Today, the Washington Supreme Court provided much needed relief for policyholders faced with buildings that are structurally impaired, but have not yet actually fallen down. In Queen Anne Park Homeowners Ass’n v. State Farm Fire & Cas. Co., the Court resolved a long dispute in Washington (and in other states) concerning the appropriate definition of “collapse” in a property-insurance policy, holding that “collapse” means “substantial impairment of structural integrity of a building or part of a building.”
For a long time, insurers have argued that “collapse” (when undefined) means that a building or part of a building must actually have fallen down. The Washington Supreme Court flatly rejected that construction.
The Court looked to the tortured history of collapse claims, including the various definitions supplied by courts in other states, as evidence that “collapse” is ambiguous. The policyholder, with support from Ball Janik through an amicus brief, argued that “collapse” meant “substantial impairment of structural integrity.” The Washington Supreme Court found this to be a “reasonable definition because it comports with the commonsense meaning of ‘collapse,’ which is evident from it having been adopted as the definition of ‘collapse’ by many courts across the county.” The Court also noted that State Farm had applied that definition in a prior case, despite now arguing against it — an inconsistency that was not well-stomached by the Court.
State Farm suggested that anything less than a complete collapse would convert an insurance policy into a maintenance agreement. The Queen Anne Court summarily rejected this argument. Many insurers argue that they don’t intend to provide coverage for property damage that should be, in their mind, handled through a maintenance program. What they fail to realize (but must now accept) is that “collapse” caused by “hidden decay” is precisely within the coverage grant of many policies, and that such damage is fully insurable. We are hopeful that this opinion will cause insurers to reverse course and accept that unanticipated property damages are not “maintenance” issues.
Significantly, the Washington Supreme Court rejected any “immanency” standard in defining “collapse.” State Farm argued that, even if the Court accepted the “substantial impairment of structural integrity” standard, the “collapse” must nevertheless be “imminent” in order to trigger coverage. But the word “imminent” was not found anywhere in the policy to support such a construction. Even the dissenting opinion expressly acknowledged that accepting State Farm’s “imminent collapse” definition would “require reading an element of imminence into the policy.”
We believe that Judge King got it right when he noted in Schray v. Fireman’s Fund Ins. Co. (D. Or. 2005) that the controversy surrounding the definition of “collapse” began before the 1960s, and that “with this much warning, the insurer is capable of unambiguously limiting collapse if it so wishes to do so.” Queen Anne should serve as a stark reminder that unclear terms will not be interpreted in accordance with insurers’ unstated, secret intentions. If an insurer wants to limit its coverage, it should do so expressly, in clear and unambiguous language. Otherwise, insurers should honor their policy language and provide coverage that is consistent with the objectively reasonable expectations of the insured.