Treble Damages Awarded After Insurer Denies Coverage for Collapse

    The Fourth Circuit upheld the district court’s decision that a collapse was covered, but reversed the denial of treble damages to the insured. DENC, LLC v. Phila. Indem. Ins. Co., 2022 U.S. App. LEXIS 10443 (4th Cir. April 18, 2022). The district court decision was summarized here. 

    DENC owned The Crest, an apartment building leased to Elon University for student housing. Philadelphia Indemnity Company insured the property. In January 2018, students gathered on a second-floor breezeway for a party. Partygoers began jumping in the breezeway, which caused an abrupt collapse. Observers noticed that the breezeway was hanging down by more that a foot. 

    DENC filed a claim with Philadelphia the next day. An adjuster was sent to inspect the breezeway. By that time, the city had condemned The Crest. The adjuster said that undiscovered “water damage which occurred over an extended period of time” caused the loss. 

    The policy excluded loss caused by “continuous or repeated seepage or leakage of water that occurs over a period of 14 days or more.” The policy had a “Collapse Endorsement” that excluded an abrupt falling down or caving in of property. This exclusion did not apply to collapse caused by “weight of people or personal property,” however.

    Philadelphia sent DENC two letters. The first was a reservation of rights letter, explaining that Philadelphia was conducting an investigation. The second letter, sent two days later, said payment would be issued to DENC for “damages or injuries sustained.” Philadelphia then hired a structural engineer to assess the breezeway. He concluded that “long-term water intrusion” caused the loss. After reviewing the engineer’s report, Philadelphia sent a third letter stating the claim was denied because the damage was the result of long-term water intrusion and deteriorated wood framing. The letter never referenced the earlier letter in which Philadelphia said it would pay the claim.

    DENC filed a declaratory judgment action. The district court found that the collapse of the breezeway covered because it was caused by the “weight of people” and it was an “abrupt collapse” caused by hidden building decay or defective construction methods. The court also granted summary judgment on one of four claims under the  Unfair and Deceptive Trade Practices Act (UDTPA) because Philadelphia’s denial letter failed to reasonably explain the denial’s basis in the insurance policy in relation to the facts. But the district court granted summary judgment to Philadelphia on the other UDTPA claims, as well as DENC’s bad-faith claim. The district court held a hearing on damages. It awarded DENC’s temporary student housing expenses, but denied treble damages because DENC failed to show that Philadelphia’s UDTPA violation proximately caused its contract damages. Finally, fees were awarded to DENC because of the deceptive denial letter and Philadelphia’s failure to make a reasonable settlement offer. 

    The Fourth Circuit affirmed the decision regarding coverage for the collapse and for the extra expenses DENC had to pay when it had to relocate its tenants to similar housing while repairs were made.

    The Fourth Circuit also agreed that Philadelphia violated the UDTPA. The district court erred, however, in failing to award treble contract damages under UDTPA. DENC proved that Philadelphia’s UDTPA violation proximately caused its damages. Finally, fees were appropriately awarded to DENC.