Collapsed and Covered

SSKRP has been on the forefront of making favorable law for insureds on the issue of collapse. Two cases make this point.  

            In  401 Fourth Street,Inc. v. Investors Insurance Group, the insured’s building was bowing and in imminent danger of collapse. When it contacted its insurance company, it received a peculiar response. Wait until it falls, the company said, because we won’t pay you before then to prevent the harm that might come from the building’s fall.

 This was a case of first impression for the Pennsylvania Supreme Court. The state’s lower appellate courts had always ruled against the insureds on this issue, holding that collapse meant collapse not risk of collapse, even if such a holding created a dangerous dilemma for an owner of building in such a condition. The Supreme Court reversed, changing the law of collapse in the Commonwealth. The Court held that the reasonable expectation of an insured is that insurance policies cover claims that a building is about to collapse because of a covered event. In other words, the imminent risk of collapse is recoverable damage and no one should have to wait until further damage develops.

  The other case had an interesting twist. Christ Memorial Episcopal Church was the oldest and grandest of the churches in the Diocese of the Reformed Episcopal Church. It had been built in the last quarter of the nineteenth century and its elegant 171 foot steeple was the tallest structure in West Philadelphia. The steeple, however, was in serious disrepair. In fact, an engineering firm had recently determined it was in imminent danger of collapse. But unlike the building in 401 Fourth Street, this risk of collapse was caused by wear and tear which was not a covered cause of loss under the church’s policy with Guideone Elite Insurance Company.

There were only fifty members in the congregation and they could hardly afford the two million dollars it would cost to repair the steeple. Then on a hot August night, as if by divine intervention, lightning struck the steeple causing it to fall. The insurance company refused coverage claiming that the steeple was so weak from wear and tear the company should not have to pay the more than seven million dollars it would cost to replace the damage as new.

The issue for the court was a familiar one. What do you do when wear and tear weakens a structure but a covered event causes it to fall? The court found in favor of coverage. Even if wear and tear so weakens a structure it would fall soon anyway, if it falls because of a covered event, the company must pay, even if it would not have fallen had the structure been sound. An act of God, in other words, is a risk the insurance company assumes when it takes the church’s premiums.

Jeffrey Resnick