No Coverage for Collapse of Building

Tred R. Eyerly | Insurance Law Hawaii

    Damage to a building caused by the break of a water pipe was not a collapse under the policy. Naabani Twin Stars v. Travelers Cos., 2020 U.S. Dist. LEXIS 196443 (D. N. M. Oct. 22, 2020).

    An underground water line ruptured on plaintiffs property This caused a collapse under the adjacent parking lot, which in turn caused land beneath the building go change positions and damage the building. A geotechnical consultant concluded that a material change in the site conditions occurred as a direct result of the rupture of the water pipe in the parking lot, and that those changes directly affected the settlement of the building.

    Travelers denied coverage for the damage. Travelers concluded that the building settlement was the result of subsurface movement, which invoked the earth movement exclusion. Travelers inspection concluded that the building was not in a state of collapse. The policy defined collapse as “an abrupt falling down or caving in of a building or structure, or any part of a building or structure, with the result that the building, or part of the building, cannot be occupied for its intended purpose.”

    Plaintiff sued and Travelers moved for summary judgment. 

    The court found that the definition of “collapse” was clear and unambiguous. The court could not find any evidence to show that plaintiffs’ building suffered a “collapse” as defined by the policy. The damage to the building fell squarely within the definition’s exclusion, which did not cover standing buildings with “cracking, bulging, sagging, bending, leaning, settling, shrinkage, or expansion.” Plaintiff did not identify any evidence of the building “falling down or caving in.”  Instead, plaintiff contended the building was in danger of falling down or caving in. 

    Plaintiff also argued that the efficient proximate cause of the damage was the ruptured water pipe. But the policy’s anti-concurrent causation clause displaced any benefit Plaintiffs might receive from the efficient proximate cause doctrine. To find otherwise would be to rewrite the policy. 

    Finally, the earth movement exclusion was applicable. The provision barred coverage for “loss caused directly or indirectly by any earth movement, whether natural or man-made, including  . . . earth sinking, rising or shifting, including soil conditions which cause settling. . .” Here the evidence was clear that the damage was caused by shifting soil, itself caused by the underground water movement. 

    Travelers’ motion for summary judgment was granted. 

Collapse of Underground Storage Cave Not Covered

Tred R. Eyerly | Insurance Law Hawaii

    The Eighth Circuit faced unusual facts in determining that the collapse of a cave serving as a storage facility was not covered under the policy. Westchester Surplus Lines Ins. Co. v. Interstate Underground Warehouse & Storage, Inc., 2020 U. S. App. LEXIS 83 8th Cir. Jan. 3, 2020).

    Interstate operated an underground storage facility in a cave that formerly housed a limestone mine. In 2014, Interstate experienced a series of “dome-outs,” in which layers of rock destabilized, detached, and collapsed from above into the cave.

    Interstate’s policy with Westchester included coverage for collapse of a “building” caused by “building decay.” Westchester sought a declaratory judgment that Interstate’s loss was not covered. The district court granted summary judgment for Westchester because the cause of the loss was not “building decay” within the meaning of the primary policy.

    When Interstate constructed its facility, a limestone slab from the middle zone of the Bethany Falls limestone provided a natural ceiling. The rubble zone was above this natural ceiling. To ensure that the slab of limestone from the middle zone did not detach and fall into the facility, Interstate inserted steel bolts through the natural ceiling, through the rubble zone, and into the more stable layers of rock above the rubble. 

    For purposes of the appeal, Westchester accepted that Interstate’s facility was a “building” within the meaning of the policy. The appeal turned on whether the collapse that damaged the “building was caused by “building decay.” So the dispositive question was whether decay in the rubble zone was “building decay.”

    The Eighth Circuit was not convinced that the bolting process transformed the rubble zone and other earth around the bolts into part of the “building.” Rather, the bolts reinforced the facility’s natural ceiling, much like pilings beneath a large building provide support to that structure. 

