There was more to be said about yesterday’s post: When is a Collapse Not a Collapse? The Importance of Proving Damages for Partial Losses. One item that should be understood is that the ISO changed the collapse peril language so that collapse cases before 2000 do not have an enlarged definition of “collapse,” and many cases after 2000 have the change.

The insurer’s brief correctly noted this subtle but extremely important change:

Presumably in response to the majority of court decisions addressing the undefined term ‘collapse,’ such as the Tennessee Court of Appeals decision in Rankin, the ‘Insurance Services Organization (ISO), a supplier of statistical, actuarial and underwriting information’, proposed changes to the language of collapse coverage to reflect an intended meaning of the term ‘collapse.’ Weiner v. Selective Way Ins. Co., 793 A.2d 434, 444 n. 44 (Del. Super. 2002). These proposed changes included, in part, the following: ‘Collapse means an abrupt falling down or caving in of a building or part of a building … a building that is in danger of falling down is not considered to be in a state of collapse …. [and] a 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.’

The insurance company won primarily because of this change in the definition requiring the actual abrupt falling of part of the building. When the policyholder only offered proof of the cost of the entire wall, some of which was standing and not defined as a collapse, the insurer won based on this pre-2000 definition change. The policyholder failed to itemize and prove the cost of the partial collapse.

As a practice pointer for attorneys who may stumble across this blog, one can subpoena documents and material from the ISO, as I have done on this issue long ago. However, most of the people making those changes are no longer around.

One lesson is that old court cases addressing policy language are often not applicable as the policy language changed because of those older cases.

Another point from yesterday’s post was the discussion of direct physical loss. Ever since COVID coverage cases generally found there was no “physical loss,” insurers, and especially their insurance defense attorneys, have been trying to expand this concept into non-COVID cases every chance they can. The appellate court noted this issue:

So what did the insurance policy cover? The policy states that Builders Mutual ‘will pay for direct physical ‘loss’ to Covered Property from any Covered Cause of Loss described in the Coverage Form.’ So, the question is: Whether (i) there was a “direct physical loss” (ii) to covered property (iii) from a covered cause of loss described in the coverage form.

The court then slammed the door shut on such nonsense by clearly indicating that deterioration was a direct physical loss:

In sum, the plain text and Tennessee courts’ interpretations of similar language indicate that ‘direct physical loss’ entails deterioration of a physical item that stems from a source.

Here, physical deterioration occurred when GCC’s workers cut a hole in the building’s west wall. Several bricks fell from inside the wall to the ground. That’s textbook direct physical loss.

The part of the court opinion which is flatly wrong is this statement:

To see why, return to the policy’s language. It covers ‘direct physical loss or damage … caused by collapse of all or part of a building or structure’ that was caused by ‘[d]ecay that is hidden from view.’ To recover under this insurance policy, Tahini and GCC thus need to make two showings. First, they must show that a collapse—as defined by the policy—occurred. Second, they must show that the collapse ‘caused’ the direct physical loss.

This is because the collapse peril is ipso facto a peril covered by the policy. If a collapse happens, it is physical damage and covered. While it must fit a definition of collapse, the opinion suggests that “collapse” may not be “direct physical damage.” That would be like saying that the policyholder would have to prove a fire occurred and that there was direct physical damage when fire is a named peril and, because of that fact, is direct physical damage.

However, if the court stated that the policyholder had to prove a fire occurred and the dollar amount of the physical damage from that fire, or that the collapse occurred and the policyholder had to prove the dollar amount of the physical damage from the collapse, that would be entirely correct. Fire and collapse are defined perils covered under the policy. If the policyholder cannot prove any dollar amount of damage from either of those perils that occurred, the policyholder cannot collect anything.

Collapse coverage is more difficult today than ever. It is a peril typically excluded and then covered as an exception if certain qualifications are met. The definition of collapse is much different than when I first started practicing law. The peril is not covered as much because of the definitional changes.

I suggest that those wanting to understand this peril also read an excellent post by Ed Eshoo, What Constitutes an “Abrupt Collapse”?

Thought For The Day

“You can’t help getting older, but you can definitely help collapsing onto the dance floor after one too many drinks.”
—George Burns