Joshua Tumen and Paul Ferland | The Property Insurance Law Observer
In Life Skills, Inc. v. Harleysville Insurance Company, 2024 WL 3792261 (D. Mass. 2024), the District Court of Massachusetts found that “collapse” provisions within a commercial property policy were ambiguous where a floor merely sagged without completely falling to the ground.
Background
The plaintiff-insured provided residential and day habilitation services in a property covered by a commercial package insurance policy issued by the defendant-insurer. During the policy period, the insured’s floor “sunk” between eight to 12 inches. Specifically, the insured noted that the “floor had sagged, was bouncing, and that a section of the floor had partially detached from the Property’s exterior wall.” This prompted the insured to submit a claim. Following its investigation, the insurer denied coverage based on the conclusion that “[the] loss was caused by long term deterioration of the timber beams in the crawl space due to moisture,” a condition not covered under the policy.
The Policy
Because collapse was a generally excluded cause of loss, the insured relied on an additional coverage provision, which supplanted the collapse exclusion, and reinstated coverage as follows:
D. Additional Coverage – Collapse
The coverage provided under this Additional Coverage – Collapse applies only to an abrupt collapse as described and limited in D.1. through D.7.
- For the purpose of this Additional Coverage – Collapse, abrupt collapse means an abrupt falling down or caving in of a building or any part of a building with the result that the building or part of the building cannot be occupied for its intended purpose.
- We will pay for direct physical loss or damage to Covered Property, caused by abrupt collapse of a building or any part of a building that is insured under this Coverage Form or that contains Covered Property insured under this Coverage Form, if such collapse is caused by one or more of the following:
- Building decay that is hidden from view, unless the presence of such decay is known to an insured prior to collapse.
Analysis
In determining whether the insured’s loss qualified as a “collapse” under the terms of the policy, the Court turned to the language of the policy, which stated that the additional coverage for collapse only applied to an “abrupt collapse.” The policy defined “abrupt collapse” as “an abrupt falling down or caving in of a building or any part of a building or any part of a building with the result that the building or part of the building cannot be occupied for its intended purpose.”
The insurer argued that the damage to the floor did not meet the policy’s definition of “abrupt collapse” because it did not completely fall to the ground. Even though the floor had partially detached from the property’s exterior wall, it remained standing. The insurer further noted that the insured’s personnel walked on the floors after the incident occurred.
On the other hand, the insured argued that its damage was a “collapse” because the additional coverage’s provision included partial collapse and did not specify a minimum vertical displacement to qualify as a collapse. The insured pointed out that the floor was in a “state of structural failure” and detached from the exterior wall due to its structural members being severely decayed. Thus, under the insured’s interpretation, at the very least, part of a building (i.e., the detached portion of the floor) suffered an “abrupt collapse,” because the damage was unexpected, and the insured had no knowledge of the hidden decay prior to the incident.
In sum, the Court noted that both parties offered reasonable interpretations of the collapse provisions as applied to the facts. Generally, ambiguities in insurance policies are construed against insurers to provide coverage. Accordingly, the Court held the language to be ambiguous and found in the insured’s favor. In doing so, it looked to other jurisdictions where courts analyzed nearly identical policy language and determined them to be ambiguous. Scorpio v. Underwriters at Lloyd’s, London, 2012 WL 2020168 (D. R.I. Jun. 5, 2012) (finding a collapse provision ambiguous in context of six-inch roof deflection); Landmark Realty, Inc. v. Great Am. Ins. Co., U.S. Dist. LEXIS 127718 (D. Md. Dec. 8, 2010) (finding an “internal inconsistency” in an additional coverage collapse provision where a partial collapse resulted in an entire building becoming condemned and unsuitable for its intended purpose); Malbco Holdings, LLC v. AMCO Ins. Co., 629 F.Supp.2d 1185 (D. Or. 2009) (noting that the collapse provision is ambiguous, but the “clear modern trend” is to hold that collapse coverage provisions provide coverage if there is substantial impairment of the structural integrity of any part of the building); Jemiola Trustee of Edith R. Jemiola Living Trust v. Hartford Casualty Insurance Co., 229 A.3d 84 (Conn. 2019) (finding similar collapse policy language to be either ambiguous or unambiguous when applied to different facts).
The Court explained that the provisions in the additional coverage for collapse created internal inconsistencies that would have restricted coverage solely to scenarios where an insured’s building was in a “flattened form or rubble,” thereby contravening what an objectively reasonable insured would expect to be covered. It also instructed that if the insurer intended for a collapse to require the entire building to fall to the ground immediately, that should have been explicitly defined in the policy.
Conclusion
Life Skills demonstrates that the term “collapse,” commonly included in various commercial property policies, can potentially be subject to conflicting interpretations depending on the circumstances surrounding a loss and the applicable jurisdiction’s case law. Whether the structure experienced a minor deflection or crumbled to the ground, courts will consider the policy language as a whole to determine whether the term “collapse” has been triggered. This case also reinforces the need for insurers to conduct timely and comprehensive investigations to determine all causes of loss.
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