Tred R. Eyerly | Insurance Law Hawaii | March 20, 2017
The Federal District Court for the District of Connecticut has issued several decisions of late finding coverage for collapse despite the building not being reduced to rubble. The latest decision in this series is Metsack v. Liberty Mutual Fire Ins. Co., 2017 U.S. App. LEXIS 24062 (D. Conn. Feb. 21, 2017).
The Metsack’s property was insured by Allstate under policies issued from June 27, 1991 to September 9, 2009. From September 2009 to present, Liberty Mutual issued property policies to the insureds. Mr. Metsack built the insureds’ home in 1992. The concrete basement walls used concrete supplied by JJ Mottes Company.
In the years following the home’s construction, the Metsacks noticed minor cracking in the basement walls. Mr. Metsack first noticed the cracking prior to 2008, but Ms. Metsack did not recall seeing the cracking prior to 2009. A contractor inspected the property in 2014 and suggested for the first time that the cracks might be associated with defective concrete. On April 15, 2014, the Metsacks found water infiltrating the basement for the first time. confirming their belief that the basement walls were affected by defective concrete.
The conditions were reported to Allstate and Liberty Mutual. Each retained an expert and each expert agreed that a chemical reaction involving the oxidation of iron sulfied materials in the defective concrete provided by JJ Mottes Company caused the concrete to expand and crack. The Metsacks’ expert conceded that the house was still safe to live in, but the basement walls were substantially impaired and could not be counted on to continue to support the weight of the house in the future.
Liberty denied the claim on the grounds that the damage was caused by “settling/earth movement and ground water intrusion.” Liberty later justified the denial on exclusions for “faulty construction” and “faulty workmanship or materials.” The Liberty policy provided coverage for “direct physical loss to covered property involving collapse of a building or any part of a building caused only by one or more of the following . . . (b) Hidden decay . . or (f) Use of defective material or methods in construction, remodeling or renovation.” The policy did not define “collapse,” but excluded loss to a “foundation . . . unless the loss is a direct result of the collapse of a building,” and excluded “settling, cracking, shrinking, bulging or expansion.”
Allstate also denied the claim. The Allstate policies covered “the entire collapse of a covered building structure” and the “entire collapse of part of a building structure,” so long as the collapse was “a sudden and accidental direct physical loss caused by . . . hidden decay of the building structure” or “defective methods or material used in construction, repair, remodeling or renovation.” The Allstate policy did not define “collapse,” but defined “building structure” as “a structure with walls and a roof.” Allstate denied the claim because the cracking was not an “entire collapse.” The house remained occupied and there was very little visible damage to the walls themselves.
Both insurers moved for summary judgment. The court found the facts with respect to the Liberty Mutual policy were similar to those presented in Belz v. Peerless, 2016 U.S. Dist. LEXIS 118900 (D. Conn. Sept. 2, 2016) [see post here]. Liberty Mutual had previously been unsuccessful in moving to dismiss the Metsacks’ complaint. Based upon other decisions from the District of Connecticut, the court had found “foundation” and “retaining wall” ambiguous. The court again held that these terms were ambiguous as used in the policy and were to be construed against Liberty Mutual.
Regarding the term “collapse,” Liberty Mutual argued the court should look to the Washington Supreme Court’s decision in Queen Ann Park Homeowners Ass’n v. State Farm Fire and Cas. Co., 352 P.3d 790 (Wash. 2015), where the court held that “substantial impairment” meant the building was “unfit for its function or unsafe.” The Belz court rejected this standard because Connecticut law was relatively clear. The Metsacks offered evidence that the damage to the basement walls compromised the structural integrity of their home, and a material dispute existed regarding whether the damage was sufficiently “substantial” to constitute a “collapse” under the Liberty Mutual policy.
Allstate’s motion, on the other hand, was granted. There was no dispute that the basement walls deteriorated over time, rather than “suddenly.”
Finally, Liberty Mutual was not entitled to summary judgment on the insureds’ bad faith claims. Although Liberty Mutual’s independent adjuster identified “hydrostatic pressure,” “freeze thaw,” and “improper concrete mix” as causes of the cracking, Liberty Mutual denied the Metsacks’ claim as resulting from “settling/earth movement” and “ground water intrusion.” A reasonable juror could conclude that Liberty Mutual acted in bad faith by failing to consult an engineer as recommended by its independent adjuster, especially knowing that the adjuster identified “improper concrete mix” as a possible cause of the structure impairment.