Collapse By Hidden Decay Covered

Ed Eshoo obtained a favorable ruling this week with a finding that held a collapse caused by hidden decay was covered.1 The opinion has a full analysis of the coverage because the insurer raised the normal set of objections to each element pertaining to collapse coverage—it did not happen during the policy period, the dropping floor does not constitute a collapse, the collapse was not total, and the collapse was not hidden.

The opinion noted the relevant policy language:

Causes of Loss – Special Form. (Id. at 86.) Subsection B.2.k. of that form states:

“We will not pay for loss or damage caused by or resulting from any of the following . . . Collapse, except as provided below in the Additional Coverage for Collapse.”

Section D., the Additional Coverage for Collapse provision, reads:

1. With respect to buildings:

a. Collapse means 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 purposes.

It then clarifies that:

b. A building or any part of a building that is in danger of falling down or caving in is not considered to be in a state of collapse;

c. A part of a building that is standing is not considered to be in a state of collapse even if it has separated from another part of the building;

d. A building that is standing or any part of a building that is standing is not considered to be in a state of collapse even if it shows evidence of cracking, bulging, sagging, bending, leaning, settling, shrinkage or expansion.

The next subsection explains that Crum & Forster will only pay for direct physical loss or damage if the collapse is caused by, as relevant here:

b. Decay that is hidden from view, unless the presence of such decay is known to an insured prior to collapse.

Given these policy provisions, the court noted the policyholder’s burden to show coverage:

Taken as a whole, this means, to carry its initial burden, J&J Fish must show that its floor ‘collapsed’ (as defined in Crum and Forster’s insurance policy) as a result of ‘decay’ that was both ‘hidden from view’ and unknown to J&J Fish, and that this occurred at some point between October 3, 2019 and October 3, 2020 (when the policy was in effect).

The court ruled that the occurrence seemed to fit the definition of collapse:

Assembling the pieces, a ’collapse’ requires a sudden and unexpected drop or fall that renders at least part of a building unfit for its intended purpose.

Here, 25% of the Building’s floor fell three-and-a-half feet into the crawl space overnight. This destroyed the walk-in cooler, leaving J&J Fish without a place to store its food and, therefore, unable to operate its restaurant as intended. On its face, this was a sudden and unexpected fall or drop that rendered part of the Building unfit for use as a fish restaurant.

The insurer argued that the collapse did not occur during the policy period. The Court ruled against this argument finding:

That policy period ran from October 3, 2019 to October 3, 2020, which includes May 29, 2020, the date the slab floor collapsed. But according to Dr. Wojnowski, based on the observable level of corrosion, the steel supports began decaying more than 10 years before the collapse occurred. Crum & Forster seizes upon this opinion to argue that no ‘loss or damage’ commenced during the policy period. But this conflates the corrosion of the steel beams with the collapse of the slab floor. An unhealthy diet can cause a heart attack, but the heart attack (and the corresponding bodily damage it causes) does not ‘commence’ the first time a toddler places a french fry in his mouth. In this case, the relevant ‘damage’ commenced on May 29, 2020, when the restaurant floor collapsed, taking part of the walk-in cooler with it. That occurred during the coverage period.

The insurer still argued that a collapse as defined in the policy did not occur and the court pointed out the fallacy of that argument:

It points to the limitations on the definition of ‘collapse’ set forth in D.1.b.-d. The first of these limitations provides that a collapse does not include ‘[a] building or any part of a building that is in danger of falling down or caving in.’ This means that a building or part of a building that might fall, or even in all probability will fall in the future, is not in a state of collapse until that fall is realized. In other words, a structure like the Leaning Tower of Pisa is not in a ‘state of collapse.’ This provision may have described and applied to the restaurant floor before the May 29, 2020 incident, but it does not reflect the status of the slab floor afterward. The provision may also describe and apply today to parts of the building other than the slab floor. But the slab floor is plainly no longer ‘in danger of falling down’—that danger is long-passed; the floor has already fallen!

The insurer further argued that a collapse did not occur because the building was standing. The court ruled how this argument fails:

The second definitional limitation makes clear that ‘[a] part of a building that is standing is not considered to be in a state of collapse even if it has separated from another part of the building.’ This turns on the definition of ‘standing.’ To ‘stand’ is ‘to maintain one’s position.’….Presumably, then, a building that was vertically bisected such that its two newly formed sides remained upright but no longer touched would not be in a ‘state of collapse’ under the policy. That is not what happened here. The slab floor did not maintain its position; it fell three-and-a-half feet.

The insurer argued that the decay was not hidden and the court again found against the insurer with the following reference to Where’s Waldo:

Crum & Forster next seeks to get off the hook by arguing that the collapse was caused by decay that was not ‘hidden from view’ under provision D.2.b. of the Policy. No one disputes that prolonged exposure to moisture caused the slab floor’s steel support beams to decay, leading to the collapse. But according to Crum & Forster, this decay was not ‘hidden from view’ because it could be observed from within the crawl space, which was accessible via a hatch located outside the Building. Indeed, as part of his inspection, Dr. Wojnowski, equipped with a flashlight, entered the crawl space on all fours and observed the decay. But the problem with Crum & Forster’s argument is that ‘hidden’ is a matter of degree. Under ordinary understanding, ‘hidden’ means ‘being out of sight or not readily apparent.’…That something can be seen when extraordinary efforts are employed does not mean that it is not hidden. In other words, something can be ‘visible’ and also ‘hidden.’ Take the titular character of the Where’s Waldo? series. He may not be invisible, but he is certainly hidden. Other courts have held similarly. See Olde Colonial Vill. Condo. Council v. Millers Mut. Ins. Co., No. CIV.A.99C-06-187-FSS, 2002 WL 122885, at *9 (Del Super. Ct. Jan. 28, 2002) (unpublished) (holding that decay was ‘hidden’ when the only way to see it ‘was to crawl into a narrow, unlit, unventilated, mud-floored crawlspace and shine a flashlight on the joists’). Under the plain meaning of the term, decay that was concealed within a cramped, unlit crawl space was ‘hidden from view.’

Insurers often use the “throw everything in the book” technique as excuses not to pay for collapse damages. As a result, each element of the collapse language must be carefully analyzed to show how coverage applies. This opinion is a classic example.

Congratulations to Ed Eshoo! Ed previously wrote a post about collapse coverage in What Constitutes an “Abrupt Collapse”?, and is clearly a collapse loss expert on the peril.

Thought For The Day

Our greatest glory is not in never falling, but in rising every time we fall.
—Confucius
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1 J&J Fish on Center Street v. Crum & Forster Specialty Ins. Co., No. 20-cv-1644 (E.D. Wis. Sept. 12, 2022).