Second Circuit Finds Ambiguous "Collapse" Coverage
The debate over whether “collapse” coverage extends to buildings that are in structural disrepair but have not yet fallen down has reached a new low in New York. The U.S. Court of Appeals for the Second Circuit has ruled in Dalton v. Harleysville Worcester Mut. Ins. Co., 07-3545 (2nd Cir. February 19, 2008) that a New York District Court erred in interpreting a first party policy’s coverage for “collapse” as being limited to cases involving “total or near total destruction.” Given conflicting New York rulings with respect to this coverage, the Second Circuit declared that “collapse” was ambiguous and should be extended to cover this case where hidden decay had substantially undermined the structural integrity of the insured’s property but had not yet caused it to fall.
The owners of a building in Brookly were ordered to vacate it by the New York Department of Buildings after hidden decay was found to have damaged a structural party wall. Harleyvsville disclaimed coverage on the grounds, among others, that there had not been a collapse. The U.S. District Court agreed, declaring that under New York law, a building must have suffered near or total destruction to have "collapsed."
On appeal, however, the Second Circuit declared that there was a conflict in the opinions of intermediate appellate courts in New York as to whether a building must have suffered "near or total destruction" to be covered or wheher coverage could arise due to a mere "substantial impairment of the structural integrity" of the building. In the absence of any clear statement by New York courts, the Second Circuit held that the language was ambiguous as being capable of two reasonable interpretatoins.
The Second Circuit also rejected Harleysville's contention that the policy required that the damage result from a "sudden" destructive force. The court noted the policy covered "hidden decay," which was unlikely to ever occur suddenly.
