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In a coverage dispute suit by a building owner against its property general liability insurance carrier, the question to be resolved by the court was whether the owner was entitled to recover for a potential collapse of part of its building.  The court rejected the insurance carrier’s argument that there was no coverage in the absence of actual collapse.  Where collapse is imminent there could be coverage.

A building owner, 401 Fourth Street , Inc. (“ Fourth Street ” or “Owner”) purchased an insurance policy from Investors Insurance Group (“Insurer”) and for additional premium obtained an endorsement extending coverage for “collapse.”  The language of the endorsement reads as follows:

“We will pay for loss or damage caused by or resulting from risks of direct physical loss involving collapse of a building or any part of a building caused only by one or more of the following: … 2. Hidden decay …. Collapse does not include settling, cracking, shrinkage, bulging or expansion.”

When tenants noticed that a parapet wall was bowed and leaning inward, the building Owner filed an insurance claim for coverage under the endorsement.  According to an engineer retained by the Owner, internal bonds that tied the parapet wall to the structural framing of the building had recently given way, and a large, sudden movement had occurred.”  The engineer described the situation as “very dangerous and must be repaired immediately.”

An engineer retained by the Insurer also concluded that the wall needed to be repaired, but he concluded that the reason for the problem was that interior steel had corroded and expanded, thereby causing the bricks to be jacked upwards.  He further concluded that this was attributable to “a lack of normal maintenance of the brick joints, roofing and shelf angle.”   Both expert engineers agreed, however, that if repairs were not made, “the parapet wall could completely collapse.”

Based on a narrow interpretation of the policy language, the insurance company denied coverage.  The Owner then filed suit against the company.  The trial court granted a motion for summary judgment on behalf of the insurance company based on the court’s application of case law that has construed the term “collapse” to require the actual physical falling down of the structure. Since the structure had not fallen, the trial court concluded a “collapse” had not occurred within the meaning of the policy language.

On appeal, the appellate court in the case of 401 Fourth Street, Inc. v. Investors Insurance Group, 583 Pa. 445, 879 A. 2d 166 (2005),  reviewed case law of a number of different states that have addressed similar or even identical policy language.  It looked to these other decisions because the interpretation and construction of the policy phrase “risks of physical loss involving collapse” was an issue of first impression” for the court.  A number of other courts have found that provision to be ambiguous and have interpreted the phrase to provide broader coverage than just loss occurring only from actual collapse.  The Court here reached a similar conclusion, finding that the policy “covers not only loss for a collapse, but also the risk of loss involving a collapse.”  The court said, “To interpret this broad language to be limited to only the falling of the building, even under existing case law, would be to give too narrow an interpretation to the broad language drafted by the insurer.”  For this reason, the court held that the “policy provides coverage for damage caused by the falling down, or imminent falling down of a building or part thereof.”

The court was careful to explain, however, that it would not interpret the language so broadly as “to cover substantial impairment of structural integrity” where collapse is not imminent.  To go that far, said the court, “would possibly convert the policy into a maintenance agreement permitting recovery for damage which, while substantial, does not threaten collapse of the structure.”

About the author: Kent Holland is a construction lawyer  in Tysons Corner, Virginia, and is a risk management consultant for environmental and design professional liability insurance and contracts.   He is also publisher of ConstructionRisk.com Report.  He may be reached at Kent@ConstructionRisk.com.  This article is published in ConstructionRisk.com Report, Vol. 8, No. 4.