    The court concluded that the rubble zone above the natural ceiling of Interstate’s facility was not part of the “building.” Because the decay that caused the dome-outs occurred within the rubble zone, the dome-outs were not caused by :building decay” within the meaning of the policy. Therefore, the judgment of the district court was affirmed. 

Vermont Supreme Court Reverses, Finding No Coverage for Collapse

Tred R. Eyerly | Insurance Law Hawaii

    The Vermont Supreme Court reversed the trial court’s decision for collapse coverage. Commercial Constr. Endeavors, Inc. v. Ohio Sec. Ins. Co., 2019 Vt. LEXIS 173 (Vt. Sup. Ct. Dec. 13,2019).

    Commercial Construction Endeavors, Inc. (CCE) built a livestock barn. By late December 2014, the barn was partially complete, with the foundation laid, wood framing erected, and roof trusses installed. In late December, strong winds caused the structure to collapse. CCE started clearing debris and rebuilding the barn, incurring additional labor and material costs.

    CCE reported the collapse to Ohio Security. The policy covered loss to “Covered Property.” Ohio Security determined that the loss was covered for “Off-Premises Property Damage Including Care, Custody or Control.” This endorsement provided coverage for damage to real property upon which CCE was performing operations where the damage resulted from those operations. Ohio Security paid CCE $24,750, the full amount available under the endorsement, less a $250 deductible.

    CCE asserted that coverage was also available under the “Property Floater Coverage Form.” The floater provided additional coverage for collapse, including loss caused by:

a. Windstorm . . . as covered in this Coverage Form

. . . 

f. Use of defective materials or methods in construction . . . if the collapse occurs during the course of the construction. . .

Ohio Security determined there was no coverage under the floater, advising that “the poClicy does not provide coverage for materials after they have been installed into the building project under the Property Floater Coverage.” CCE sued Ohio Security for breach of contract, contending additional coverage was due. 

    The trial court found the barn was real property, not business personal property, but denied Ohio Security’s summary judgment motion because the policy was ambiguous. The court, however, did grant summary judgment to Ohio Security on the debris removal coverage.

    The Supreme Court considered whether the use of the term “Covered Property” in some portions of the floater – but not in the additional collapse coverage subsection – created an ambiguity, requiring the conclusion that additional collapse coverage was not limited to “Covered Property,” i.e., business personal property. There was no dispute that “covered Property,” as defined in the floater, was limited to business personal property. Nor was there a dispute that the collapsed barn was not business personal property. 

    Because elsewhere in the policy it stated that Ohio Security would pay only for “loss to Covered Property,” the collapse coverage section was unambiguous. The only reasonable interpretation of the floater was that the limitation expressed as to “Covered Property” applied equally to all subsections, including the Additional Coverage-Collapse section. The additional collapse coverage applied only to “Covered Property,” which was business personal property. CCE did not dispute that the barn was not business personal property and thus was not “Covered Property.” Therefore, the court’s summary judgment ruling was reversed. 

    Further the debris removal was also not a loss involving business personal property. Therefore, it was not a loss to “Covered Property.” The lower court’s ruling that there was no coverage for debris removal was affirmed. 

Collapse of Breezeway Attached to Building Covered

Tred R. Eyerly | Insurance Law Hawaii

    The federal district court found that a breezeway that collapsed during a party was covered by the commercial property policy. DENC, LLC v. Philadelphia Indem. Ins. Co., 2019 U.S. Dist. LEXIS 179083 (M.D. N.C. Oct. 15, 2019).

    DENC owned an apartment complex that was insured by Philadelphia under an all-risk policy. During an early morning party, a large number of students gathered on the second-floor breezeway for a party. The students started jumping in the breezeway when a certain song started playing. The floor abruptly collapsed underneath the students. 

