No Collapse Coverage Where Policy’s Collapse Provisions Deleted

Tred Eyerly | Insurance Law Hawaii | July 24, 2017

The federal district court found there was no coverage for the homeowners’ collapse claim because the collapse provisions were deleted from the policy. Gueng-Ho Kim v. State Farm Fire & Cas. Co., 2017 U.S. Dist. LEXIS 97871 (D. Conn. June 26, 2017).

The homeowners purchased their home in 2004. They also purchased a homeowners policy from State Farm. In the policy, State Farm deleted  the additional coverage for collapse.Also deleted from the policy was language excluding coverage for “collapse, except as specifically provided in Section I – Additional Coverages, Collapse.”

The homeowners discovered a problem with the property’s foundation when they attempted to sell the house in 2014. The homeowners hired an engineer who found that the interior and exterior foundation had numerous spider-web cracks and the foundation walls in several locations bowed inward by as much as one and a half inches.

The homeowners filed a claim with State Farm. State Farm retained an engineer who found that the overall foundation wall system appeared stable with no evidence of an imminent collapsed of the structure. The engineer also found, however, network cracking in varying degrees. The engineer concluded that the deterioration most likely existed prior to the homeowners’ purchase of the home.

The request for coverage was denied by State Farm based upon an exclusion for “settling cracking, bulging or expansion of the foundation.” The denial also asserted the concrete damage was excluded from coverage because it arose from inherent defects in the concrete.

The homeowners filed suit. The homeowners asserted that they had coverage based on State Farm’s deletion of the language excluding coverage for “collapse, except as specifically provided in Section 1 – Additional Coverages, Collapse.” Because the language excluding coverage for collapse under certain circumstances was deleted, the homeowners contended their loss was not excluded and was covered under the policy’s “all-risk” coverage.

The court disagreed. Viewing the policy in its entirety, it was clear the deleted exclusion was not intended to create a new right of coverage. The exclusion was deleted because it referenced a provision that was also deleted (namely, Additional Coverages, Collapse) to ensure consistency within the policy.

Without the collapse provisions, the policy barred coverage for “settling, cracking, shrinking, bulging,” etc. Faulty or inadequate design, specifications, workmanship, construction was also a basis for excluding coverage. The property’s foundation was cracked and the concrete was defective. Therefore, the homeowners’ losses fell within the policy’s exclusions and there was no coverage.

Crumbling Foundation and the Collapse Provision in a Homeowners Policy

Jennifer Van Voorhis | Property Insurance Coverage Law Blog | March 26, 2017

Recently, Connecticut has had an increase in insurance claims for crumbling foundations due to faulty foundations poured in the 1980s and 1990s. Some foundations poured during this time frame contained a mineral, pyrrhotite, which can cause cracking when it reacts with oxygen and water. It is estimated nearly 20,000 foundations poured contain the mineral.

The problem many policyholders are encountering is the collapse provision in their insurance policies. Typical policy language defines collapse as “an abrupt falling down or caving in of a building or any part of a building”; contrasted with language in the same policy: “a building or any part of a building that is standing is not considered to be in a state of collapse even if it shows evidence of cracking, bulging, sagging, bending, leaning, settling, shrinkage or expansion.” These apparently conflicting definitions of collapse arise from the conflicting meaning of the term “collapse” as it has evolved in court cases from the various states. The traditional view defined collapse as a falling down or caving in, and the liberal view allowed for a substantial impairment of structural integrity without an actual collapse. In addition to this, some homeowners are burdened by a “sudden” clause, where the collapse must be sudden to be covered, and the deterioration of a foundation occurs over time.

Connecticut has requested that insurance companies work with their insureds in good faith, and requested they join Connecticut’s “Crumbling Concrete Assistance Program,”—a relief fund for homeowners. If you are a Connecticut policyholder dealing with a foundation issue, Connecticut recently passed a law sealing complaints filed with Connecticut’s Department of Consumer Protection, and other state agencies, to protect homeowners worried filing such a complaint might harm any subsequent claim with the insurance company.