Collapse coverage: the conundrum continues.

• Author: Harris, Jay Barry

THE SAME WORD can have a different meaning depending on where you live. Ask for a "pop" in the Midwest and you will receive a soda. Make the same request in the northeast, however, and you may receive something entirely different. So too, the word "collapse" has a different meaning depending on the jurisdiction. As an insurer, blind reliance on the word collapse to limit coverage could have an unintended result depending upon who's reading the menu.

In 2005, we reported on the modern trend whereby collapse coverage was being expanded by the courts. (1) We noted that for claims involving an insurance policy that did not define the term "collapse," courts had come to increasingly conclude that the term was ambiguous and construe it to mean a "substantial impairment of structural integrity" rather than an actual failure of the building. While a recent review of the case law demonstrates that the modern trend continues to gain momentum, some state courts still do adhere to a strict interpretation of the term "collapse" and require the structure to have completely caved in before coverage is triggered. Practitioners must be cognizant of the continued evolution of the jurisprudence pertaining to collapse coverage because, if the question of the meaning of the term "collapse" has not been litigated recently in your jurisdiction, it is likely to be an issue that will be coming soon to a courtroom near you.

1. A Collapse May Be Something More than Just a Complete Caving in of a Structure

   There continues to be a trend in the case law toward a broader interpretation of what constitutes a collapse. While courts have taken different analytical approaches, the end result is the same. Unless the term "collapse" is specifically defined in the policy the courts may interpret it to mean something less than a complete cave in of the structure.

   The question of what constitutes a collapse when it is not defined within an insurance policy was addressed by the Pennsylvania Supreme Court in 401 Fourth St. v. Investors Ins. Group. (2) In 401 Fourth St. the court was confronted with the interpretation of an insurance policy provision that provided 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...." (3) The policy, however, also stated that "[c]ollapse does not include settling, cracking, shrinkage, bulging or expansion." (4) The dispute stemmed from residential property owned by 401 Fourth St. where the tenants noticed that a parapet wall had bowed and was leaning inward. Upon inspection, Fourth St.'s engineer concluded that the "internal bonds that tied the parapet wall to the structural framing of the building had recently given way, and that a large, sudden movement had occurred." The engineer also warned that the situation was "very dangerous and must be immediately repaired." (5)

   In contrast, an engineer retained by Investors Insurance found that the "interior steel that had been covered by the building's brickwork had corroded, and as a result of that process, had expanded in volume." Accordingly, he concluded the corrosion caused the bricks to be jacked upwards and that it was due to a "lack of normal maintenance of the brick joints, roofing and shelf angle." (6) Based on the engineer's report, Investors Insurance denied 401 Fourth St.'s claim.

   401 Fourth St. subsequently filed a complaint alleging breach of contract. The parties then filed cross motions for summary judgment and the trial court denied 401 Fourth St.'s motion while granting the motion held by Investors Insurance. (7) The trial court concluded that under Pennsylvania law the term "collapse" was interpreted to mean an actual falling down of the structure. Since the parapet wall had not collapsed, there was no coverage under the policy. On appeal, the Superior Court reversed and held that 401 Fourth St. had sustained a covered loss. (8) The Superior Court focused on the policy language that provided coverage for "risks of direct physical loss involving collapse" and concluded that this language was distinguishable from existing case law and therefore required a different analysis. (9) The Superior Court also concluded that the terms "risk" and "involving" broadened the policy's coverage to "include something less than a structure completely falling to the ground." (10)

   Ultimately, the Pennsylvania Supreme Court affirmed the decision by the Superior Court, albeit on slightly different grounds. The Supreme Court opined that the policy language "risks of direct physical loss involving collapse of a building or any part of a building" was ambiguous and reasonably susceptible to different interpretations. (11) As such, the Pennsylvania Supreme Court construed the policy language in favor of the insured and held that that the policy provided coverage "that extends beyond the situation in which an insured's building falls to the ground, even in light of the traditional interpretation of the term 'collapse.' It covers not only loss for a collapse, but also the risk of loss involving a collapse." (12)

   Pennsylvania was not alone in its movement towards the modern trend. The U.S. District Court for the Western District of Washington has also addressed the issue of what constitutes a collapse. In Dally Properties v. Truck Ins...