The United States District Court for the Southern District of New York was recently tasked with deciding on summary judgment whether: (1) a rooftop water tank and its supporting steel frame structure “collapsed” due to hidden decay, which would have been a covered cause of loss, or (2) the loss was caused by rust or corrosion, excluded causes of loss.
In Residential Management (NY), Inc. v. Federal Insurance Company, No. 11-cv-1206, 2012 U.S. Dist. LEXIS 113136 (E.D.N.Y. Aug. 10, 2012), the plaintiff building owner brought an action for breach of contract against its property insurer arising out of the denial of its claim for the alleged collapse of a steel frame that supported a fire suppression water tank located on the roof of the building. The parties filed cross-motions for summary judgment. The insured argued that the water tank and steel support frame collapsed, and therefore, it was a covered loss within the meaning of the policy’s “Additional Coverage for Collapse” (hereinafter the “Collapse Coverage”). The insurer argued that the insured did not meet its burden of proving that there was a collapse, as defined by the policy, when the facts showed that the steel support frame only shifted or tilted. Furthermore, the insurer argued that even if the insured was able to demonstrate that the displacement of the steel support frame and water tank constituted a collapse, plaintiff had failed to prove that the collapse was caused by one of the specified causes of loss found in the Collapse Coverage. Instead, the insurer argued that the expert evidence confirmed that the loss was caused by rust or corrosion, which were separately excluded losses under the terms of the policy.
In granting summary judgment in favor of the insurer, the court first held that the insured had failed to satisfy its burden to establish that an event occurred that met the unambiguous definition of collapse, as found in the Collapse Coverage. The policy’s Collapse Coverage defined collapse as the “abrupt falling down or caving in of a building or any part of a building with the result that the building or part of the building cannot be occupied for its intended purpose.” The definition of “collapse” further provided that the following were not considered to be a “collapse”:
- A building or any part of a building that is in danger of falling down or caving in is not considered to be in a state of collapse
- A part of a building that is standing is not considered to be in a state of collapse even if it has separated from another part of the building; and
- A building that is standing or any part of the building that is standing is not considered to be in a state of collapse even if it shows evidence of cracking, bulging, sagging, bending, leaning, settling, shrinkage or expansion.
After analyzing the circumstances surrounding the loss, the court ruled that the undisputed evidence established that the steel support frame and water tank remained standing, although in a leaning condition, and did not abruptly fall down or cave in at any point. Thus, a “collapse” as defined by this policy had not occurred.
Secondly, the court held that even if the insured had established that a “collapse” occurred, plaintiff failed to prove, as required by the policy, that the alleged collapse resulted from any of the specified causes of loss listed in the Collapse Coverage. More specifically, the policy provided that the insurer would pay for direct physical loss or damage caused by a collapse of the building, or any part of a building, if the collapse was caused by one or more of the listed specified causes of loss. The insured argued that the alleged collapse was the result of “decay that [was] hidden from view,” one of the specified causes of loss. In support of this argument, the insured relied on the testimony of the building superintendent, who stated that he had not noticed any corrosion, hence it was hidden decay. However, the court ruled that was insufficient evidence to prove that hidden decay actually caused the leaning of the water tank and its steel support frame. Instead, the court found that the insurer’s expert evidence supported a finding that rust and corrosion caused the shifting of the steel support frame. Therefore, the loss was excluded because the policy precluded coverage for “wear and tear” and “rust or other corrosion, decay, deterioration, hidden or latent defect or any quality in property that causes it to damage or destroy itself.”
As is evident from the above, the circumstances surrounding this loss were unique. The language of collapse coverage provisions and definitions of “collapse” can vary significantly between different policy forms and in some jurisdictions there is significant case law construing the definition of “collapse.” Here, the rationale for the court’s decision depended, in large part, on the specific policy language at issue and the unusual facts giving rise to the claimed loss, so it is always important to consult with counsel so that facts, policy language and law can be thoroughly evaluated.