Ed Eshoo received a positive decision this week with a finding that contained a collapse caused by hidden decay.1 The opinion has a complete analysis of the coverage because the insurer raised the normal set of objections to each element relating to the collapse coverage – it did not happen during the policy period, the falling floor does not constitute a collapse, the collapse was not total, and the collapse was not hidden.
The opinion noted the relevant policy language:
Causes of Loss – Special Form. (Id. at 86.) Subsection B.2.k. of that form it says:
“We will not pay for loss or damage caused by or arising from any of the following . . . Collapses, except as set out below in Additional Collapse Cover.”;
Section D., The Additional Collapse Coverage Provision, reads:
1. In the case of buildings:
a. Collapse means a sudden fall or cave-in of a building or any part thereof
building with the consequence that the building or part of the building cannot be used for intended purposes.
It then clarifies that:
b. A building or any part of a building that is in danger of falling or sinking is not considered to be in collapse;
c. A part of a building that is standing is not considered to be in collapse even if it has separated from another part of the building;
d. A standing building or any part of a standing building is not considered to be in collapse even if it shows signs of cracking, bulging, sinking, bowing, tilting, settlement, shrinkage or expansion.
The next subsection explains that Crum & Forster will only pay for direct physical loss or damage if the collapse is caused by, as relevant here:
b. Decay that is hidden from view, unless the existence of such decay is known to an insured before the collapse.
Given these insurance provisions, the court noted the policyholder’s burden of showing coverage:
Taken together, this means that, to meet its initial burden, J&J Fish must show that its floor “collapsed” (as defined in Crum and Forster’s insurance) as a result of “deterioration” that was both “hidden from view” and unknown to J&J Fish, and that this occurred sometime between October 3, 2019 and October 3, 2020 (when the policy was in effect).
The court judged that the event appeared to fit the definition of collapse:
When putting the pieces together, a “collapse” requires a sudden and unexpected fall or fall that renders at least part of a building unfit for its intended purpose.
Here, 25% of the building’s floor fell three and a half feet into the crawl space overnight. This destroyed the walk-in cooler and left J&J Fish with no place to store their food and therefore unable to operate their restaurant as intended. On its face this was a sudden and unexpected fall or falls which rendered part of the building unsuitable for use as a fish restaurant.
The insurer claimed that the collapse did not occur during the policy period. The court rejected this argument, stating:
That policy period ran from October 3, 2019 to October 3, 2020, which includes May 29, 2020, the date the slab floor collapsed. However, according to Dr. Wojnowski, based on the observable level of corrosion, the steel supports began to deteriorate more than 10 years before the collapse occurred. Crum & Forster uses this opinion to argue that no “loss or damage” has commenced during the policy period. But this links the corrosion of the steel beams to the collapse of the slab floor. An unhealthy diet can cause a heart attack, but the heart attack (and the corresponding bodily damage it causes) does not “start” the first time a small child puts a French fry in his mouth. In this case, the relevant “damage” began on May 29, 2020, when the restaurant floor collapsed, taking part of the walk-in cooler with it. It happened during the coverage period.
The insurer still argued that a collapse as defined in the policy did not occur and the court pointed out the fallacy of that argument:
It points to the limitations of the definition of “collapse” set forth in D.1.b.-d. The first of these limitations provides that a collapse does not include “[a] building or any part of a building which is in danger of falling down or sinking in.’ This means that a building or part of a building that may fall, or even is likely to fall in the future, is not in a state of collapse until that fall is realized. In other words, a structure like the Leaning Tower of Pisa is not in a “state of collapse.” This provision may have described and applied to the restaurant floor prior to the May 29, 2020 incident, but it does not reflect the status of the flat floor afterward. The provision can also describe and apply today also to other parts of the building than the flat floor. But the flat floor is clearly no longer a “danger of falling down” – that danger has long since passed; the floor has already fallen!
The insurer further argued that a collapse did not occur because the building was standing. The court assessed how this argument failed:
The second definitional limitation clarifies that “[a] part of a building which is standing, is not considered to be in collapse even if it has been separated from another part of the building.’ This activates the definition of “standing”. To ‘stand’ is ‘to maintain its position’….Presumably, then, a building that was vertically split so that its two newly formed sides remained upright but no longer moved would not be in a ‘collapse’ under the policy . That’s not what happened here. The flat floor did not maintain its position; it fell three and a half feet.
The insurer argued that the default was not concealed and the court again found against the insurer with the following reference to Where’s Waldo:
Crum & Forster next tries to escape by arguing that the collapse was caused by decay that was not “hidden from view” under Rule D.2.b. of the policy. No one disputes that prolonged exposure to moisture caused the flat floor’s steel support beams to decay, leading to the collapse. However, according to Crum & Forster, this decay was not “hidden from view” as it could be observed from inside the crawl space, which was accessible through a hatch outside the building. As part of his inspection, Dr. Wojnowski, equipped with a flashlight, entered the crawl space on all fours and observed the decay. But the problem with Crum & Forster’s argument is that “hidden” is a matter of degree. In common understanding, ‘hidden’ means ‘being out of sight or not immediately apparent’…Just because something can be seen when extraordinary efforts are made does not mean it is not hidden. In other words, something can be “visible” and also “hidden”. Take the title character of Where’s Waldo? series. He may not be invisible, but he is certainly hidden. Other courts have held similar views. Looks Olde Colonial Vill. Condominium. Council v. Miller’s Mut. ins. Co., no. CIV.A.99C-06-187-FSS, 2002 WL 122885, at *9 (Del Super. Ct. Jan. 28, 2002) (unpublished) (holding that the lapse was “hidden” when the only way to see it ” was to crawl into a narrow, unlit, unventilated mud crawlspace and shine a flashlight on the joists”). In the plain sense of the term, decay hidden in a cramped, unlit crawl space was “hidden from view.”
Insurance companies often use the “throw everything in the book” technique as excuses for not paying for collapse damages. As a result, each part of the collapse language must be carefully analyzed to show how coverage applies. This opinion is a classic example.
Congratulations to Ed Eshoo! Ed previously wrote a post on collapse coverage in What constitutes an “abrupt collapse”?and is clearly a collapse loss expert on the risk.
Our greatest honor lies not in never falling, but in rising every time we fall.
1 J&J Fish on Center Street v. Crum & Forster Specialty Ins. Co.No. 20-cv-1644 (ED Wis. Sept. 12, 2022).