On May 21, 2014, the federal district court in Oregon issued an opinion in Tarleton, LLC v State Farm Fire and Cas. Co., 2014 WL 2126567 (D. Or. May 21, 2014), addressing whether a collapse condition was covered under an “all risk” insurance policy. The court found that the collapse was not covered because there were multiple factors that directly and immediately caused the condition. The court based its decision on its finding that both the weight of contents and high attic temperatures directly and immediately caused the collapse.
The insured owned a building built in the 1940s that was originally used as a farm supply store, but converted to office space in the 1970s. The building was framed with five wood bowstring roof trusses. The insured purchased an “all risk” insurance policy that covered “accidental direct physical loss” to covered property. The policy included an endorsement that specified that the insurance company would cover losses resulting from collapse conditions only if the collapse is “directly and immediately cause[d] only by” a defined list of risks, including “weight of contents and equipment.”
In 2005, the insured added ceilings, platforms, duct work, steel pipes, electrical equipment, mechanical equipment, and sprinklers. The insured’s contractor failed to account for the added impact on the wood trusses, which were not designed to withstand the increased load. As a result, in 2006, one of the trusses ruptured. The truss was repaired, but the insured later installed additional “wires, suspended ceilings, ceiling joists, and insulation” which further increased the load on the trusses.
In July 2011, another truss ruptured. The insured filed a claim under its “all risk” insurance policy. The insured’s expert concluded that the 2011 collapse was “directly and immediately caused by the weight of contents and equipment, but the wood deterioration and elevated attic temperatures contributed to the collapse.” The insurance company also retained an engineer that determined the cause of the collapse was not directly and immediately caused by the weight of contents, but was a result of an inadequate design with long term degradation and, to a lesser extent, the result of the increased load from contents and equipment. The insurance company denied the claim on the basis of its engineer’s report.
The insured sued for breach of contract alleging that the insurance company improperly denied its claim for the 2011 collapse. The insurance company responded that the loss was not covered because the collapse was not “directly and immediately caused only by” one of the enumerated conditions. The insured contended (1) that the loss was covered under the general coverage grant for “accidental direct physical loss” and that the insurance company had the burden to establish the collapse exclusion applied, and (2) the conditions for the collapse exclusion did not apply because the loss was directly and immediately caused only by weight of contents.
The court rejected the insured’s first argument that the loss was covered under the general coverage grant. It found that the “accidental direct physical loss” articulated coverage in very general terms, while the collapse endorsement specifically defined the bounds of coverage to “direct physical loss to covered property involving the sudden, entire collapse.” According to the court, the latter, more specific, provision controlled.
In addressing the terms of the collapse endorsement, the court began by determining whether the materials added to the building constituted “contents and equipment.” The court adopted the broader meaning of the term proposed by the insured, which included the roof, ceiling, electrical, and other materials installed in the building. Citing prior case law, the court determined that the term “directly and immediately caused” meant that which was closed in time to the ultimate damage. See Bjugan v. State Farm Fire and Cas. Co., 2013 WL 4591111, at *1 (D. Or. Aug. 28, 2013). Based on that definition, the court eliminated consideration of the contractor’s negligence and deficient design of the trusses because they were temporally distant from the collapse condition. Next, the court found that the term “only” meant “[w]ithout anyone or anything else; alone.” Citing the insured’s expert opinion, which concluded that the weight of contents and elevated attic temperatures contributed to the loss, the court determined that the collapse was not covered. The court reasoned that the collapse was not caused “only” by the enumerated list of risks.
Maloney Lauersdorf Reiner regularly litigates property insurance coverage claims, including issues of collapse. Please contact us with any questions about this case or any other issue you see addressed in the MLR Insurance Coverage Blog.