Homeowners and All Risk policies often provide coverage for “collapse” of all or part of a structure. Is coverage for “collapse” limited to an abrupt collapse of a wall or building, or does it include situations where cracking or crumbling has substantially impaired the structural integrity of the wall or building, but has not resulted in the structure’s literal collapse?
The answer to that question may depend on how the insurer defined “collapse.” For example, in Beach v. Middlesex Mutual Assurance Co., 205 Conn. 246 (1987) the Connecticut Supreme Court held that a policy that provided coverage for “collapse,” but did not define what that term meant, was ambiguous, and thus included coverage for the “substantial impairment of the structural integrity of a building.” 205 Conn. at 251, 253.
In Valls v. Allstate Ins. Company, ___ F.3d ___, No. 17-3495-cv, slip op. (2d Cir. April 2, 2019), the U.S. Court of Appeals for the Second Circuit, applying Connecticut law, and construing a collapse provision that defined “collapse” in some detail, held that provision did not provide coverage for extensive cracking of basement walls, which may have substantially impaired the structural integrity of the walls, but did not result in their literal “collapse.” See slip op. at 14.
Background: The “Crumbling Concrete Cases” and the Insurer’s Collapse Provision
Valls was one of many so-called “crumbling concrete cases” Connecticut homeowners have filed to recover loss arising from defective concrete manufactured by a now-defunct company. The United States District Court for the District of Connecticut granted the Insurer’s motion to dismiss the Insureds’ amended complaint on the ground that the Insurer’s policy did not provide “coverage for basement walls that exhibit significant cracking but remain standing.” Slip op. at 2. The Second Circuit affirmed the district court’s decision.
The Insurer’s all-risk policy generally excluded “[c]ollapse” from coverage, but “a section entitled ‘Additional Protection[]’. . . reinstates coverage for a limited class of collapses[.]” Slip op. at 4. That section provided:
We will cover:
a) the entire collapse of a covered building structure;
b) the entire collapse of part of a covered building structure; and
c) direct physical loss to covered property caused by (a) or (b) above.
For coverage to apply, the collapse of a building structure specified in (a) or (b) above must be a sudden and accidental direct physical loss caused by one or more of the following: . . .
b) hidden decay of the building structure; . . .
f) defective methods or materials used in construction, repair, remodeling or renovation.
Collapse does not include settling, cracking, shrinking, bulging or expansion.
Slip op. at 4-5.
The Court’s Decision: No Coverage under the Policy’s Collapse Provision
In a per curiam decision, the Court initially decided that it would not certify the question to the Connecticut Supreme Court, largely because Allstate opposed certification, was not a citizen of Connecticut, and had removed the case to federal court based on diversity jurisdiction. “Notwithstanding the potential benefits of certification,” said the Court, “its inevitable burdens on the parties relating to cost and delay and its consequence for a party exercising its right to have a diversity case decided by a federal court weighs against certification when the parties do not unanimously consent.” Slip op. at 10.
Turning to the merits of the coverage issue, the Court explained that, under Connecticut law, “the same general rules that govern the construction of any written contract. . .” apply to insurance contracts. Connecticut Courts consider “the contract as a whole,” construe “all relevant portions together, and if possible, giv[e] operative effect to every provision in order to reach a reasonable overall result.” Slip op. at 10-11 (citation and quotations omitted). Those courts accord “clear and unambiguous[]” “language” “its natural and ordinary meaning.” Slip op. at 11 (citation and quotations omitted). They construe ambiguities “in favor of the the insured because the insurance company drafted the policy.” Slip op. at 11 (citation and quotations omitted).
The Connecticut Supreme Court’s Beach Decision Involved a Different “Collapse” Provision
The Insured relied on the Connecticut Supreme Court’s decision in Beach, contended that the Insurer was required to provide coverage because even though the walls had not literally “collapsed,” the cracking substantially impaired the structural integrity of the walls. See slip op. at 11. But the Court rejected that argument, pointing out that Beach was “easily distinguished[]” because the policy there did not define “collapse,” and thus was ambiguous. It therefore could be and was construed to cover substantial impairment of a building’s structural integrity.
