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Insurer Prevails on the Meaning of “Collapse”

By Antoinette L. Banks

When has a building collapsed? For the purposes of coverage under a property insurance policy, courts do not always agree. Generally speaking, courts follow either the “traditional” or “modern” definition.

The “traditional” view of collapse requires that the building fall in, lose shape, or be reduced to flattened form or rubble.1 Jurisdictions that have subscribed to the traditional definition of collapse often follow dictionary meanings of the word.2 Several of the traditional courts have reasoned that finding a collapse in cases where the building has not actually collapsed would convert a property insurance policy into a maintenance agreement.3

The broader, so-called “modern” definition of collapse followed by a majority of jurisdictions defines collapse as a state of substantial impairment of the structural integrity of the building or any part of the building.4 The modern view of collapse is based on public policy considerations. Many of the jurisdictions excepting the “modern” definition have found coverage even where a building has not actually fallen down because requiring an actual collapse would be unreasonable in light of an insured’s duty to mitigate damages.5

In recent years, however, several courts have found a middle ground. Those courts have qualified the modern definition of “collapse” to require that a building must not only suffer substantial impairment of its structural integrity, but must also be in danger of “imminent” collapse to trigger coverage.6

An example of the “modern qualified” view of “collapse” was demonstrated in Ocean Winds Council of Co-Owners, Inc. v. Auto-Owners Insurance Co.7 In that case, a South Carolina judge ruled that an insurer did not breach a first-party property policy because the building was not in danger of imminent collapse.

The insured, Ocean Winds Council of Co-Owners, Inc., owned a condominium complex insured under a policy issued by defendant Auto-Owners Insurance Co. Ocean Winds filed a claim for collapse that it alleged resulted from water and termite damage. The insurer refused to pay the claim on the ground that the buildings had not actually collapsed. The insured brought action against Auto-Owners for breach of contract.

The policy contained this “collapse” provision:

5. Additional Coverages

d. Collapse

We will pay for loss or damage caused by or resulting from risks of direct physical loss involving collapse of the building or any part of the building caused only by one or more of the following:

(2) hidden decay;

(3) hidden insect or vermin damage

Collapse does not include settling, cracking, shrinkage, bulging, or expansion.

After the defendant removed the action from state court to the District Court, the District Court certified this question to the South Carolina Supreme Court:

In order to trigger coverage [under the policy quoted above], is it required: 1) that the building or part of the building fall to the ground or be reduced to flattened rubble; or 2) that the building manifest substantial structural impairment, but has not yet fallen to the ground or been reduced to flattened rubble.

The South Carolina Supreme Court concluded that the policy language at issue required a threat of “imminent collapse” in order to trigger coverage. The court defined “imminent collapse” to mean that collapse is likely to happen without delay.

The insured argued that the policy covered even the threat of loss from collapse. The court held that the case turned on the whether the buildings were under threat of “imminent collapse,” meaning collapse is likely to happen without delay. The insurer pointed out that during the five years between the time the suit was filed and the appeals were taken, the buildings did not in fact collapse, and were never even vacated for safety reasons. The insurer also emphasized that plaintiff’s experts testified that the buildings were under threat of collapse in case of a significant weather or seismic event.

The court held that the plaintiff’s expert testimony was not sufficient to create a genuine issue of material fact as to whether the buildings were in danger of “imminent collapse without delay” because “many buildings are subject to collapse in the event of a ‘significant weather or seismic event.’” The court also noted that the threat of possible collapse in the event of significant weather or seismic events may be serious and requires repair, but does not rise to the level of “imminent collapse” as defined by South Carolina’s Supreme Court. The court concluded that the insured failed to meet its burden of presenting evidence demonstrating a genuine issue of material fact with respect to whether the insurer breached its insurance contract.

