• Atlanta
• Boston
• Dallas
• Ft. Lauderdale
• London
• Minneapolis
• New York
• Oakland
• Philadelphia
• Washington, DC

by Kyle Espinola

During the underwriting process, carriers should review affirmative coverages not only to ensure consistency with applicable exclusions but also to make sure that the coverages themselves are internally consistent. Failure to do so can lead to litigated coverage disputes and developments in the law that are inconsistent with policies’ language and intent. A recent Massachusetts case is a cautionary tale.

The Life Skills Case

1.     Background

In Life Skills, Inc. v. Harleysville Insurance Company, the policyholder, a non-profit social service agency, discovered that its basement floor had “‘sunk’ between eight to twelve inches.” 744 F. Supp. 3d 124, 127 (D. Mass. 2024). Specifically, the floor “had sagged, was bouncing, and … had partially detached from the Property’s exterior wall.” Id. At the time the damage was discovered, the floor was holding two large kilns, weighing approximately 200 pounds. Id. The policyholder hired a contractor to investigate the loss. That contractor removed a section of the planking, exposing “deteriorated and compromised beams.” Id. The insured hired a second contractor to remove the remainder of the floor. Id. The second contractor subsequently discovered that “everything was rotted” and that the structural beams underneath displayed “severe deterioration.” Id. The policyholder then roped off the area to prevent further access and retained a structural engineer to design a temporary support system for the floors above as those also became unsafe for occupancy. Id. at 128.

The policyholder reported the loss to its property insurance carrier, which undertook a claim investigation. The adjuster inspected the site and “reported no issues regarding coverage.” Id. In his report, he concluded that the “weight of (2) kilns in the Workspace Area caused the flooring to collapse and cause [sic] damage to laminate flooring, subflooring, concrete anchor blocks, joisting and a foundation wall.” Id. A few days later, the adjuster e-mailed the policyholder to confirm that there was coverage for the damage resulting from hidden decay. That same day, the adjuster sent a letter detailing an actual cash value payment of $49,481.06 and requested that the policyholder submit any invoices related to demolition as costs were incurred. The policyholder later submitted an initial repair estimate of $264,000. Id.

Following an inspection by a forensic structural engineer, the insurer issued a reservation of rights letter, raising possible coverage issues and stating that payment on the previously issued check would be stopped. Id. Specifically, the insurer raised concerns about whether the observed facts and damage satisfied the policy’s criteria for “Additional Coverage – Collapse.” Id.

The forensic structural engineer’s report concluded that “the reported vertical displacement of the floor…was caused by long-term, on the order of decades, deterioration, in the form of decay of the floor structure’s timber beams.” Id. at 128-29. The report clarified that this “vertical displacement” was inconsistent with the International Building Code’s definition of the term “collapse.” Id. at 129. According to the report, a collapse occurs “when a structure or portion of a structure fall from their intended position onto the ground or floor below.” Id. Instead, the report found that the damage had been caused by “elevated levels of moisture in the crawlspace” which caused the floor to decay. Id.

Based upon the structural engineer’s report, the insurer issued a letter denying coverage. The denial was based on the conclusion that “[the] loss was caused by long term deterioration of the timber beams in the crawl space due to moisture,” a condition which was excluded under the policy. The insurer also emphasized the fact that the vertical displacement of the floor did not satisfy the policy’s definition of “collapse” and was not caused by an overloaded condition. The carrier’s denial letter cited not only the structural engineer’s report but also relevant policy provisions and definitions in “[The] Causes of Loss – Special Form.” Id.

After hiring a public adjuster who argued that the damage met the policy’s definition of “collapse,” the policyholder initiated litigation, claiming breach of contract and unfair claim settlement practices. The insurer filed a motion for summary judgment.

2.     Relevant Policy Language

The parties agreed that the relevant policy provision was “[The] Causes of Loss – Special Form” (CP 00 10 06 07). Id. The form provided, in relevant part:

A.       Covered Causes of Loss

When Special is shown in the Declarations, Covered Causes of Loss means Risks of Direct Physical Loss unless the loss is:

1.        Excluded in Section B., Exclusions; or

2.        Limited in Section C., Limitations that follow:

B.       Exclusions

***

1.        We will not pay for loss or damage caused by or resulting from any of the following:

***

                       d.   (1) Wear and tear

(2) Rust or other corrosion, decay, deterioration, hidden or latent defect or any quality in property that causes it to damage or destroy itself;

(4) Settling, cracking, shrinking or expansion

***

f.         Collapse, including any of the following conditions of property or any part of the property:

(1) An abrupt falling down or caving in;

(2) Loss of structural integrity, including separation of parts of the property or property in danger of falling down or caving in; or

(3)  Any cracking, bulging, sagging, bending, leaning, settling, shrinkage or expansion as such condition relates to (1) or (2) above.

