowledge of pre-collapse cracking in the bridge span was first reported on March 16, when the Florida Dept. of Transportation (FDOT) released the transcript of a voice mail it had received from the bridge project’s lead engineer prior to the collapse.

According to FDOT’s transcript of the voice mail, Denney Pate, of FIGG Bridge Engineers, tells the agency that the project team had “taken a look at [the cracking].”

Pate then added, “Obviously some repairs or whatever will have to be done but from a safety perspective we don’t see that there’s any issue there so we’re not concerned about it.”

Additionally, FIU acknowledged, the project team had met for more than two hours to discuss the cracking issue on the morning of the collapse.

FIGG Bridge Engineers says that it can’t comment on the interim report and that it is cooperating with the NTSB on its investigation, which “is still in the early fact-finding stages.”

Moving forward, NTSB plans to conduct “additional forensic examination of several bridge structural components and destructive testing of multiple core and steel samples.”

Also, the NTSB stated that “all aspects of the collapse remain under investigation,” including the bridge design plans.

Lawsuits and Liability

A final report on the FIU bridge collapse—which will include determination of a probable cause plus recommendations to avoid future accidents—likely won’t come until 2019, or possibly 2020, says the NTSB. Investigations involving fatalities usually take between 12 and 24 months to complete, the board stated.

One of the first lawsuits—filed on behalf of FIU student Emily Joy Panagos, whose car was crushed—suggests that post-tensioning triggered the failure that brought down the structure. The lawsuit alleges that the post-tensioning compressed the diagonal so that it overstressed a joint in the top chord, triggering hinge failure at a connection in the lower chord. That resulted in the catastrophic failure of the rest of the 174-ft-long structure.

Aside from the technical aspects of the tragedy, the legal and financial ramifications are likely to be severe.

One possibility, legal experts say, is that the two companies in the design-build joint venture—MCM actually employed FIGG on the project—will end up squaring off over the costs.

FIGG’s liability could hinge partly on whether it recommended, designed or supervised the work involving tension rods or cables being performed on the bridge the day of the collapse.

“When it comes to liability of a design-build joint venture, and the team is jointly and severally liable, within the team there will be what are called indemnity contribution claims,” says Judah Lifschitz, an attorney who is a principal and co-president of Washington, D.C.-based Shapiro, Lifschitz and Schram. “And each party will have its own insurers.”

The companies and insurers involved in a costly accident, says Lifschitz, “often look to the other companies, such as their subcontractors and suppliers, to share the pain.”

Federal Court Certifies Question Regarding Collapse to Connecticut Supreme Court

Jason Cleri | Property Insurance Coverage Law Blog | June 6, 2018

Last year I wrote a blogpost about the large class action lawsuit in Connecticut centered on the crumbling foundations due to pyrrhotite in the concrete poured by the J.J. Mottes Company in approximately 20,000 buildings across Connecticut.

Recently, a federal judge has asked the Connecticut Supreme Court for a better definition of the word collapse,1 that was given in Beach v. Middlesex Mutual Assurance Co., 205 Conn. 246 (1987). In Beach, the Connecticut Supreme Court determined that collapse was not limited to a sudden and catastrophic nature, but, included substantial impairment of structural integrity of a building.

Many of the insureds’ lawsuits brought against insurance carriers due to the structural integrity of the concrete used the Beach definition of collapse in their defense. The trial court noted that although highly instructive, the Beach decision provides insufficient guidance and no appellate decision has squarely applied Beach and arrived at a definition of “substantial impairment of structural integrity.”

Three questions were presented for certification:

  1. Is “substantial impairment of structural integrity” the applicable standard for “collapse” under the provision at issue?
  2. If the answer to question one is yes, then what constitutes “substantial impairment of structural integrity” for purposes of applying the “collapse” provision of this homeowners’ insurance policy.
  3. Under Connecticut law, do the terms “foundation” and/or “retaining wall” in a homeowner insurance policy unambiguously include basement walls? If not, and if those terms are ambiguous, should extrinsic evidence as to the meaning of “foundation” and/or “retaining wall” be considered?

The Connecticut Supreme Court chose to certify only the second question, noting that if the term collapse is not defined, then Beach is the applicable standard. With respect to the third question, Connecticut courts have “consistently rejected” insurers’ arguments concerning the term foundation, having “determined that those policy terms were ambiguous,” and have “construed them against” the insurers.2

Stay tuned for updates.

