Pa. Supreme Court Holds Building Collapse Coverage Ambiguous

July 26, 2005

The Pennsylvania Supreme Court has held that property insurance coverage for the “collapse” of a building is ambiguous and should be construed in favor of policyholders. The court granted coverage in instances where collapse is imminent.

Chief Justice Cappy, writing the majority opinion in 401 Fourth Street, Inc. v. Investors Insurance Group, No. 270 MAP 2003. (July 20, 2005), explained that the court was “asked to interpret a common, yet
controversial, insurance policy provision which extends coverage to an
insured for ‘damage caused by or resulting from risks of direct physical
loss involving collapse of a building or any part of a building.'”

The court concluded that the policy language provides “coverage for damages caused by the collapse or imminent collapse of a building or part thereof and does not limit itself to damages for the actual collapse of a building.”

The Pennsylvania Supreme Court looked to “the fast-emerging consensus of jurisdictions regarding the nature and scope of the policy language” in finding that the language is “not free from ambiguity but is reasonably susceptible of different constructions and being understood in more than one sense, and thus is ambiguous.”

Having found the provision ambiguous, the court interpreted the language in favor of the policyholder. The court found that the “broad” policy language covers “not only loss for a collapse, but also the risk of loss involving a collapse.”

The Pennsylvania Supreme Court noted that historically the court had
considered the policy term “collapse” to require the sudden falling down of a structure. The court stated that, while it need not reconsider the proper interpretation of the term “collapse” in isolation to decide this particular case, the Court was aware that over the last fifty years the term had generated much litigation, creating a split among various courts.

Justice Saylor, in dissent, actually agreed with the majority’s extension of coverage to instances of imminent collapse but thought the change in the law should be applied only prospectively to future cases. Justice Saylor reasoned that “to the extent that the majority’s decision reflects a broadening of the understanding of the term “collapse” as utilized in
property insurance policies to subsume ‘imminent collapse’ . . . I concur
with this departure from existing precedent, which had embraced the narrower view requiring that property or a part of it actually fall down.”

Justice Saylor also believed that, given the central role of the concept of “risks of direct physical loss” in property insurance, the court’s extension of coverage to losses in contemplation of future events may have wider ranging consequences than it may anticipate.

United Policyholders filed an amicus brief in support of 401 Fourth Street. United Policyholders was founded in 1991 as a non-profit organization dedicated to educating the public on insurance issues and consumer rights.

John Ellison and Timothy Law of Anderson Kill & Olick, P.C., in Philadelphia, represented United Policyholders. Anderson Kill & Olick is a national law firm with offices in New York, Philadelphia,
Washington, Chicago, and Newark, N.J. Anderson Kill & Olick regularly
represents policyholders in insurance disputes, including property insurance controversies involving collapse.

Attorney Law said the decision is a message to insurers to repair damage when a collapse appears imminent. “The Supreme Court has recognized that a policyholder who buys coverage protecting against the risk of direct physical loss involving collapse should have coverage when collapse is imminent. Under the court’s decision, if there is any substantial impairment of the structural integrity of a building or any part of a building that makes collapse imminent, the insurance company is required to repair the damage.

Law said that this decision brings Pennsylvania in line with
the majority of states that construe collapse coverage broadly.

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