In Hennessy v. Mutual of Enumclaw Ins. Co., A133592 (April 29, 2009), Oregon’s Court of Appeals adopted a “none of the above” approach to first-party “collapse” claims. The majority of jurisdictions that have considered the undefined term “collapse” have found coverage to be triggered by one of the following three circumstances: (1) a finding of substantial impairment to structural integrity, (2) a finding of an imminent collapse, or (3) an actual collapse, being an actual falling down and/or reduction to rubble. In Hennessy, Oregon’s Court of Appeals held that the undefined term “collapse” “requires only that an object fall some distance.” Thus, in Hennessy, a collapse was found where a portion of a building’s stucco exterior had separated from the building wall but had not yet fallen to the ground.
While some may criticize Hennessy as a liberal interpretation of “collapse” coverage, see dissenting opinion by Judge Landau (“I respectfully disagree with the majority that what is essentially a crack between a piece of stucco and the building to which it is adhered is a ‘collapse’ of that stucco”), the decision also represents a substantial victory for insurers with respect to the scope of coverage. Specifically, whereas the trial court had awarded the insured $98,859.03 to entirely replace the failed stucco system, the Court of Appeals reduced the award to $2,469.68 to reflect only those costs directly associated with repairing the “collapsed” portion of the stucco. Even though the parties had agreed that it was “reasonable and prudent” to replace all of the stucco that “was no longer attached to the underlying walls,” the court found that no “collapse” had occurred where the stucco was no longer properly adhered to the building but “had not moved or fallen.” Thus, repairs to those areas of the building were not necessitated by any “collapse” but by the hysteresis (grout decay) that had caused the adhesion to fail.
Prior to the Hennessy decision, insureds repeatedly argued in Oregon that once coverage is found the insurer must pay for all work that is necessary to complete the repair job in a “good and workmanlike fashion.” Thus, if, as the parties agreed in Hennessy, it was “reasonable and prudent” to repair all stucco while repairing the portion that had actually separated from the building, the insured would argue that the entire repair project should be covered. Hennessy stands for the proposition that although a broad scope of work may be “reasonable and prudent,” or even required in order for a contractor to complete the job in a workmanlike manner, coverage only extends to those repairs actually necessitated by a covered event. "Logically, this rule should not be limited to "collapse" claims but should extend to all first-party property claims, and potentially even to third-party liability claims. In most cases, a reasoned expert opinion will likely be helpful to properly limit an insured’s recovery pursuant to the Hennessy standard.