When is a Collapse a Collapse?

Navigating the Field of Conflicting Views

Consider the following scenario: An earthquake, tornado, flood or similar natural catastrophe causes significant structural damage to an insured’s home. Although the building is still standing, the structural engineers conclude that the structural integrity of the building is so compromised that it is teetering on the edge of total collapse and could fall down at any time.

This scenario raises the issue of what constitutes a “collapse” within the meaning of a typical homeowner’s policy. Is an actual collapse required, or will something less than a full structural collapse trigger policy coverage?

As with most coverage issues, the policy language frequently is determinative. Some policies contain a very specific definition of “collapse,” e.g., that a collapse occurs when the structure has “actually fallen down.” By contrast, the most common form of policy in use provides, without definition by qualification or exclusion, for “direct loss caused by collapse of a building or any part thereof,” or similar language.

The courts are divided into three camps that have reached dramatically different results. The three divergent triggers of coverage are, broadly speaking:

1. A complete falling down of the structure,
2. Imminent collapse of the structure and
3. Substantial impairment of the structure.

The “strict interpretation” line of authority is well-illustrated by cases arising in Colorado and Texas. In Higgins v. Connecticut Fire Ins. Co., 430 P. 2d 479 (Col. 1967), the policy at issue did not specifically define the term “collapse.” The Colorado Supreme Court held that the term “collapse” is not an ambiguous term, but one that had a well-recognized meaning, and adopted the definition of collapse in Webster’s Dictionary, i.e., “to fall into a flattened mass, distorted or disorganized state.”

A similar ruling was handed down by the Texas Supreme Court in Employers Mut. Cas. Co. of Des Moines, Iowa v. Nelson, 361 S.W. 2d 704 (Tex. 1962). As in Higgins, the policy did not specifically define “collapse.” In Employers Mutual, the Texas Supreme Court observed “the word collapse is not one of art, but is unambiguous and is generally understood to have the meaning of to fall or shrink together, to cave in, to fall into a flatten, distorted or disorganized state.”

Absent a specific policy definition of “collapse,” the courts of the three western states have not gone as far as the Colorado and Texas courts. California cases focus on the precise language of the policy. Where the term “collapse” is not specifically defined, California courts have adopted the “imminent collapse” standard.

The seminal case embracing that approach is Doheny West Homeowners’ Assoc. v. American Guarantee & Liability Insurance Co., 60 Cal. App. 4th 400 (Cal. 1997). In Doheny, a structural engineer hired by the insured observed substantial damage in the area surrounding the pool, and concluded that “an earthquake of large magnitude could cause a complete collapse of the pool.” The policy at issue in Doheny did not specifically define the term “collapse.” It extended coverage for “direct physical loss involving collapse of a building or any part of the building.” The insurer argued that the language meant an “actual collapse.” The insured, on the other hand, argued that the policy covered “substantial impairment” of the structure or building.”

The California Court of Appeal rejected both positions and adopted a middle ground, holding that the policy covered an imminent as well as an actual collapse. The court defined “imminent” as meaning “likely to happen without delay; impending, threatening.” The Doheny court declined to adopt the more liberal “substantial impairment” interpretation urged by the insured to “avoid converting this insurance policy into a maintenance agreement.”

California has departed from the “imminent collapse” doctrine where the policy specifically requires an “actual” or “entire” collapse. Under those circumstances, a mere “imminent” collapse is insufficient. For example, in Jordan v. Allstate Insurance Co., 116 Cal. App. 4d 1206 (Cal. 2004), there was evidence of damage to an insured’s home by water-conducting fungus known as Poria. The policy provided “additional coverage” for any loss due to an “entire” collapse caused by “hidden decay.” The court held that the policy definition is satisfied only if there was a “total collapse” of the structure. The court observed that “[i]t seemed self-evident that the policy’s use of the term ‘collapse’ necessarily must refer to an actual, not an imminent collapse. For a building or a portion thereof to sustain an ‘entire collapse’ must mean that it has entirely collapsed, that is ‘wholly’, ‘completely’, or ‘fully’.”

The Jordan rationale was followed by the California Supreme Court in Rosen v. State Farm General Insurance Co., 30 Cal. 4d 1070 (Cal. 2003). In Rosen, the policy specifically provided that collapse “means actually fallen down or fallen into pieces.” The California Supreme Court held that the policy language was clear, explicit and unambiguous, and declined to apply the Doheny rationale because the insurance policy at issue in Doheny did not specify that the reach of the term “collapse” was restricted to an actual collapse.

In Washington, there are no state court cases interpreting the “collapse” provisions. Two federal courts, applying Washington law, have considered the issue but have reached conflicting results. The leading case in Washington is Allstate Insurance Company v. Forest Lynn Homeowners’ Association, 892 F. Supp. 1310 (W.D. Wash. 1995). At issue in Forest Lynn was whether the decaying of a condominium’s elevated wooden walkways was covered under the “collapse” provisions. At least some of the posts supporting the walkways were experiencing rot and hidden decay, and at least a portion of the walkways needed to be replaced. The policy did not define the term “collapse.”

Applying Washington law, the District Court held that the collapse provision of the policy was triggered by “any substantial impairment of the structural integrity of a building.” It reasoned that requiring the insured to await an actual collapse would be economically wasteful and that insureds would have an incentive to allow the structure to progress to the point of falling down.

The Ninth Circuit Court of Appeals in Assurance Company of America v. Wall & Associates LLC of Olympia, 379 F. 3d 557 (9th Cir. 2004) also declined to adopt a strict interpretation. In that case, the insured installed external insulation that began experiencing problems with water leaking in the building. Extensive testing revealed that the building had decayed and deteriorated as a result of the water intrusion, and there was no way to tell when, if ever, the insulation would fall. The court noted, but seemingly ignored, the “substantial impairment” test of Forest Lynn, and instead followed and adopted the “imminent collapse” test of the California Court of Appeal in Doheny.

In Oregon, as in Washington, there are no state court opinions interpreting “collapse” coverage. However, a federal case held that under Oregon law a “substantial impairment” test would be applied. In Schray v. Fireman’s Fund Ins. Co., 402 F. Supp. 2d 1212 (D. Or. 2005), the insurer argued for the “imminent collapse” interpretation. The court rejected that argument and, instead, followed the “substantial impairment” line of cases. The court reasoned that requiring a building to fall down before allowing coverage would conflict with the insured’s duty to mitigate damages and that “requiring a flatten form or rubble would render some of the coverage illusory.”

Topics California Texas Washington