Insured Wins Because “Decay” and “Rot” Don’t Have to Mean the Same Thing

Dwain Clifford | The Policyholder Report | April 11, 2019

Earlier this week, the Washington Court of Appeals affirmed the bedrock principle in insurance-coverage cases that insurers will always lose when a genuine ambiguity controls whether an insurer will have to pay a claim. The ambiguity in this case arose both from lexicographers’ habit of capturing nuances in writing dictionary definitions of “decay,” and the insurer’s own choice to use different words for supposedly the same meaning.

In Feenix Parkside LLC v. Berkley North Pacific, the insured’s roof had collapsed after the building’s trusses failed, but without any evidence of dry rot or similar “decay” weakening them. Under the policy, a collapse caused by “decay that is hidden from view” is covered, but collapse from other causes, such as defective construction (but without some accompanying decay), was excluded. Relying on the first definition of decay that would first come to mind for most insureds in the Pacific Northwest, Berkley denied the claim because its adjusters did not find any “aerobic decomposition of proteins chiefly by bacteria.”

Not so fast, said the court. Although decay in the context of damage to a building (and, perhaps, especially one in rainy Auburn, Washington just south of Seattle) might naturally imply dry rot, the dictionary definitions are not so limited. In particular, several versions of Webster’s dictionaries included some variant of “decay” to mean “the condition of a person or thing that has undergone a decline in strength, soundness, or prosperity or has been diminished in degree of excellence or perfection.” Webster’s usage example for this meaning is “the decayof the public school system.”

This shaded difference in meaning, driven by the context of how “decay” is being used, may have tipped the scales in favor of Berkley’s proposed, and coverage-defeating, definition. One does not usually speak of the “decline in strength” of a damaged building, after all, but of rotted framing. But that is not how policy interpretation works in insurance-coverage disputes. Washington, like Oregon, favors any genuine ambiguity in favor of the insured. And because Berkley’s adjusters had found a “decline in strength” of the roof trusses caused by “higher than normal temperatures,” which then gave way in the collapse, the insured got the checkered flag. No rot required.

Winning coverage was also possible because of ambiguity in how Berkley itself described these issues in different parts of its policy. The court noted that Berkley used “decay” in the additional coverage for collapse cases, but also generally excluded losses caused by “’Fungus’, Wet Rot, Dry Rot and Bacteria.” If “decay” really meant only damages caused by “rot,” as Berkeley argued in defending its denial of coverage, then it could have simply repeated this word in the collapse-coverage provision. Using different words, the court reasoned, implied different meanings, including the broader meaning the insured provided.

Winning coverage was also possible because of ambiguity in how Berkley itself described these issues in different parts of its policy. The court noted that Berkley used “decay” in the additional coverage for collapse cases, but also generallyexcluded losses caused by “’Fungus’, Wet Rot, Dry Rot and Bacteria.” If “decay” really meant only damages caused by “rot,” as Berkeley argued in defending its denial of coverage, then it could have simply repeated this word in the collapse-coverage provision. Using different words, the court reasoned, implied different meanings, including the broader meaning the insured provided.

One cannot read many insurance-coverage opinions without developing a healthy skepticism for the first, and perhaps most natural, meaning of a term in an insurance policy. Coverage law doesn’t work that way, and Feenix Parksidereinforces that insureds and their attorneys must be able to think about what word means outside of its traditional context, where ambiguity may be born to the insured’s benefit.

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. . . .”
______________________
1 Easthampton Congregational Church v. Church Mutual Ins. Co., No. 18-1881, 2019 WL 851191 (1st Cir. Feb. 22, 2019).