Do's And Don'ts Of Adjusting Roofing Collapse Claims

I've spent much of the last two weeks flying around the country (as we "speak", I'm at O'Hare) and have consistently been surprised by how much of the ground beneath my plane is blanketed with snow!  

From the collapsed roof of the Metrodome in Minneapolis to the ice and snow that threatened to cancel last week’s Super Bowl, this year’s winter has taken a heavy toll. Nowhere has snow been a bigger problem than the Northeast, however, where the accumulated weight of several snowstorms since Christmas threatens roofs throughtout the region. As roofs weaken and collapse throughout the region, insureds are seeking coverage for their losses under homeowner’s and commercial property policies.  I asked my partner Bill Schneider, who heads up our first party group and is a smart guy to boot (CPCU, etc.) for some practical tips on how insurers should be looking at these claims.  Here are his thoughts:

Collapse claims present a variety of challenges to the loss adjustment process. Besides issues of coverage, collapse claims are extremely time sensitive because of the inherent danger of unstable buildings and the risk of further damage to covered property. Prompt coverage determinations and mitigation efforts can serve to expedite the loss adjustment to reduce ALE or business time element coverages. Accordingly, it is important to have a good understanding of the coverage and systematic approach in place to handle these losses.

Coverage for loss caused by collapse varies from coverage form-to-coverage form and from state-to-state. The following is intended to serve as a general overview about the peril of collapse and a discussion of the more common issues that arise in collapse loss scenarios.

Coverage for Collapse

Ordinarily, damage from collapse is excluded from the risks of direct physical loss insured by Coverage A in the standard homeowners insurance policy, as well as commercial property cause of loss forms such as the CP 10 30. However, most policies provide some form of additional coverage for loss caused by the peril of collapse, which applies on a limited, named perils basis only. For example, the Additional Coverage for collapse available in both the HO3 (04 91) and HO3 (10 00) forms, provide coverage for collapse caused by the weight of ice, snow and sleet, the main cause of the many recent roof collapses in New England. Similarly, most business and commercial property insurance policies will respond to collapse that results from the weight of ice and snow.

A threshold consideration is whether a collapse has actually occurred. Only where the loss is found to have resulted from the peril of collapse may an insurer rely on the exclusion and turn to the provisions of the additional coverage to determine its coverage obligations. In an “all risk” context, damage from the weight of ice and snow that does not involve collapse may very well be covered.

Check the Policy Form

When evaluating coverage for a collapse claim it is important to determine the specific policy form that governs coverage. For example, the HO3 (04 91) form does not define the term “collapse.” Instead, it only provides that “[c]ollapse does not include settling, cracking, shrinking, bulging or expansion.” Because there was no clear definition about what constituted “collapse” under this policy form, courts called upon to interpret the term collapse reached varying results. Some courts found the term unambiguous and ruled that collapse involves both a temporal element of suddenness and a visual element of altered appearance. Others concluded the term was ambiguous and held that mere "substantial impairment of the structural integrity" of a building is sufficient to constitute collapse.

ISO responded with additional structure and clarity for the peril of collapse in its newer property forms. For example, the 2000 edition of the HO3 policy form, as well as later versions of the CP 10 30 and standard Businessowners policy, more fully described what is and is not a collapse. This newer language provides that collapse is an “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 current intended purpose.” It further set forth circumstances that did not constitute collapse. Because the newer forms define collapse, older case law that interpreted the prior coverage forms does not offer much guidance to claim professionals evaluating coverage. Courts will hopefully construe the plain language of the newer collapse provisions to require that a building abruptly fall down or cave in to qualify as a collapsed building for purposes of coverage.

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Ninth Circuit Addresses the Meaning of "Ice" in an All Risk Property Insurance Policy

In Terminal Freezers Inc. v. U.S. Fire Ins., 2009 U.S. App. LEXIS 20321, an unpublished opinion issued on September 11, 2009, the Ninth Circuit Court of Appeals employed Washington law to examine the meaning of the undefined term “ice” as used in an “all risk” property insurance policy. In Terminal Freezers, the plaintiff, who runs a cold storage facility, made a claim for loss under three commercial “all risk” property insurance policies issued by U.S. Fire when areas of the facility were damaged by ice. U.S. Fire denied the claim. See Terminal Freezers, Inc. v. U.S. Fire Ins., 2008 U.S. Dist. LEXIS 48280 (W.D. Wash. June 23, 2008). Terminal Freezers’ claim involved two freezer warehouses, and the parties agreed that their construction was deficient in several respects, including that vapor retarders were not properly installed and caused excessive ice formation. Id. The district court granted U.S. Fire’s summary judgment motion brought on the grounds that the policy’s faulty workmanship exclusion precluded coverage, and that there is no coverage for damage caused by ice. Id.

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"Occurrences" And The First Party Policy

Despite the growing body of case law that has emerged in recent years construing the limits of coverage under CGL policies, there is still a surprising dearth of first party "occurrences" jurisprudence. 

Although most of the original "occurrences" cases involved disputes between policyholders and insurers in which policyholders sought a finding of multiple "occurrences" to trigger additional limits, most of the recent cases have falled into two different areas:  (1) disputes between primary and excess insurers over the applicable limits and (2) disputes with policyholders with respect to the number of SIRs for which the insured is responsible.

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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.

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Hurricane Ike Insurance Litigation: Will It Be As Bad As Katrina?

