Saturday, September 5, 2015

"Collapse," Coverage, Clarity?

Equinox on the Battenkill Management Assn., Inc. v. Philadelphia Indemnity Ins. Co., 2015 VT 98

By Andrew Delaney

The parties in this case have really long names, so we’re just gonna nickname them Equinox and Philly right from the get-go. Equinox manages a condominium complex—say that ten times fast—and Philly insures it. A number of the condo units have cantilevered balconies. I’d imagine they’re a little nicer-looking than (though as you’ll soon learn, perhaps not as sturdy as) the ones in the picture, but the selection of you-really-don’t-have-to-pay-to-use pictures on the interwebs isn’t limitless.

Anywho . . . the balconies had some issues. The 2012 policy pretty broadly excludes defective workmanship, but covers “collapse” under an “additional coverage” endorsement. Collapse is not defined save for a few exclusions. I could get into the specific language but then we’d be here all day and I have to mow the lawn. You can always read the opinion for that.

When Equinox started a deck-replacement program in 2007, it found structural problems “including water damage to sheathing and studs behind lower-level exterior clapboards and cracking in several exposed joists” in one unit, and similar problems in other units. So they strengthened the balconies on the outside, but they didn’t do any inside work. 

Then, in 2012, one of the balconies “partially collapsed,” (Equinox’s term) and then another one—and Equinox discovered that the inside joists had some serious issues. So, Equinox filed a claim with Philly, asserting “that hidden decay had caused the damage.” 

The SCOV notes that the parties focused their investigatory efforts on the two balconies that were fallin’ apart. Equinox hired an engineering firm that basically said “There’s a lot of moisture infiltration and y’all should take the balconies out of service.” Then, lo and behold, one of the balconies actually fully collapsed.

Philly hired an engineering consulting firm that blamed the damage on poor workmanship, and Philly denied coverage. When Equinox asked Philly to reconsider and submitted photos and other evidence, the engineering firm basically said, “Okay—it was rot and deterioration of the joists.”

Philly denied coverage again. Philly’s position was: (1) it wasn’t a “collapse”; and (2) even if it was, the 2012 endorsement wouldn’t cover it because Equinox knew about the problems as far back as 2007. (I'm trying very hard not to get into my personal opinions about insurance companies and their relationship with bovine byproducts. I'm sure Philly is a very nice company.)  

So Equinox filed for declaratory judgment. If you’re not familiar with declaratory judgment, it’s pretty much what it sounds like. A party is asking a court to “declare” that something is legally a certain way—in this case, Equinox was asking the trial court to say, “Yes, there’s coverage under the policy for this kind of damage.”

Equinox filed a motion for summary judgment, arguing that: (1) “collapse” covered the damage; (2) the defective-workmanship exclusion didn’t apply; and (3) Philly’s you-knew-back-in-’07 claim had no factual support.

Not to be outdone, Philly filed a cross-motion for summary judgment, arguing that (1) non-enumerated causes contributed to the damage (defective construction, faulty design, poor choice of materials, and rot); (2) the balconies didn’t really “collapse”; and (3) the defective-workmanship exclusion does too apply, so nanny-nanny-boo-boo. Philly dug up a case from 1961 that looked pretty good for its “collapse” argument.

There were various factual disputes about the workmanship, but the trial court didn’t get into that. That 1961 case looked pretty good to the trial court and it went with that—no “collapse,” no coverage.

So Equinox appeals. The SCOV notes that it uses the same standard as the trial court on review of a summary judgment decision (#nodisputedmaterialfacts #judgmentasamatteroflaw), but if there are disputed material facts, it’s gonna kick it right back to the trial court. The SCOV also notes that figuring out an insurance contract is a pure question of law.

The SCOV starts of by noting that the policies (the one applicable here and the one in the ’61 case) are different. The ’61 policy covered all direct loss to the property by collapse; the policy here has language like “risks of direct physical ‘loss’ involving” collapse.

The SCOV says, “The difference in language is great.” But not like Frosted Flakes Grrreat!, like “big” or “huge.” The key difference here is that “collapse” alone is final—it means something has to actually collapse. When you throw in “risks” and “involving” it makes the language a hell of a lot broader. Thus, the SCOV concludes that the coverage on this policy is not controlled by the ’61 case, and the trial court messed up when it concluded that there was no coverage here.

The SCOV points to a South Carolina case, a Pennsylvania case, and a South Dakota case that support its conclusion on the applicability of the language. The SCOV acknowledges that some jurisdictions have gone super-stringent and others have gone super-lax. In the end, the SCOV takes a middle-of-the-road approach, holding that “‘a risk of direct physical loss involving collapse’ means a risk of imminent collapse.”

Because the trial court didn’t get into the factual disputes, the SCOV can’t do the whole coverage-does-or-doesn’t-apply-as-a-matter-of-law thing, and the case has to go back to the trial court. The SCOV even kind of lays out the trial court’s homework for it—including a list of things the trial court probably needs to figure out.

Justice Robinson dissents. She points out that the majority did well up to a point, but instead of giving actual guidance to the trial court by resolving the legal questions (such as whether the contract is ambiguous), the majority just kinda makes more work for everybody by not deciding the questions that—most likely—the SCOV is gonna have to take up on the next appeal.

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