Most “all-risk” homeowner’s insurance policies contain a clause that provides coverage for direct loss caused by the “collapse of building or any part thereof.”
The scope of insurance coverage for collapse of a structure, which the insurance industry first started to provide in 1954, has since that time been the subject of litigation in many states. The arguments regarding what type of damage triggers coverage for “collapse” can be categorized into three approaches to interpretation. The first is that “collapse” means an “actual collapse” of the structure. The second holds that “collapse” means “imminent collapse,” and the third is that “collapse” means “substantial impairment of a building’s structural integrity.”
The meaning that the term “collapse” has in any given policy is going to depend on how the courts in the state in which the insured structure is located interpret the language of the clause, as well as the exact policy language at issue in any given case and the facts to which the policy and the law apply.
What Constitutes “Collapse” for Homeowner’s Policy Purposes?
The question of whether a particular loss or damage to an insured building comes within the definition of “collapse” of a building generally depends on two considerations.
As mentioned above, the first is the exact wording of the clause that provides coverage for “collapse.” Under some policies, insurance is provided for direct loss caused by “collapse.” There is no further definition of that term provided by either qualification of the term or exclusions in the policy. An exclusion is a peril that is expressly not covered by an insurance policy.
For example, common exclusions are damage caused by flooding,, normal wear and tear, poor maintenance, or intentional acts, e.g. arson. Most homeowner’s insurance policies do not provide coverage for losses caused by these perils.
On the other hand, some policies cover losses caused by “collapse,” and also define that term, at least to a certain extent, by providing specific exclusions from coverage under the clause. The presence of exclusions gives the term a clearer definition.
The second consideration in determining the question of whether structural damage qualifies as “collapse” within the meaning of the clause is what courts in the various states in the U.S. have had to say in case law about the definition of the term “collapse” as it is used in homeowner’s insurance policies.
Courts have taken two different positions on the meaning of this term. One view taken by some state courts is that “collapse” is an unambiguous term which denotes a “falling in”, “loss of shape”, or “reduction to flattened form or rubble.”
The contrasting view adopted by other courts say that there can be a “collapse” even though there has been no falling, tumbling down, or near total destruction. Under this view, one court has held that, if brought about by unusual or extraordinary circumstances which the parties could not expect or foresee at the time they entered into the insurance contract, there is settling, cracking, bulging, or breaking of the insured building in such a way as to materially impair its basic structure or substantial integrity, this constitutes a “collapse” within the meaning of the policy.
Some examples of what state courts have had to say about the issue in case law are as follows:
- Illinois: In Illinois, a recent decision from 2017 gives insight into how Illinois courts would interpret a clause that provides coverage for the collapse of a structure. The 2017 case held that the homeowner’s policy should be read as a whole, and considered in that way, the policy was intended to cover only damage and loss resulting from the actual, physical collapse of the insured dwelling. The term “collapse” was defined to mean damage to the extent that the building loses its character as a building.
- The policy at issue in the case had one additional exclusion from coverage that had not been present in other policies addressed in prior Illinois court decisions. The policy in this 2017 case excluded loss from a collapse, if the building remained standing, even if it was cracked, bulging, sagging, bending, leaning, settled, shrunk or expanded. This exclusion, along with the dictionary definition of the term “standing,” led the court to conclude that the policy did not provide coverage under its “collapse” provision.
- This decision was made in spite of the fact that the policy holders had hired a contractor to build a second story addition above their existing dwelling and a two-story addition off the rear of it. As a result of the contractor’s negligence, the foundation of the dwelling was compromised. It failed and cracked, which made the dwelling structurally unsound and unsafe. It could no longer be used as a dwelling, nor could the construction project be completed. The west brick wall was laterally displaced. The first story floor sloped downward toward the west wall. The second-story floor moved. Additionally, large gaps and separations were created in the existing mortar, between the bricks and window framing. There were cracks in the mortar and large gaps or separations between the bricks on the east wall.
- However, in spite of this extensive damage, no wall had fallen to the ground. And there was no evidence that anything had come off of the dwelling and fallen to the ground, such as the bricks of which the dwelling was constructed. So, the court held that because the building remained standing, the loss was not covered by the homeowner’s insurance policy at issue in the case;
- California: In California, the Supreme Court has stated that it does not rewrite any provision in an insurance policy for public policy reasons. In 2003, the California Supreme Court affirmed that it does not rewrite any provision in any contract, including insurance policies, for any purpose. The court rejected public policy arguments made in favor of finding coverage under a policy provision that covered “collapse” in that particular case. The Court held that coverage depends on the language in the policy and the facts of the case.
In the insurance world, an institution called the “Insurance Services Office, Inc.” (ISO) is the leading global provider of insurance tools, analytics and recommended policy language for use by insurance companies. The ISO helps insurers analyze risk, so that they can price their policies accurately. The ISO also provides a range of services to various players in the insurance marketplace, such as reinsurers, insurance agents, brokers, regulators and risk managers.
The current ISO Homeowners Insurance form explicitly states that the term “collapse” in a homeowner’s insurance policy is an abrupt falling down or caving in of a building or any part of the building. Furthermore, the falling down or caving in must result in the building or part of the building becoming unfit for its intended purpose. A building, or any part of a building, that is only in danger of falling down or caving in is not considered to be in a state of collapse.
In addition, the current ISO form for an all-risk policy of homeowner’s insurance states that any portion of a structure that is standing is not considered to be in a state of collapse. This is the case, even if it has separated from another part of the structure.
Keep in mind that if an insurer wrongly denies coverage for any given loss suffered by an insured, the insured may have grounds for a lawsuit alleging insurance bad faith. So, for example, if a person’s homeowner’s insurance company denies a claim for structural damage without investigation or without stating the grounds for the denial, the person should consult an insurance policy lawyer.
Or, if the insurance company offers to settle a claim for less than the total amount it should offer given the extent of the damage and the policy limits, again, a person should then consult an insurance lawyer.
Should I Consult a Lawyer?
Homeowner’s insurance and other property insurance policies can be complex and confusing. Additionally, each state has different laws regarding the interpretation of language in homeowner’s insurance policies. If your insurance company has denied coverage for a loss that you have suffered, you should consult an experienced insurance lawyer.
Your lawyer can analyze your policy and consider the exact policy language in light of what courts in your state have said about provisions regarding the “collapse” of structures. Your lawyer should be able to advise you as to whether or not you should pursue your insurance company for coverage in court.