It didn’t take long for the first bad faith suits arising from Hurricane Ike to be filed in Texas.  Last week, the first two Ike bad faith lawsuits that I am aware of were filed in Galveston and Ft. Bend Counties. In Fort Bend County, a breach of contract suit was filed last week titled Gatesco Inc. v. Steadfast Insurance Company in which plaintiffs claim the insurer failed to pay policy benefits after its property sustained damages during Ike. On November 7th, an Ike bad faith lawsuit was filed in Galveston County titled Williamson v. Brown & Brown Insurance Services of Texas and Chubb Lloyds Insurance Company of Texas for alleged failures to pay Ike-related damages.  These are first of several thousand Ike lawsuits expected to be filed across Southeast Texas over the next several years. There doesn’t appear to be anything uniquely significant about them other than their apparently quick filing so soon after the storm.  The big question being asked by carriers across the country is whether Hurricane Ike will generate the type and volume of litigation generated by Hurricane Katrina. 

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Illinois Bars First Party Claim by Innocent Spouse

The Appellate Court has rejected a wife’s contention that she was entitled to coverage for the loss of the family home despite her husband’s conviction for arson. In Aurelius v. State Farm Fire & Cas. Co., No. 2-07-0266 (Ill. App. August 5, 2008), the Second District affirmed a lower court’s declaration that the homeowner’s policy unambiguously barred coverage for first party losses resulting from intentional acts by “you or any person insured under this policy.”

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Louisiana Supreme Court Upholds Flood Exclusion in Katrina Cases

On Tuesday, the Louisiana Supreme Court upheld the standard flood exclusion in the standard commercial property policy rejecting the claims of the citizens and business owners of New Orleans who claimed the flood exclusion was ambiguous and should not exclude "man made" disasters such as levee breeches or the failure to operate drain pumps.   In Joseph Sher vs. Lafayette Insurance Co., No. 07-2441, the high court of Louisiana was presented with an opportunity to evaluate the Fifth Circuit's determination of the same issue last  August in the consolidated Katrina Canal Levee Breech Litigation where the Fifth Circuit held the flood exclusion to be unambiguous and precluded coverage for the Katrina flooding in New Orleans under the standard homeowner's policy.   The Fifth Circuit's decision prompted plaintiffs' lawyers to select Sher to expedite an appeal through the Louisiana appellate courts in an effort to essentially "reverse" the Fifth Circuit's earlier decision.   The holding of the Louisiana Supreme Court actually echoed that of the Fifth Circuit when it ruled: "The entire English speaking world recognizes that a flood is the overflow of a body of water causing a large amount of water to cover an area that is usually dry land....[T]his definition does not change or depend on whether the event is a natural disaster or a man-made one....The plain, ordinary and generally prevailing meaning is all-inclusive."

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South Carolina's High Court Clarifies Rules on Construction Defect Coverage

Clarifying several rulings on coverage for construction defects, South Carolina’s Supreme Court ruled this week that a trial court did not err in determining that a CGL policy covered damages awarded to a homeowner in an arbitration against an insured contactor for water intrusion related to negligent application of stucco by a subcontractor. The court first clarified prior decisions and found that an “occurrence” is present where defective construction results in property damage. The court acknowledged that there was some confusion in the trial courts as to the difference between an “occurrence” of alleged negligent construction from negligent construction resulting in an “occurrence.” The court concluded that although “the stucco subcontractor’s negligent application is not on its own sufficient to constitute an “occurrence,” we find that . . . the continuous water intrusion into the home resulting from the subcontractor’s negligence qualifies as an “accident” involving “continuous or repeated exposure to substantially the same harmful conditions.” The court additionally rejected the insurer’s argument that the water intrusion damages were excluded under the policy as “expected or intended” damages as the insured contractor certainly did not intend for its subcontractor to perform negligently. Finally, the court allowed for recovery under the policy for that portion of the arbitration award concerning removal and replacement of the stucco stating this was necessary in order to remedy the extensive water intrusion damage behind the stucco and was therefore associated with remedying covered property damage.

New Hampshire Gives Effect To Anti-Concurrent Causation Wordings

Not one to get left behind while the Fifth Circuit and other Gulf Coast states make all the first party law on concurrent causation, the New Hampshire  Supreme Court has issued a new opinion upholding a flood exclusion in a homeowner's policy.

 

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No Coverage For Mold

Although winter storms may bring another round of mold claims, California appellate courts again have upheld the right of insurers to exclude coverage for damage caused by mold. De Bruyn v. Superior Court (Fire Ins. Exchg.) (2007) 07 C.D.O.S. 5019. The efficient proximate doctrine, which in California (unlike many states) constrains insurers in how they communicate what they want to cover and not cover, did not prevent the insurer in this case from excluding mold, even where the insurer agreed to cover water damage from sudden and accidental discharge of water from plumbing and household appliances.

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Efficient Proximate Cause Held Inapplicable To First Party Pollution Exclusion

Efficient proximate cause issues have been much in the news lately as insureds and insurers joust over wind-water and anti-concurrent causation clauses throughout the Fifth Circuit.  In an ew opinion, however, the Vermont Supreme Court has ruled that courts need not consider the efficient or predominant cause of a loss, much less ACC clauses, if the exclusion itself focuses on the nature of the loss, rather than its cause.

In Sperling v. Allstate Indemnity Co., 2007 VT 126 (Vt. November 9, 2007), a homeowner sought coverage for the cost of cleaning up oil that spilled out of a home heating tank in the insured’s basement after a suitcase fell on it breaking a valve through which oil passed on the way to the tank. Allstate denied coverage, citing an exclusion in the homeowner’s policy for loss to property caused by “vapors, fumes, acids, toxic chemicals, toxic gases, toxic liquids, toxic solids, waste materials or other irritants, contaminants or pollutants.”

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