The Washington Supreme Court has clarified the unsettled area of law on what constitutes “collapse” in a first-party property insurance policy in Washington by answering the following certified question from the Ninth Circuit Court of Appeals:
What does “collapse” mean under Washington law in an insurance policy that insures “accidental direct physical loss involving collapse,” subject to the policy’s terms, conditions, exclusions, and other provisions, but does not define “collapse,” except to state that “collapse" does not include settling, cracking, shrinking, bulging or expansion?
This case involved the Queen Anne Park Condominium in Seattle, Washington, which was originally constructed in the 1980s. In 2009, the Queen Anne Park Homeowners’ Association discovered that the siding on the building was leaking, which caused hidden decay. The building was insured by State Farm Fire and Casualty Company ("State Farm") from October 18, 1992 to October 18, 1998 ("Policy"). The Policy included a collapse coverage form, which provided coverage for “any accidental direct physical loss to covered property involving collapse of a building or any part of a building caused only by one or more of the following: … (2) hidden decay.” The collapse coverage form continued that “[c]ollapse does not include settling, cracking, shrinking, bulging or expansion.” The term “collapse” is an undefined term in the State Farm Policy.
The Washington Supreme Court held that the undefined term “collapse” is ambiguous because it is susceptible to more than one reasonable interpretation. In support of its holding that there is more than one reasonable interpretation of the undefined term, the Washington Supreme Court noted the fact that in Sprague v. Safeco Ins. Co. of America, 174 Wn.2d 524, 276 P.3d 1270 (2012), different definitions of “collapse” were proposed by the dissent (“to break down completely: fall apart in confused disorganization: crumble into insignificance or nothingness… fall into a jumbled or flattened mass”) and by the concurrence (“a breakdown of vital energy, strength, or stamina”). The Washington Supreme Court also noted that courts throughout the country have adopted different but reasonable definitions of “collapse” in insurance policies, i.e. Olmstead v. Lumbermens Mut. Ins. Co., 22 Ohio St. 2d 212,259 N.E.2d 123, 126 (1970) (“collapse” defined as “a falling down, falling together, or caving into an unorganized mass”); Am. Concept Ins. Co. v. Jones, 935 F. Supp. 1220, 1227 (D. Utah 1996) (“collapse” defined as substantial impairment of structural integrity); Buczek v. Cont'l Cas. Ins. Co., 378 F.3d 284, 290 (3d Cir. 2004) (“collapse” defined as substantial impairment of structural integrity that “connotes imminent collapse threatening the preservation of the building as a structure or ... health and safety”). In particular, the Court observed that in at least one other case, State Farm had agreed with the insured that the term “collapse” means “substantial impairment of structural integrity.” Mercer Place Condominium Assoc. v. State Farm Fire & Cas. Co., 104 Wn. App. 597, 17 P.3d 626 (200).
Because the term “collapse” was held to be ambiguous, the Court adopted the definition of “collapse” that is reasonable and most favorable to the insured, i.e. “substantial impairment of structural integrity.” The Washington Supreme Court concluded:
[W]e note that “structural integrity” of a building means a building’s ability to remain upright and “substantial impairment” means a severe impairment. Taken together, “substantial impairment” of “structural integrity” means an impairment so severe as to materially impair a building’s ability to remain upright. Considering the Policy as a whole, we conclude that “substantial impairment of structural integrity” means the substantial impairment of the structural integrity of all or part of a building that renders all or part of the building unfit for its function or unsafe and, in this case, means more than mere settling, cracking, shrinkage, bulging, or expansion.
Click here for the opinion.