Edward Eshoo | Property Insurance Coverage Law Blog | September 3, 2018
Most property insurance policies provide additional coverage for direct physical loss of or damage to covered property caused by or resulting from an “abrupt collapse.”1 In Hoban v. Nova Casualty Company,2 a California federal district court recently addressed the meaning of the phrase “abrupt collapse,” which the commercial insurance policy at issue defined as “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.”3
There, two roof trusses that supported the roof of a bowling alley failed. The truss failures caused the building ceiling, overhead monitors, and disco ball to drop approximately six to ten inches, and also caused ceiling tiles and a layer of insulation to fall to the tabletops and counters below. As a result of the truss failures, the ceiling fell to a height lower than it was originally constructed. Additionally, the truss failures caused damages to at least one of the building’s exterior walls. A County Building Inspector inspected the damage to the bowling alley on the same day the trusses failed, and immediately ordered the business closed for public safety reasons until the necessary repairs could be completed. The insureds then hired a general contractor to shore up the roof support system and to prevent a complete collapse. Following the shoring, the insureds were able to re-open the bowling alley to the public. The insurer eventually denied the claim, taking the position there was no collapse because the ceiling and the roof of the building had not fallen down to the ground.
After suit was filed, both parties moved for summary judgment on the issue whether the building had sustained an “abrupt collapse” within the meaning of the insurance policy. The insurer argued this language requires a building or a part of a building to completely fall to the ground. The insureds asserted this language allows for a partial collapse of a part of a building that renders the building unusable, even if the building or that part had not fallen completely to the ground.
The district court concluded that the phrase “abrupt collapse” was ambiguous because there was more than one reasonable interpretation of its intended meaning. The district court reasoned that nothing in the policy unambiguously informed the insureds that the building or a part thereof must fall completely to the ground to be covered. The term used by the policy was “abrupt collapse,” which the district court stated highlights the manner in which the collapse must occur to warrant coverage. The policy did not use the term “complete collapse,” which the district court noted would more readily refer to the degree of collapse. That coverage applies to the “abrupt” collapse of either “a building” or “any part of a building” strongly suggested to the district court that the policy was intended to cover a partial collapse of parts of the building, so long as it occurred abruptly, not only total or complete collapse. Moreover, according to the district court, specifying that the collapse must render the building or part of the building so it “cannot be occupied for its intended purpose” would be unnecessary and redundant if the policy required the building or part of the building to have collapsed to the ground. A building or part of a building that has collapsed to the ground cannot be occupied for any purpose, let alone for its intended purpose, and contracts are usually interpreted to avoid redundancy. The district court concluded that no language in the policy unambiguously required a building or a part of the building to fall to the ground for coverage to apply, as the insurer argued.
Interpreting this ambiguity in favor of the insureds, the district court found there was no genuine dispute of material fact as to whether a part of the building fell down and whether the building could be occupied for its intended purpose. It was undisputed that the overhead monitors, the disco ball, and the entire ceiling of the building fell six to ten inches. It also was undisputed that ceiling tiles and insulation fell to the tabletops and counters below. These events constituted “any part of a building” that has “fall[en] down.” Finally, it was undisputed that the business was closed for public safety reasons until repairs could be completed, and thus neither the building nor any part of it could be occupied for its intended purpose.4
The district court’s ruling in Hoban is consistent with the result reached by other courts who have likewise concluded that the phrase “abrupt collapse” is ambiguous as to whether there must be a complete and total falling down of a building or any part, thus resulting in an interpretation favorable to the insured.5 In each case, the court found that a part of a building (roof, trusses, support columns, ceiling, flooring) that deflected, buckled, dropped, or was displaced downward anywhere from one (1) inch to seventeen (17) inches such that the building or a part of it could not be occupied constituted an “abrupt collapse.”6
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1 See ISO Form CP 10 30 10 12 and ISO Form HO 00 03 05 11.
2 Hoban v. Nova Cas. Co., 2018 WL 3954737 (E.D. Cal. August 15, 2018).
3 Hoban, 2018 WL 3954737, *2.
4 The policy in Hoban defined “abrupt collapse” the same way it is defined in ISO Form CP 10 30 10 12.
5 See, e.g., Ken Johnson Properties, LLC v. Harleysville Worcester Summary Ins. Co., 2013 WL 5487444 (D. Minn. Sept. 30, 2013); Kings Ridge Cmty. Ass’n., Inc. v. Sagamore Ins. Co., 98 So.3d 74 (Fla. DCA 2012); Scorpio v. Underwriters at Lloyd’s, London, 2012 WL 2020168 (D. R.I. June 5, 2012); Gullino v. Economy Fire and Cas. Co., 2012 IL App (1st) 102429 (Ill. App 2012); Landmark Realty, Inc. v. Great Am. Ins. Co., 2010 WL 5055805 (D. Md. Dec. 3, 2010); Malbco Holdings, LLC v. AMCO Ins. Co., 629 F.Supp.2d 1185 (D. Or. 2009).
6 To trigger coverage under both ISO Form CP 10 30 10 12 and ISO Form HO 00 03 05 11, the abrupt collapse must be caused by one or more of certain perils, including decay that is hidden from view. In Hoban, the abrupt collapse was caused in part by hidden decay.