Since collapse was an excluded cause of loss, the policyholder relied on the following additional coverage provision:

D.       Additional Coverage – Collapse

The coverage provided under this Additional Coverage – Collapse applies only to an abrupt collapse as described and limited in D.1. through D.7.

1. For the purpose of this Additional Coverage – Collapse, abrupt collapse means an abrupt falling down or caving in of a building or any part of a building with the result that the building or part of the building cannot be occupied for its intended purpose.

2. We will pay for direct physical loss or damage to Covered Property, caused by abrupt collapse of a building or any part of a building that is insured under this Coverage Form or that contains Covered Property insured under this Coverage Form, if such collapse is caused by one or more of the following:

a.  Building decay that is hidden from view, unless the presence of such decay is known to an insured prior to collapse;

***

3.        This Additional Coverage – Collapse does not apply to:

a. A building or any part of a building that is in danger of falling down or caving in;

b. A part of a building that is standing, even if it has separated from another part of the building; or

c. A building that is standing or any part of a building that is standing, even if it shows evidence of cracking, bulging, sagging, bending, leaning, settling, shrinkage or expansion.

Id. at 129-130.

3.     The Arguments.

At the heart of the parties’ dispute was the meaning of the term “collapse.” Section D.1 of the Additional Coverage – Collapse provision defined the term as “an abrupt falling down or caving in of a building or any part of a building with the result that the building or part of the building cannot be occupied for its intended purpose.” Section D.2 of that same coverage specified that an “abrupt collapse” must be caused by an insured peril, such as “decay that is hidden from view, unless the presence of such decay is known to an insured prior to collapse.”

The insurer, relying on section D.3 of the Additional Coverage – Collapse provision, argued there was no coverage for several reasons. First, it noted that the damage to the floor did not meet the policy’s definition of “abrupt collapse.” Second, it cited the fact that the exterior wall from which the floor detached remained standing and that several of the policyholder’s personnel and contractors continued to walk on the floor after discovering its displacement. Id. at 133. Finally, the insurer pointed to the testimony of the policyholder’s structural engineer who retracted his initial conclusion that the floor had collapsed. Instead, he clarified that the floor suffered a “structural failure due to rot and masonry deterioration” and that it did not qualify as an “abrupt collapse” because the floor did not end up “on the dirt.” Id. Alternatively, the insurer contended that coverage was excluded under the general exclusions Section B.f.(2) because the “presence of condensation of humidity, moisture or vapor” caused the floor to be damaged.

The policyholder argued there was coverage because the definition of “collapse” under the Additional Coverage – Collapse provision, unlike the international building code definition, included “partial collapse” and did not specify a minimum vertical displacement to qualify as a collapse. Id. Since the floor had partially detached from the exterior wall due to decay of which the policyholder had no knowledge prior to the incident, the insured argued that the building sustained an “abrupt collapse” because the damage was unexpected. Finally, the policyholder cited the fact that the building could no longer be occupied for its intended purpose, thereby satisfying the policy’s definition of a “collapse”.

4.     The Decision

The court denied the insurer’s motion for summary judgment with respect to the breach of contract claim based on its conclusion that the policy was ambiguous. Specifically, the court held that Sections D.1 and D.2 of the Additional Coverage – Collapse provision were logically inconsistent with Section D.3. The former sections described coverage for the “abrupt falling down of … any part of a building.” This, the court inferred, meant there was coverage for a “partial collapse” like the partial detachment of the floor from the exterior wall. On the other hand, Section D.3 arguably excluded coverage because, although the floor sagged, it did not completely collapse to the ground and remained standing. According to the court, accepting the insurer’s interpretation of these internal inconsistencies would restrict coverage solely to scenarios where an insured’s building is “flattened form or rubble.” Id. at 135. The court concluded that such a scenario would contravene what an objectively reasonable insured would expect to be covered. If the insurer intended for a “collapse” to require the entire building to fall to the ground immediately, the court held, it should have explicitly defined collapse accordingly in the policy.

Separately, the court held that the exclusion under Section B.f.(2) did not apply under First Circuit precedent. Specifically, in Easthampton Congregational Church v. Church Mut. Ins. Co., 916 F.3d 86 (1st Cir. 2019), the First Circuit held that where an Additional Coverage – Collapse provision is found to provide coverage or is found to be ambiguous with respect to coverage, the policy’s general exclusions do not apply. Here, because the court concluded that the Additional Coverage – Collapse provision’s internal inconsistencies rendered the provision ambiguous, the general exclusion B.2.f was found not to apply.

5.     Conclusion

The court’s holding in Life Skills was recently followed by another federal court sitting in Massachusetts in First Baptist Church in Newton v. Church Mut. Ins. Co., No. CV 23-10436-BEM, 2025 WL 1135439 (D. Mass. Apr. 17, 2025). While these federal cases are not binding authority, they suggest a troubling trend in the interpretation of Section D.

_________________________________

The opinions expressed are those of the authors and do not necessarily reflect the views of the firm or its clients. This article is for general information purposes and is not intended to be and should not be taken as legal advice.