Ninth Circuit Asks Washington to Define “Collapse”

On August 19, 2014, a panel the Ninth Circuit Court of Appeals considering the case Queen Anne Park Homeowners Ass’n v. State Farm Fire and Cas. Co., Appeal No. 12-36021, certified the following question to the Washington Supreme Court:

What does “collapse” mean under Washington law in an insurance policy that insures “accidental direct physical loss involving collapse,” subject to the policy’s terms, conditions, exclusions, and other provisions, but does not define “collapse,” except to state that “collapse does not include settling, cracking, shrinking, bulging, or expansion?”

During the appeal, the parties filed cross-motions requesting the appellate court to certify the question to the Washington Supreme Court.  The Ninth Circuit granted the motions.

The case concerns a two-building condominium in Seattle.  The insurance company covered the property from 1992 through 1998.  The policies generally covered “accidental direct physical loss” to the buildings, unless the loss was otherwise excluded or limited.  An “extension of coverage” in the policy covered “any accidental direct physical loss to covered property involving collapse of a building or any part of a building caused only by one or of the following: … (2) hidden decay ….”  The extension did provide, however, that “collapse does not settling, cracking, shrinking, bulging, or expansion.”  Aside from those provisions, the policies did not define the term “collapse.”

In 2010,the insured homeowners association filed a claim with the insurance company.  The insured interpreted the term “collapse” to mean “a substantial impairment of the structural integrity of any portion or component of the building.”  It claimed that an inspection uncovered a number of areas of “hidden decay” that resulted in a collapse condition during the insurance company’s policy period.  Following its own inspection, the insurance company denied the insured’s claim on the grounds that the collapse condition did not occur during the policy period and various other exclusions from coverage.

The insured filed suit and eventually moved for summary judgment on the collapse issue.  It argued that, under Washington law, the term “collapse” meant “substantial impairment of structural integrity.”  The federal district court denied the motion citing the Washington Supreme Court decisions in Sprague v. Safeco Ins. Co. of Am., 276 P.3d 1270 (Wash. 2012) and Ocean Winds Council of Co-Owners, Inc. v. Auto-Owner Ins. Co., 565 S.E.2d 306 (S.C. 2002).  The court determined that even under the relaxed standard of collapse the insured, in addition to establishing substantial structural impairment, must show an imminent threat of collapse.  The court found the insured could not satisfy this standard.  Queen Anne Park Homeowners Ass’n v State Farm Fire and Cas. Co., 2012 WL 5456685 (W.D. Wash., Nov. 8, 2012).

In certifying the question, the Ninth Circuit noted that in Sprague, the Washington court’s most recent precedent on the issue, the five-justice majority expressly declined to address what constitutes “collapse.”  The concurring justices defined “collapse” to mean “to break down completely: fall apart in confused disorganization: crumble into insignificance or nothingness … fall into a jumbled or flattened mess.”  The four dissenting justices, on the other hand, asserted that the court should have addressed the definition of “collapse,” arguing that other courts have “generally rejected the fall-down notion of collapse in favor of a more liberal standard, ‘substantial structural impairment of structural integrity.’”  The Ninth Circuit indicated it certified the question to resolve the issue.  We will provide any updates on the status of the case.

The attorneys at Maloney Lauersdorf Reiner have represented a number of clients facing insurance coverage issues regarding collapse conditions.  Please contact us with any questions about this case or any other matter you see addressed on our Insurance Coverage Blog.

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