On June 18, 2015, the Washington State Supreme Court, in a 6‑3 decision, answered a certification from the U.S. Court of Appeals for the 9th Circuit on the issue of: What does “collapse” mean under Washington law in an insurance policy that does not define “collapse”?
Although the Supreme Court (Judge Gonzalez writing the majority opinion) purported not to adopt a meaning of “collapse” that would apply in all insurance policies, they did adopt a definition of “collapse” that means “substantial impairment of structural integrity” that has been adopted in several jurisdictions nationwide. In so doing, the court rejected the dissent’s proposal that the term “collapse” was unambiguous, and would only occur under an insurance contract when a building “falls, crumbles, or caves in.”
In the typical first-party commercial property or homeowners coverage, the policy does cover “collapse,” but that term is generally not defined. The collapse coverage is usually afforded in an “additional coverage” specifically provided for in the policy. This coverage extension does provide, however, that “collapse does not include settling, cracking, shrinking, bulging or expansion.”
The court’s decision in Queen Anne Park Homeowners Association v. State Farm Fire & Casualty Co. (No. 90651‑3) arises out of a claim filed by Queen Anne Park regarding a two-building condominium in Seattle. The Queen Anne Park Homeowners Association filed a claim with State Farm alleging that the condos had collapsed due to “a substantial impairment of the structural integrity of a portion or component of the building. Evidently, an engineer found “hidden decay” in some shear walls (plywood/ gypsum sheathings) which he opined substantially impaired the walls’ ability to resist lateral loads. State Farm denied the claim, stating that the building had not “collapsed” in any substantial way. The condo homeowners association filed suit in the Western District of Washington, which granted summary judgment in favor of State Farm. After an appeal to the 9th Circuit, they certified the above-referenced question to the Supreme Court.
Analyzing both its earlier decision in Sprague v. Safeco Insurance, 174 Wn.2d 524 (2012), as well as cases from other jurisdictions, the court held that the term “collapse” was ambiguous, as it was capable of several reasonable interpretations. Essentially, the court found that the term can fall within three general categories: Actual collapse, imminent collapse, and “substantial impairment of structural integrity.” Without any real analysis, the court determined that it would accept the definition of “collapse” as the one requested by the insured—substantial impairment of structural integrity. It determined this was reasonable as it had been adopted as the definition of collapse by many courts across the country, and evidently used by State Farm in at least one other case (Mercel Place Condo v. State Farm, 104 Wn.App. 597, 600 (2000)).
The Supreme Court rejected the dissent’s arguments that the term was unambiguous, and that the average purchaser of insurance would not interpret it to mean “substantial impairment of structural integrity,” but would consider something more akin to the general definition occurring when a building “falls, crumbles or caves in.” A complete collapse of the building to the ground was generally accepted as not being required, even by the dissent.
What is troubling about the majority’s decision in Queen Anne Park v. State Farm is their deferment of any analysis on their own part regarding what is ambiguous or a “reasonable interpretation” of a term such as collapse, but instead relying upon the mere fact that because other courts have differed in their rulings, “this alone demonstrates that ‘collapse’ is an ambiguous term.” Under this flawed reasoning, the mere fact that other courts (perhaps under different facts or law) have interpreted an insurance term differently means that our Washington court does not have to exercise its own legal judgment and reach its own interpretation or decision. Likewise, Judge Gonzalez seemed to rule that simply because there was a difference of opinion between a concurrence and dissenting opinion in the prior Sprague v. Safeco Ins. case, this also resolved the question as a matter of law that the term “collapse” must be ambiguous, since obviously both learned justice’s opinions in that case must have been “reasonable.”
The one saving grace of Judge Gonzalez’s opinion was his caution that “collapse must mean something more than mere “settling, cracking, shrinking, bulging or expansion.” He also noted that “structural integrity” of a building means the building’s ability to remain upright and “substantial impairment” means a severe impairment. Therefore, the definition as adopted means, “An impairment so severe as to materially impair a buildings ability to remain upright.” This would seem to require more than just a finding of substantial inability to “resist lateral loads,” but seems to require a finding that the building is imminently in danger of not remaining “upright,” and therefore “collapsing.” Coverage attorneys who are therefore making arguments based upon the Queen Anne Park v. State Farm case should argue that any opinion concerning the “substantial impairment of structural integrity” still requires evidence of an imminent or likely “collapse,” which only makes sense, since it requires a finding that something is not going to “remain upright,” which seems to imply the dissent’s definition of a building ready to “fall, crumble or cave in.”
Unfortunately, the court’s opinion will make virtually any “collapse” case one that is likely to be subject to conflicting expert opinions, a question of fact, and therefore the need for a full trial on the subject. We all know how that will end.
Brad E. Smith
- Insurance Coverage and Defense
- Commercial Litigation