Washington Supreme Court Interprets “Collapse”

On June 18, 2015, the Washington Supreme Court issued an opinion in Queen Anne Park Homeowners Ass’n v. State Farm Fire & Cas. Ins. Co., No. 90651-3, —Wn.2d —, — P.3d —, 2015 WL 3795796 (2015), addressing the meaning of the term “collapse” in an insurance policy.  We previously wrote on this case in an entry dated August 21, 2014.  The Supreme Court found that the term “collapse” means “substantial impairment of structural integrity” which, defined further, means substantial impairment of the structural integrity of a building or part of a building that renders the building unfit for its function or unsafe and must be more than mere settling, cracking, shrinking, bulging or expansion.  The Supreme Court decided the issue solely on the definition of “collapse” contained in the policy at issue in the case, noting that it was not adopting a fixed definition for all insurance contracts.

The case, which was on certified question from the U.S. Court of Appeals for the Ninth Circuit, concerned a condominium building that was insured under a policy providing coverage for “accidental direct physical loss” to property, unless the loss was otherwise excluded or limited.  The policy further provided coverage for damaged property involving collapse of a building or a part of a building caused by hidden decay, but excluded coverage for settling, cracking, shrinking, bulging or expansion.  The term “collapse” was not defined in the policy.

The insured filed a claim asserting that during the policy period its building collapsed as a result of hidden decay.  Specifically, the insured contended that the building suffered substantial impairment of structural integrity based on an engineer’s finding of hidden decay in walls which impaired the walls’ ability to resist lateral loads.  The insurance company investigated the claim and determined that a collapse had not occurred during the policy term and that various exclusions from coverage applied.  The insured filed suit in federal district court, which granted the insurance company’s motion for summary judgment.  The insured appealed to the Ninth Circuit, which certified the question to the Washington Supreme Court.

The court began its opinion by finding that the term “collapse,” as used in the policy was ambiguous, because it was susceptible to more than one reasonable interpretation.  As a basis for its finding, the court cited its opinion in Sprague v Safeco Ins. Co. of Am., 174 Wn.2d 524, 276 P.3d 1270 (2012), in which the court was asked to define the term collapse in insurance policies.  Although the Sprague matter was ultimately decided on alternate grounds, the court offered competing definitions of collapse.  The court also cited a number of cases across the country offering distinct meanings of the term.  Following the standard rules of policy interpretation, the court adopted the insured’s interpretation of collapse to mean “substantial impairment of structural integrity.”  The court did caution, however, that collapse means something more than settling, cracking, shrinking, bulging or expansion based on the terms of the policy.  Additionally, it found that “substantial impairment of structural integrity” means an impairment so severe as to materially impair a building’s ability to remain upright.

MLR represents client in insurance coverage matters including those involving issues of collapse.  Please contact us about this case, or any other matter you see addressed on the Insurance Coverage Blog.

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