On May 9, 2018, in an unpublished opinion, the Ninth Circuit held that the proverbial London Bridge should be near collapse for an insured owner to successfully obtain insurance coverage for same. In American Economy Insurance Co. v. CHL LLC, No. 16-35606, an owner appealed the district court’s decision in a declaratory coverage action regarding whether the owner’s building indeed collapsed pursuant to the definition of “collapse” in the relevant insurance policies. The Ninth Circuit relied on the Washington Supreme Court’s definition of collapse from its recent opinion, Queen Anne Park Homeowners Ass’n v. State Farm Fire & Casualty Co., 183 Wn.2d 485, 352 P.3d 790 (2015). Nationally, courts have struggled to conform to a single definition of collapse in the context of insurance coverage. This article briefly reviews the three main definitions of collapse, and what the Queen Anne opinion means for property owners in Washington.
In the Queen Anne dissent, Justice Fairhurst identifies the three main definitions of collapse that have been adopted by courts across the United States. The first definition is actual collapse. For example, in Century Mutual Insurance Co. v. Royal, 113 So. 2d 680, 683 (Ala. 1959), the court found there was no collapse coverage because there was actually no collapse or rubble on the site. Second, the slightly more relaxed definition is imminent collapse. In Doheny West Homeowners’ Ass’n v. American Guarantee & Liability Insurance Co., 70 Cal. Rptr. 2d 260 (Ct. App. 1997), the court opined that its slightly more lenient definition of collapse is consistent with the insureds’ reasonable expectation that they should not have to wait for their building to collapse to obtain coverage. The third major definition, as adopted by Washington, is substantial impairment of structural integrity. In Queen Anne, the court defined this standard for collapse as the “substantial impairment of the structural integrity of a building or part of a building that renders such building or part of a building unfit for its function or unsafe ….” 183 Wn.2d at 487. However, the court limited this generous coverage grant by stating that collapse must be something more than “mere settling, cracking, shrinkage, bulging, or expansion.” Id. In addition, the court emphasized that “‘substantial impairment’ of ‘structural integrity’ means an impairment so severe as to materially impair a building’s ability to remain upright.” Id. at 492. The courts’ adoption of these definitions has major coverage implications for property owners, because what may constitute a covered claim in one state may not be covered in the next.
Despite the Washington Supreme Court’s adoption of a more liberal collapse standard, and Washington’s reputation for being a pro-insured state, property owners are forced to speculate as to what types of property damage actually constitute collapse under the “substantial impairment of structural integrity” standard. Under Queen Anne, we know that the damage to a building must be more than cracking, shrinkage, bulging, or expansion. Likewise, the damage must be severe enough to materially impair the building’s ability to stay upright. On the other hand, the building does not have to actually crumble into a pile of rubble for collapse to occur. These guidelines are unclear and leave insured owners with damaged buildings in a precarious position regarding coverage. Under the current legal authority, it would appear that owners do not have to wait until their buildings collapse, but they do have to wait until the structural integrity of their building is seriously in question. So, to obtain “collapse” coverage, an informed owner should engage legal counsel and a structural engineer to determine whether the condition of the building in question satisfies the “collapse” standard.