    Philadelphia sent an adjuster to inspect the breezeway a couple days later. He wrote to Philadelphia that “the sole and proximate cause of the loss is water damage occurring over an extended period of time causing the second floor breezeway to sage and the light weight concrete to crack.” Shortly thereafter, the building was condemned. A structural engineer found multiple ways in which water had seeped into the breezeway’s wood framing and photographed the resulting biological growth and wood decay. He concluded that the building had sustained significant long-term water intrusion which resulted in the wood framing inability to support the loads. The water intrusion was caused by the failure to properly install a water management system on the walls, a properly integrated waterproof system for the walkway slab and framing configuration, and improper venting of dryers.

    DENC retained an engineer who testified that the breezeway was sagging because the concrete had broken. 

    Philadelphia denied coverage and DENC sued Motions for summary judgment were filed.

    A collapse endorsement provision in the policy provided coverage in certain circumstances and excluded coverage in others, in a confusing morass of definitions, exclusions, and exceptions. An abrupt falling down or caving in of a building was excluded. On the same page, however, a collapse resulting on a “covered Cause of Loss” was covered. Collapsed caused by weight of people was a Covered Cause of Loss. 

    DENC presented circumstantial evidence that the collapse was at least partially caused by the weight of people. The breezeway fell while a large number of people were standing, jumping, and dancing on it. This was enough to establish coverage. 

    Philadelphia argued there was no coverage for parts of buildings that were “standing.” Here, the building itself remained standing, but the breezeway, which was party fo the building, was no longer standing. The evidence was undisputed that it had fallen approximately one foot and that part of the breezeway was on the ground below. Thus, part of the building was not standing and the exclusion did not apply. 

    Therefore, the collapse of the second floor breezeway was a covered loss under Philadelphia’s policy. 

Connecticut Answers Critical Questions Regarding Scope of Collapse Coverage in Homeowners Policies in Insurers’ Favor

Traub Lieberman

Nationwide, homeowners’ insurers routinely face foundation wall collapse claims. But in Connecticut, where at least 30,000 homes are believed to have been constructed in the 1980s and 1990s with defective concrete, the scope of homeowners insurance for collapse claims has been a closely watched issue. In Jemiola v. Hartford Casualty Insurance Co., 2019 WL 5955904 (Conn. Nov. 12, 2019), the Supreme Court of Connecticut held that a collapse coverage grant requiring “an abrupt falling down or caving in of a building… with the result that the building… cannot be occupied for its intended purpose” is unambiguous and enforceable.  

In Jemiola, the insured homeowner purchased her home in 1986 and insured it continuously with the same insurer. In 2006, the homeowner noticed cracking in a basement wall, and was informed that the cracking likely resulted from defective concrete used in the construction of the home. The homeowner made a claim under her policy’s collapse coverage, which the insurer denied because the cracking did not compromise the structural integrity of the foundation walls. In the resulting lawsuit, the insured’s expert opined that the defective concrete substantially impaired the foundation walls’ structural integrity, but that this impairment did not commence until 2006 when the homeowner first noticed the cracking. Accordingly, the court analyzed coverage under the collapse coverage grant in effect in 2006, which defined collapse to mean “an abrupt falling down or caving in of a building… with the result that the building… cannot be occupied for its intended purpose.”

In interpreting the scope of the collapse coverage, the Court surveyed case law throughout the country and noted that “every single court that interpreted the policy language at issue in the present case… has concluded that a building that is still standing, even if it is in danger of falling down, has not suffered a collapse within the meaning of the policy.” The Court further rejected the insured’s argument that the collapse provision was ambiguous because its plain and ordinary meaning simply did not encompass a home “that is still standing and capable of being safely lived in for many years – if not decades – to come.”

In Connecticut, policyholders and their representatives have now attempted to secure coverage for foundation claims through all three branches of government. In Jemiola, the Supreme Court of Connecticut upheld the policy language requiring an abrupt falling down or caving in that results in the home being uninhabitable. Given the potential economic impact of the Court’s ruling on homeowners, this issue will require continued monitoring.