Insureds’ Not Entitled to Recovery for Partial Collapse

    The Sixth Circuit affirmed the District Court's decision that the insureds could not recover for a partial collapse of a wall. Builders Mut. Ins. Co. v. GCC Construction, LLC, 2024 U.S. App. LEXIS 31518 (6th Cir. Dec. 11, 2024). 

    Tahini Main Street bought a century-old building in Chattanooga, Tennessee. The building was constructed using what masons call three-wythe construction. This meant that the building's walls consisted of three brick layers – each layer was a "wythe" – that sit next to each other. When Tahini renovated the building, it hired GCC Construction, LLC (GCC). GCC planned to add windows which meant cutting a new opening into the building's western wall, boring straight through all three brick layers. When they finished slicing through the wall, some bricks fell from the opening's top. The middle rows fell into the new gap, leaving the two outside row with nothing in between. Accordingly, the wall lost its middle. 

    GCC hired an engineer, David Cartwright, who concluded that "due to the severe unforeseen deterioration only recently uncovered inside the existing west brick wall, the wall could not carry the renovated buildings load anymore. He suggested that Tahini build a new structural wall and demolish the old brickwork.

    Tahini and GCC asked their insurer, Bruilders Mutual, to pay for the new wall and any damage that resulted from the falling bricks. Builders Mutual sent an independent adjuster, Greg Bankston, to inspect the site, Bankston saw the wall was still standing, and told Builders Mutual that the wall looked substantively intact. Builders Mutual denied coverage.

    Builders Mutual filed a declaratory judgment action asking the district court to rule it did not have to cover the damages. Tahini and GCC counterclaimed seeking a declaratory judgment that Builders Mutual had a duty to indemnify them; damages for breach of contract, loss, and property damage; and a statutory bad-faith penalty. At trial, the district court found that the relatively minor collapse from above the window had no significant effect on the remaining wall or building. The collapse revealed the building's long-existing lack of structural integrity. There was no recovery under the policy or on the breach of contract and bad-faith counterclaims.

    Tahini and GCC appealed. The Sixth Circuit first found that a "direct physical loss" occurred when the middle with came down. When the bricks came tumbling down, a physical item – the wall- deteriorated. That constituted a loss. Further, the loss occurred to "covered property." And a "covered cause of loss'"happened, but only for bricks that actually fell, not the entire wall. 

    Under the policy, "collapse" was defined as an "abrupt falling down or caving in of a covered building or structure in whole or in part." But the policy further stated that a "covered building or structure or any part thereof that is in danger of falling down or caving in is not considered to be in a state of collapse." Applying there definitions to this building, some bricks fell when GCC cut a hole in the wall. This was a partial collapse as defined by the policy – an "abrupt filing down . . . of a covered building or structure in whole or in part." Although the whole wall did not fall. Instead,  part of the middle wythe gave way, falling abruptly. This was a collapse under the policy language. 

    Turning to causation, the court asked what damage the middle wythe's partial collapse caused? The falling bricks did not cause the wall to lose it structural integrity. As found by the district court, the building experienced "very significant deterioration" before the policy was put in place. The window-cutting and resulting brick collapse did not cause structural damage to the property. It only revealed the damage to the underlying structure. 

    After determining the falling bricks were a collapse and that they caused a direct physical loss to covered property (the middle wythe), the court asked what damages were due. Tahini and GCC did not provide any evidence of this cost beyond simply arguing the wall could not be repaired. The trial court concluded that the insureds were entitled to the "cost of repairing the fallen bricks under the policy." But because the insureds did not present evidence of what the cost would be, they could not recover. 

    The Sixth Circuit also agreed Builders Mutual did not act in bad faith by refusing to pay under the policy. Builders Mutual investigated the claim with ordinary care and diligence.

    The court therefore affirmed.