WHAT DOES “COLLAPSE” REALLY MEAN?

Date: June 18th, 2015
Categories: Insurance, Litigation

Property insurance policies often include coverage for “collapse.” For many years, insurers have fought to limit collapse coverage to the rare occasions where a structure actually falls to the ground, while homeowners and condominium associations want coverage when they discover a building is structurally impaired and in danger of collapse. In a 5-3 decision, the Washington Supreme Court officially weighed in today on what the undefined term “collapse” means in an insurance contract under Washington law . . . sort of.

The case involved a two-building condominium in Seattle that was insured by State Farm. The Queen Anne Park Homeowners Association filed a claim with State Farm seeking coverage for “collapse,” a term the HOA believed meant “substantial impairment of structural integrity.” The claim was denied by State Farm, and litigation ensued.

The suit filed by the HOA sought declaratory relief as well as damages for breach of contract, and ultimately ended up before the Ninth Circuit Court of Appeals after the Western District of Washington issued a summary judgment ruling favorable to State Farm. The Ninth Circuit certified the following question to the Supreme Court:

What does “collapse” mean under Washington law in an insurance policy that insures “accidental direct physical loss involving collapse,” subject to the policy’s terms, conditions, exclusions, and other provisions, but does not define “collapse,” except to state that “collapse does not include settling, cracking, shrinking, bulging or expansion.”

Queen Anne Park Homeowners Ass’n v. State Farm Fire & Cas. Co., 763 F.3d 1232.

In answering this question, the majority opinion—authored by Justice Gonzalez—held that as for the State Farm policy before the Ninth Circuit, “collapse” means “substantial impairment of structural integrity.” In doing so, however, the Court specifically declined to adopt a fixed definition of “collapse” for all insurance contracts. The Court went on to hold that “substantial impairment” means “severe impairment,” and that as to the State Farm policy at issue, “substantial structural integrity” means “substantial impairment of the structural integrity of a building or part of a building that renders such building or part of a building unfit for its function or unsafe and, in this case, means more than mere settling, cracking, shrinkage, bulging, or expansion.”

Undoubtedly this is not the end of the “collapse” story in Washington, and the decision by the Court leaves open the question of what “unfit for its function” and “unsafe” mean in this context.

If you have any questions about this decision or other insurance coverage issues, please contact Zak McIsaac at zmcisaac@ashbaughbeal.com.