Notes

(1) See e.g., Ames v. Nationwide Ins. Co., 2002 WL 1335869 (Me.Super.) (relying on dictionary definitions, the court concluded that extensive decay in beams and supporting structures throughout the condominium complex did not constitute collapse); Ososki v. St. Paul’s Surplus Lines Ins. Co., 162 F.Supp.2d 714 (E.D. Mich. 2001) (rejecting plaintiff’s argument that a breakdown or failure to function constituted collapse); Clendenning v. Worcester Ins. Co., 45 Mass.App.Ct. 658, 700 N.E.2d 846 (Mass.App.Ct. 1998) (holding that “collapse” within the meaning of the homeowner’s policy has both a temporal element of suddenness and the visual element of altered appearance that comprises a structural collapse, distinct from the degenerative process causing the collapse and that the policy covered only actual collapse, not imminent collapse); Heintz v. U.S. Fid. & Guar. Co., 730 S.W.2d 268 (Mo. Ct. App. 1987) (“A condition of impending collapse is insufficient.”).

(2) Monroe Guarantee Ins. Co. v . Magwerks Corp., 796 N.E.2d 326, 332 (Ind. Ct. App. 2003).

(3) See e.g., Doheny West Homeowners’ Ass’n v. Am. Guarantee & Liab. Ins. Co., 60 Cal.App.4th 400, 70 Cal.Rptr.2d 260 (Cal. Ct. App. 1997).

(4) See e.g., Am. Concept Ins. Co. v. Jones, 935 F.Supp. 1220 (D. Utah 1996); Campbell v. Norfolk & Dedham Mut. Fire Ins. Co., 62 A.2d 933 (R.I. 1996); Kay v. United Pac. Ins. Co., 902 F.Supp. 656 (D. Md. 1995); Island Breakers v. Highlands Underwriters Ins. Co., 665 So.2d 1084, 1085 (Fla.Dist.Ct.App. 1995); Thomasson v. Grain Dealers Mut. Ins. Co., 103 N.C.App. 475, 405 S.E.2d 808, 809 (N.C. Ct. App. 1991); Royal Indem. Co. v. Grunberg, 155 A.D.2d 187, 553 N.Y.S.2d 527, 528-529 (N.Y. App. Div. 1990); Beach v. Middlesex Mut. Assurance Co., 205 Conn. 246, 532 A.2d 1297, 1299-1300 (Conn. 1987); Ercolani v. Excelsior Ins. Co., 830 F.2d 31, 34 (3d Cir. 1987); Nationwide Mut. Fire Ins. Co. v. Tomlin, 181 Ga.App. 413, 352 S.E.2d 612, 615 (Ga. App. 1986); Sherman v. Safeco Ins. Co., 716 P.2d 475, 476 (Colo. Ct. App. 1986); United Nuclear Corp. v. Allendale Mut. Ins. Co., 103 N.M. 480, 709 P.2d 649, 652 (N.M. 1985); Gov’t Employees Ins. Co., v. DeJames, 256 Md. 717, 261 A.2d 747, 751-52 (Md. 1970).

(5) See e.g., Jones, 935 F.Supp. 1220.

(6) See e.g., 401 Fourth St., Inc. v. Investors Ins. Grp., a 23 A.2d 177 (Pa. Super. Ct. 2003) (finding coverage where a policy that insured against not only “collapse” but also against “risks of direct physical loss involving collapse” clearly broadens the policy’s coverage to include something less than a structure completely falling to the ground and experts agreed that if repairs were not undertaken immediately the wall would completely collapse); Doheny West Homeowners’ Ass’n v. Am. Guarantee & Liab. Ins. Co., 60 Cal.App.4th 400, 70 Cal.Rptr.2d 260 (Cal. Ct. App. 1997) (concluding that collapse must be imminent to come within coverage of the policy. The court reasoned that “This construction of the policy avoids both the absurdity of requiring an insured to wait for a seriously damaged building to fall and the improper extension of coverage beyond the terms of the policy, and is consistent with the policy language and the reasonable expectations of the insured.”); Whispering Creek Condo. Owner Ass’n v. Ala. Nat’l Ins. Co., 774 P.2d 176 (Alaska 1989).

(7) Ocean Winds Council of Co-Owners, Inc. v. Auto-Owners Insurance Co., 241 F.Supp.2d 572 (D.S.C. 2002).

ABOUT THE AUTHOR

Antoinette L. Banks is an Associate in the New York, NY, office of Mound Cotton Wollan & Greengrass. She practices in the area of insurance coverage litigation, construction law, toxic tort, products liability, premises liability, and general commercial litigation. She is a member of the Bar Association of the City of New York and is admitted to practice in the federal and state courts of New York.

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November 2004