(Article from Insurance Law Alert, December 2018)
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Our October 2018 Alert discussed a Second Circuit decision holding that a property insurer had no duty to cover losses arising from the cracking and deterioration of concrete walls in the policyholders’ residence. See Kim v. State Farm Fire & Cas. Ins. Co., 2018 WL 4847195 (2d Cir. Oct. 5, 2018). Dozens of other cases involving this issue are currently pending in Connecticut courts. In recent weeks, two Connecticut federal district courts held that a property insurer has no obligation to pay for losses related to the cracking and deterioration of concrete foundations because such damage did not constitute a covered “collapse.”
In Cockill v. Nationwide Property & Cas. Ins. Co., 2018 WL 6182422 (D. Conn. Nov. 27, 2018), homeowners sought coverage for cracking in the concrete foundation of their home. An inspector concluded that the concrete was undergoing a chemical reaction and would have to be replaced. Nationwide denied coverage. The court agreed with the insurer that the claims did not allege a “collapse,” defined as the “abrupt falling down or caving in” of a structure “with the result that it cannot be occupied for its intended purpose.” The court emphasized policy language stating that a structure is not in a state of collapse if it is still standing, even if it is “in danger of falling down or caving in” or “shows signs of . . . cracking.” Based on this unambiguous language, the court concluded that the homeowners’ allegations of substantial impairment of structural integrity did not trigger coverage under the collapse provision. In so ruling, the court noted that even if the concrete walls were deteriorating and essentially caving in, the damage would be gradual, not “abrupt” as required by the policy.
Additionally, the court rejected the homeowners’ assertion that losses due to a chemical reaction are not excluded from coverage. Although “chemical reactions” was not specifically listed among the enumerated exclusions, the court found that other listed exclusions (e.g., wear and tear, deterioration and inherent vice), were broad enough to encompass chemical reactions. In any event, the court held that the only observed manifestation of the chemical reaction was the foundation cracking, which was excluded under the collapse provision.
Finally, the court dismissed the homeowners’ claim for reimbursement of “reasonable costs you incur for necessary repairs made solely to protect covered property from further damage,” noting that this provision applies only “if the peril causing the loss is covered.” Here, because the cracking concrete fell outside the scope of coverage, the court deemed the reasonable repairs provision inapplicable.
In Hyde v. Allstate Ins. Co., 2018 WL 6331799 (D. Conn. Dec. 4, 2018), the court reached the same conclusion, ruling that concrete cracking, decay and oxidization in basement walls was not a covered loss under a homeowners’ policy. The court held that the gradual deterioration of the concrete walls was not “sudden and accidental direct physical loss,” as required by the policy. Further, the court found no coverage under a collapse provision, which similarly required the collapse to be “sudden.” The court explained that “sudden” is unambiguous and requires “temporal abruptness.” The homeowners’ claims failed to allege this requirement because they asserted that the decay process occurred “over the course of years” – notwithstanding allegations that the decay would ultimately result in “complete degradation” and/or “sudden events throughout the course of decay,” such as shifting, bulging or cracking.
In other defective concrete news, this month the Connecticut Supreme Court is scheduled to hear arguments in Karas v. Liberty Ins. Corp., 2018 WL 2002480 (D. Conn. Apr. 30, 2018) (discussed in our May 2018 Alert). There, the court will address the following certified question: “what constitutes ‘substantial impairment of structural integrity’ for purposes of applying the ‘collapse’ provision of this homeowners’ insurance policy?” We will keep you posted on any developments in this matter.