Latest Case and Growing Trend Say it Must Fall Down or Cave in
The scope of insurance coverage for collapse, first provided by the industry in 1954, has long been the subject of litigation in many jurisdictions. The arguments for what triggers coverage appear to fall into three categories: (1) actual collapse, (2) imminent collapse, or (3) substantial impairment of a building’s structural integrity.
The most recent decision on the subject, which applies Illinois law, was filed March 14, 2017. It is entitled The Travelers Home and Marine Insurance Company v. Walsh. It is reported at 2017 U.S. Dist. LEXIS 35841. That case held that, read as a whole, the homeowners policy the Walshes purchased intended to cover only loss and damage resulting from actual collapse of the dwelling insured, i.e. where the building loses its character as a building.
The policy in Walsh defined the term “collapse” as “an abrupt falling down or caving in of the building or any part of a building with the result that the building or part of the building cannot be occupied.” The parties agreed that the loss incident was abrupt and caused the property to be uninhabitable – but still the court found no coverage.
The causal facts were that in 2014, the Walshes engaged a contractor to build a second story addition above the existing dwelling and a two-story addition off the rear of the residence. In August 2015, as a result of the contractor’s malfeasance, the foundation of the dwelling was compromised, failed and cracked, rendering the dwelling structurally unsound and unsafe, both for use as a dwelling and for completion of the construction project. The west brick wall was laterally displaced. The first story floor/basement ceiling sloped downward toward the west wall and the second-story floor moved. Additionally, the incident left large gaps and separations in the existing mortar, between the bricks and window framing, and there were cracks in the mortar and large gaps or separations between the bricks on the east wall.
On the other hand, however, no wall had fallen to the ground, and no one observed that anything had come off of the dwelling and fallen to the ground, such as the bricks that formed the construction materials of the dwelling.
Recognizing that Illinois law applied, the District Court observed that two Illinois appellate court decisions addressing “collapse” insurance coverage had adopted the “modern view” that the term was sufficiently ambiguous to include coverage for any substantial impairment of the structural integrity of a building, and that the term does not require complete destruction or falling in and of a building or a part of the building, nor does it require that the loss result from a sudden catastrophic occurrence.
In light of those two decisions, the court in Walsh said that until the Illinois Supreme Court decides otherwise, the legal meaning of “collapse” in a homeowners policy, disregarding exclusions, is the sudden impairment/undermining of a structure even if the structure has not completely fallen down. If this view were adopted, the court held, the subject dwelling would be in a state of collapse, triggering coverage for loss.
The policy purchased by the Walshes, however, had one additional exclusion from coverage not present in the policies addressed in the two Illinois appellate court decisions. The Walshes’ policy did not cover a loss from a collapse if the building remained standing, even if it was cracked, bulging, sagging, bending, leaning, settled, shrunk or expanded. This exclusion, and the dictionary definition of the term “standing,” caused the court in Walsh to declare there was no coverage. By using the phrase “a building that is standing,” the policy meant to exclude coverage if the structure remained “erect, in place on its foundation.” This word study caused the court to say that, “A house that is cracked but still upright on its base is standing; a part of a house that has dropped downward but is still upright is standing. . . Because it is undisputed that the Dwelling, including the west wall, remained upright on its foundation after the loss incident, the loss is excluded from coverage of a collapse.”
Some courts interpret collapse coverage to mean that there is coverage, too, if collapse is imminent. They point out that imposing a strict requirement of actual collapse would make an insured seeking insurance benefits to neglect repairs and allow a building to fall, a course of action that could not possibly conform to an insured’s reasonable expectation of coverage, or advance the best interests of the insured, the public or even the insurer, if it remained on the risk until the expected actual collapse occurred. (See, e.g., Doheny West Homeowners’ Association v. American Guarantee & Liability Insurance Company (1997) 60 Cal.App. 4th 400, 404.)
Requiring actual collapse would also be inconsistent with policy language which in some cases, including Doheny West, covers “loss or damage caused by or resulting from risks of direct physical loss involving collapse of a building.” (Emphasis added.) By using the phrases “risk of loss” and “involving collapse,” these policies broaden their coverage beyond actual collapse, to include imminent collapse. According to the court in Doheny West this broader interpretation has been said to be the view of the majority of modern courts, and that it more realistically reflects the purposes of the insurance policy.
But logically a limitation on the expansion of meaning is necessary to avoid converting insurance policies into maintenance agreements. For this reason, the court said in Doheny West it did not agree that broadening the insuring language to encompass the risk of loss of collapse creates coverage whenever there is a “substantial impairment of structural integrity.” To do otherwise would be contrary to the fundamental rule of construing insurance policies requiring them to be viewed in light of their general objects and purposes.
In accordance with the Walsh decision, however, property insurance policies have been revised to clarify what constitutes a covered “collapse.” The current ISO Homeowners Insurance form has been revised to state, “A building or any part of the building that is standing is not considered to be in a state of collapse even if it shows evidence of cracking, bulging, sagging, leaning, settling, shrinkage or expansion.” (ISO Form HO 00 03 10 00, Sec. I – Property Coverages, Para E.8.a.(4).)
As a leading insurance treatise states, “These words emphasize the requirement of an actual or imminent collapse due to a covered peril: ‘it is difficult indeed to imagine a building collapsing without any of these symptoms appearing. The only reasonable interpretation of this ISO policy language is that mere settling, cracking, shrinkage, bulging or expansion is not enough: there must also be an actual or imminent collapse of the structure.’ (Stamm Theaters, Inc. v. Hartford Cas. Ins. Co., supra, 93 Cal app 4th at 541-542 . . . .” (California Insurance Litigation (The Rutter Group, California Practice Guide, Sec. 6:287.1. Emphasis in original.)
On the other hand, some “recent policies attempt to resolve any ambiguity by defining collapse to mean actual, physical collapse of the structure.” (Ibid., Sec. 6:287.10.) “Such policies do not cover a structure facing imminent collapse even though delaying payment until it falls down creates a risk of injury or death or greater property damage.”
Importantly, in 2003 the California Supreme Court affirmed that it does not rewrite any provision of any contract, including insurance policies, for any purpose. The court rejected public policy arguments for coverage that had persuaded the Court of Appeal that “as a matter of public policy State Farm must provide insurance benefits for imminent collapse of [the insured’s] two decks.” (Rosen v. State Farm Gen. Ins. Co. (2003) 30 Cal. 4th 1070, 1077-1078.) In a stirring pronouncement against judicial overreach, the court said:
“It is conceivable that to rewrite the [insurance policy collapse] provision thus might result in providing society itself with benefits that might outweigh any costs that it might impose on individual insurers and individual insureds. It is conceivable. But unknown. Knowledge ‘depend[s] in large part on’ what we are ill suited for, that is, the ‘amassing and analyzing of complex and extensive empirical data.’ . . . Without such knowledge we could not proceed.” (Rosen, p. 1078.)
Although the Rosen case did not involve an ISO form policy, the current ISO Homeowners Insurance form is explicit: Collapse means an abrupt falling down or caving in of a building or any part of the building with the result that the building or part of the building cannot be occupied for its current intended purpose… A building or any part of a building that is in danger of falling down or caving in is not considered to be in a state of collapse.” (ISO Form HO 00 03 10 00, Sec. I – Property Coverages, Sec. E.8.a.(1), (2).) Finally, a current ISO form states that “a part of a building that is standing is not considered to be in a state of collapse even if it has separated from another part of the building.” (ISO Form H0 00 03 10 00, Sec. I – Property Coverages, Sec. E.8.a.(3).)