I leave you with a relevant quote from former country music singer David Allan Coe:

“It is not the beauty of a building you should look at; it’s the construction of the foundation that will stand the test of time.”
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1 Karas v. Liberty Insurance Corp., No. 13-1836 (D. Conn. April 30, 2018).
2 Jang v. Liberty Mut. Fire Ins. Co., 2018 WL 1505574, at *3 (D. Conn. Mar. 27, 2018); see also, e.g.Gabriel v. Liberty Mut. Fire Ins. Co., 2017 WL 6731713, at *2 (D. Conn. Dec. 29, 2017) (noting prior determination “that the terms ‘foundation’ and ‘retaining wall,’ as used in the policy, were ambiguous.”); Belz v. Peerless Ins. Co., 46 F. Supp. 3d 157, 164 (D. Conn. 2014); Karas v. Liberty Ins. Corp., 33 F. Supp. 3d 110, 115 (D. Conn. 2014) (“Each party thus has a reasonable but different interpretation of the phrases [‘foundation’ and ‘retaining wall’] supported by dictionaries and case law, so the phrases are ambiguous, and the insurance policy should be construed against Liberty Mutual.”); Bacewicz v. NGM Ins. Co., 2010 WL 3023882, at *4 (D. Conn. Aug. 2, 2010) (“[A] reasonab[e] jury could find that the basement walls of the Bacewiczes’ house did not constitute the ‘foundation’ of the house.”)

What is a Collapse? Crumbling Concrete Case is Catalyst for Coverage Query Certified to State Supreme Court

Verne Pedro | Property Insurance Coverage Law Blog | May 29, 2018

Recognizing the public policy implications of an unsettled, recurring coverage issue involving crumbling concrete foundations in thousands of Connecticut homes, U.S. District Court Judge Stefan Underhill recently certified the following insurance coverage question to the Supreme Court of Connecticut:

What constitutes a “substantial impairment of structural integrity” for purposes of applying the “collapse” provision of this homeowners’ insurance policy?1

The situation in Karas is one shared by approximately 34,000 homeowners whose foundations were built with concrete from the J.J. Mottes Concrete Co. (“Mottes”). Mottes concrete contains a mineral called pyrrhotite. Over time the iron sulfide in the pyrrhotite reacts with oxygen and water, causing the concrete to expand, crack and turn into rubble.

In October 2013, the Karases discovered their basement walls were deteriorating in the manner typical of Mottes concrete. On November 15, 2013, they reported a claim to their homeowners’ insurer. The insurer denied the claim the same day, asserting the loss described was “deterioration” and therefore not ocvered under the policy.

On December 11, 2013, the Karases sued the insurer, seeking coverage for their foundation as a covered “collapse” under Connecticut law. They alleged it was only a question of time until their basement walls fell in due to exterior pressure from the surrounding soil.

The Karases’ policy contains familiar language pertaining to collapse events:

Collapse. We insure for direct physical loss to covered property involving collapse of a building or any part of a building caused only by one or more of the following:

* * * * *

b. Hidden decay;

c. Hidden insect or vermin damage;

d. Weight of contents, equipment, animals or people;

e. Weight of rain which collects on a roof; or

f. Use of defective material or methods in construction, remodeling or renovation.

* * * * *

Collapse does not include settling, cracking, shrinking, bulging or expansion.

The Karases relied on the material-impairment standard articulated in an earlier Connecticut Supreme Court case, which held that the term collapse in a homeowners’ policy was ambiguous if not defined, and any “substantial impairment of structural integrity” of a building was covered.2While the Beach decision rejected the argument that “collapse” requires a sudden and complete falling in of a structure,” it did not define the parameters of “substantial impairment of structural integrity.”3

Judge Underhill explained in the Karas Certification Order that he applied the Beach standard in other rulings on concrete-collapse cases. For instance, in Roberts v. Liberty Mutual Insurance Company, Underhill interpreted Beach to require that a ‘collapse’ (i.e., a substantial impairment of structural integrity) must be proved by evidence that a building “would have caved in had the plaintiffs not acted to repair the damage.”4

Judge Underhill also noted his belief that the standard enunciated in Beach is relatively clear. Nevertheless, on these facts, and because this “unsettled question of state law raises important issues of public policy,” and is “likely—indeed, almost certain—to recur,” Judge Underhill decided at this juncture to seek further guidance from the Connecticut Supreme Court.

The Judge further wrote:

Connecticut’s highest court should have the opportunity to decide whether my interpretation of Beach was correct …. Determining the extent to which the substantial loss should fall on homeowners or on their insurers entails value judgments and important public policy choices that the Connecticut Supreme Court is better situated to make.

There are currently a dozen or more federal lawsuits pending along with over forty crumbling concrete cases in state court. It will be interesting to see how the Connecticut Supreme Court resolves this unsettled issue of policy construction and insurance law.
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1 Karas v. Liberty Mutual Ins. Co., No. 3:13-cv-01836, 2018 WL 2002480 (D. Conn. April 30, 2018).
2 Beach v. Middlesex Mutual Assurance Co., 205 Conn. 246, 252 (1987).
3 Id.
4 Roberts v. Liberty Mutual Ins. Co., 264 F. Supp. 3d 394, 410 (D. Conn. 2017); see Sansone v. Nationwide Mut. Fire Ins. Co., 47 Conn. Supp. 35, 39 (Conn. Super. Ct. 1999)(observing that whether a plaintiff has proven a substantial impairment is a question of fact).