The Connecticut Supreme Court recently issued decisions in three cases resolving insurance coverage issues concerning the extent of coverage available for collapse of a building under property damage policies. As reported in previous entries, hundreds of homeowners in northeastern Connecticut suffered damage to their homes due to defective concrete supplied by J.J. Mottes Concrete Company and used to construct hundreds of homes and other buildings in northeastern Connecticut. The problem has been described by many as catastrophic. Based on published reports, investigations revealed that stone aggregate used in the concrete contained significant amounts of pyrrhotite, a mineral that oxidizes with the presence of water and oxygen. The oxidization process causes secondary minerals to form that subsequently expand and crack, which destabilizes the concrete supporting homes and buildings.
Numerous state and federal court cases were filed in Connecticut after homeowners filed claims for loss to their homes under their property insurance policies which were denied by insurers as not being covered under the policies. The cases resulted in multiple conflicting decisions on pretrial motions concerning coverage for collapse under various insurance policies. In three decisions issued on the same day, the Connecticut Supreme Court appears to have resolved some of the primary issues concerning coverage under property policies for claimed losses due to the defective concrete which will likely affect the many other pending claims.
In Karas v. Liberty Insurance Corporation, 2019 WL 5955947 (Conn. Nov. 12, 2019), the Connecticut Supreme Court addressed the degree of deterioration that is necessary in order to constitute a substantial impairment to the structural integrity of the concrete basement walls of the insured home in order to constitute a collapse. The Supreme Court had previously ruled that an insurance policy providing coverage for collapse which does not otherwise define the term “collapse” is sufficiently ambiguous to include coverage for any substantial impairment of the structural integrity of the building. Beach v. Middlesex Mutual Assurance Co., 205 Conn. 246 (1987). Many cases filed after Beach seeking coverage under the collapse provision of property policies, including the defective concrete cases in Connecticut, involved a dispute over the degree of deterioration necessary for there to be a substantial impairment to the structural integrity of a building in order to rise to the level of a collapse. In Karas, the insurance policy at issue insured against “direct physical loss to covered property involving collapse of a building or any part of a building” caused by certain perils. The policy provided, however, that a collapse “does not include settling, cracking, shrinking, bulging or expansion.” The Karas court ruled that the policy, like the policy in Beach, was sufficiently ambiguous to include coverage for a substantial impairment to the structural integrity of the building. The court concluded that the term “collapse” when not clearly defined in an insurance policy is fairly susceptible to being interpreted to not include mere settling or cracking but including settling or cracking which results in substantial impairment to a building’s structural integrity. The court ruled that the substantial impairment standard requires proof that the building is in imminent danger of falling down in order to constitute a collapse under the policy. The court reasoned that any other conclusion would nullify an exclusion in insurance policies that excludes coverage for losses related to settling, cracking, shrinkage, bulging or expansion, and it would strip the term “collapse” of its natural and ordinary meaning. Therefore, Connecticut law requires an insured to present evidence demonstrating that the building is in imminent danger of collapse in order to establish a collapse under a homeowner policy which provides coverage for collapse when a building has not actually fallen down. The court emphasized that whether the standard is satisfied depends on the facts of a particular case and the strength and credibility of the expert testimony adduced by the insured and the insurer, which in most cases will likely be questions for the jury or court at trial. In a companion case, the court emphasized that it must be shown that a building is in imminent danger of falling down or caving in so as to be in imminent danger of an actual collapse. See Vera v. Liberty Mutual Fire Insurance Co., 2019 WL 5955936 (Conn. Nov. 12, 2019).
Even though homeowners affected by the defective concrete issue may prove that their home is in a state of collapse under the substantial impairment standard, the Karas court ruled that coverage under property policies may be further limited for losses to basement walls. The policy at issue in Karas excluded collapse coverage for loss to certain fixtures or structures, including foundations. The insureds in Karas, like insureds in many other cases decided before Karas, argued that the severe cracking to the concrete basement walls of their home did not fall within the definition of a foundation excluded from the collapse coverage. The Supreme Court disagreed, concluding that the term “foundation” in the policy unambiguously includes the home’s basement walls and, therefore, the collapse exclusion for loss to a foundation applied to any foundation on the insured’s property.
The Karas decision will likely significantly affect the many other homeowners’ pending insurance claims for losses due to the defective concrete issue. The Karas court acknowledged the seriousness of the crumbling foundation issue in northeastern Connecticut. The court emphasized, however, that its sole role was to construe the homeowner policy at issue in accordance with the terms as applied to the facts of the case. You can read the court’s decision here.