By contrast the Insurer’s “collapse” provision was more detailed and specific and could not reasonably be construed to provide coverage for the Insured’s extensively cracked, but still standing, basement walls. Unlike the policy in Beach, the Insurer’s “Policy requires that such collapses be ‘entire,’ ‘sudden,’ and ‘accidental.’” Slip op. at 11.
The Policy Required the Collapse to be “Sudden and Accidental” and “Entire”
The Court explained that “[t]he phrase ‘sudden and accidental’ in the Policy requires that the collapse in question occur both abruptly and unexpectedly.” Slip op. at 12. The Court supported that conclusion by citing and quoting the Connecticut Supreme Court’s interpretation of “sudden and accidental” developed in the context of the once controversial Sudden and Accidental Pollution Exclusion:
Reading ‘sudden’ in its context, i.e. joined by the word ‘and’ to the word ‘accident,’ the inescapable conclusion is that ‘sudden,’ even if including the concept of unexpectedness, also adds an additional element because unexpectedness is already expressed by “accidental.” This additional element is the temporal meaning of “sudden,” i.e. abruptness or brevity.
Slip op. at 12 (quoting Buell Indus., Inc. v. Greater New York Mut. Ins. Co., 259 Conn. 527, 540?41 (2002) (citation and quotation omitted)).
The “erosion and cracking of the basement walls was not sudden[,]” and therefore “the inclusion of the words ‘sudden and accidental’ in the collapse provision is sufficient to bar coverage under the Policy for the damage sustained to the [Insureds’] basement walls.” Slip op. at 12.
“But,” said the Court, “even if such cracking could be said to have occurred suddenly or accidentally, the [Insureds’] claim is still barred because the damage sustained to their basement walls cannot be deemed an ‘entire collapse.’” Slip op. at 13. For irrespective of what “entire collapse” means, “it must entail more than mere ‘cracking,’ since cracking is expressly excluded under the Policy’s provision that ‘[c]ollapse does not include settling, cracking, shrinking, bulging or expansion.” Slip op. at 13.
The Court Rejects Insureds’ Arguments Concerning the Meaning of “Sudden” Collapse
The Court rejected the Insured’s “claim that it is inconsistent to interpret the term ‘sudden’ as imposing an abruptness requirement when several of the Policy’s enumerated causes of collapse—including “hidden decay”—occur gradually.” Slip op. at 13. “[P]hysical collapse,” said the Court, “can occur abruptly even if the underlying cause proceeds slowly.” Slip op. at 13.
Even though the Insureds’ “basement walls may be gradually deteriorating, there has been no sudden entire collapse, and there is no coverage for gradual decay unless it has caused such a collapse.” Slip op. at 14. To illustrate, the Court quoted an example the district judge posited at an oral argument hearing in another “collapse” case:
There’s termites in the house. No collapse. They’re eating away; every day they’re eating away. No collapse. They keep eating away. Finally, they eat enough that the beam fails. . . . Now there’s coverage. Now you have a collapse or falling in. The fact that it was caused by termites and it was a slow process doesn’t mean you didn’t have an abrupt collapse. You did, when the beam failed and there was literally a falling of the beam, a failure of the beam.
Slip op. at 13-14 (quoting Agosti v. Merrimack Mut. Fire Ins. Co., 279 F. Supp. 3d 370, 378 (D. Conn. 2017) (quotation and citation omitted)).
The Court therefore concluded that the Insureds’ claim was not covered by the Policy, and accordingly, the Insurer did not breach the contract, act in bad faith, or violate Connecticut unfair trade practice statutes.
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Tags: All Risks Insurance, Beach v. Middlesex Mutual Assurance Co., Buell Indus. Inc. v. Greater New York Mut. Ins. Co., Collapse, Connecticut Supreme Court, Crumbling Concrete Cases, First Party Insurance, Homeowners, Insurance Coverage, Second Circuit, Sudden and Accidental, Valls v. Allstate Ins. Co.
