By Lee S. Siegel, Esq.
The Connecticut Supreme Court unanimously concluded that there is no first-party property insurance coverage available for Connecticut homeowners’ crumbling concrete claims. Addressing certified questions from the United States District Court for the District of Connecticut and a direct appeal, the Court reached three critical holdings:
- When “collapse” is undefined in a homeowner’s insurance policy, it is sufficiently ambiguous to include coverage for any substantial impairment of the structural integrity of an insured’s home;
- The ‘substantial impairment of structural integrity’ standard requires proof that the home is in imminent danger of falling down; and
The term “foundation” unambiguously includes a home’s basement walls.
See Karas v. Liberty Ins. Corp., SC20149 (Conn. November 12, 2019); Vera v. Liberty Mut. Fire Ins. Co., SC20178 (Conn. November 12, 2019); and Jemiola v. Hartford Cas. Ins. Co., SC19978 (Conn. November 12, 2019).
Reaching these determinations necessarily lead the Court to conclude that insurers are not obligated to repair crumbling concrete foundations under homeowners’ first-party property policies, where the buildings remain upright and are safe to be occupied.
Some 35,000 homes in northeastern Connecticut face the potential for failed foundations due to significant amounts of pyrrhotite in their concrete. Pyrrhotite is a ferrous mineral that oxidizes in the presence of water and oxygen, forming expansive secondary minerals that crack and destabilize the concrete, resulting in premature deterioration The cracking starts small and takes 10 to, in some cases, over 30 years to appear. Horizontal cracks or cracks that splinter out like a web are common. As the concrete deteriorates, it becomes structurally unsound. The damage is irreversible, requiring a new pyrrhotite-free foundation. The concrete at issue originated from a quarry owned by the now defunct J.J. Mottes Concrete Company, mined from 1983 to at least 2010. The state’s investigation found that the quarry lies on a vein of rock “that contains significant amounts of pyrrhotite.” See https://portal.ct.gov/DOH/DOH/Programs/Crumbling-Foundations
Impacted Connecticut homeowners have tried numerous unsuccessful approaches to get their insurers to replace their foundations. See e.g., Mazzarella v. Amica Mut. Ins. Co., 774 Fed.Appx. 14 (2nd Cir. 2019)(reported in Coverage Pointers May 30, 2019); see also England v. Amica Mut. Ins. Co., 2017 WL 3996394 (D. Conn. September 11, 2017); and Sirois v. USAA Cas. Ins. Co., 342 F.Supp.3d 235 (D. Conn 2018)(collecting cases).
In this trio of matters, the Court dealt with two different policy definitions of collapse but reached the same outcome. In Karas and Vera, the Court addressed an older policy version, which included the following “collapse” coverage.
‘‘Collapse. We insure for 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: a. [Certain perils identified elsewhere in the policy, including fire, lightning, windstorm, hail, explosion, riot, civil commotion and volcanic eruption]; b. [h]idden decay; c. [h]idden insect or vermin damage; d. [w]eight of contents, equipment, animals or people; e. [w]eight of rain which collects on a roof; or f. [u]se of defective material or methods in construction, remodeling or renovation if the collapse occurs during the course of the construction, remodeling or renovation. Loss to an awning, fence, patio, pavement, swimming pool, underground pipe, flue, drain, cesspool, septic tank, foundation, retaining wall, bulkhead, pier, wharf or dock is not included under items b. c., d., e., and f. unless the loss is a direct result of the collapse of a building. Collapse does not include settling, cracking, shrinking, bulging or expansion.’’
In Jemiola, post-2005 policies issued by Hartford Casualty defined "collapse" as requiring an actual falling down or caving in of the home, so as to render it uninhabitable. Collapse requires "an abrupt falling down or caving in of a building or any part of a building" such that it "cannot be occupied for its current intended purpose.” The homeowner’s pre-2005 policies employed substantially the same terms as in Karas and Vera.
The evidence showed that the Karas’ home suffered severe bowing and cracking, requiring shoring of the basement walls. The Karas’ expert testified that he did not think he could ‘‘say within a reasonable degree of engineering certainty’’ that the walls will fall down ‘‘within the next 100 years.’’ The expert added, however, that is likely that the basement walls will collapse at some point, as portions are already crumbling and falling to the floor. In Veras and Jemiola, the evidence was essentially the same and experts testified that the basement walls will need to be replaced but could not predict when, or even if, they would collapse.
The insurers argued that the testimony failed to show that the homes were in imminent danger of falling down and, moreover, that the plaintiffs’ claims fell within an express exclusion for loss caused by collapse of the home’s foundation. The Court agreed.
Ambiguity of “Collapse”
The Court determined that despite expansive policy language dealing with collapse, that the pre-2005 policies were nonetheless ambiguous. Relying on its holding in Beach v. Middlesex Mut. Assurance. Co., 205 Conn. 246, 532 A.2d 1297 (1987), the Court found that the policy remained unclear that it intended to exclude from coverage collapse that ensues from unexceptional cracking but “later developed into a far more serious structural infirmity culminating in an actual or imminent collapse.” Accordingly, the Court found that the ambiguity permits coverage for settling or cracking that results in substantial impairment of a home’s structural integrity. (Citing, Agosti v. Merrimack Mut. Fire Ins. Co., 279 F. Supp. 3d 370, 376 (D. Conn. 2017) (‘‘the term collapse standing alone, is sufficiently ambiguous to include coverage for any substantial impairment of the structural integrity of a building’’ [internal quotation marks omitted]); Schray v. Fireman’s Fund Ins. Co., 402 F. Supp. 2d 1212, 1218 (D. Or. 2005) (‘‘the modern trend [is to] apply the collapse coverage if any part of the building sustained substantial impairment to its structural integrity’’)).
The Court rejected the carriers’ argument that collapse coverage is limited to only a sudden and catastrophic event. In fact, the Court traced coverage litigation over “collapse” prior to 1960. “Particularly with this much warning, the insurer is capable of unambiguously limiting collapse coverage [to a building reduced to a flattened form or rubble, namely, an actual collapse] if it wishes to do so.”
However, in construing the post-2005 Hartford policy, the Court, employing standard rules of policy interpretation, found that the more modern definition of collapse was clear and unambiguous. The Court wrote that Hartford succeeded where earlier policy’s failed, in that the post-2005 policies “leave no doubt that coverage for a collapse is triggered only by an abrupt falling down or caving in of the insured premises.”
Substantial Impairment Standard
The Supreme Court determined that the substantial impairment standard requires, not that the home be in shatters along the ground, but in imminent danger of collapse and be unsafe for its intended purpose. This requirement avoids the absurdity of requiring an insured to wait for an unsafe structure to actually fall, while not extending coverage beyond the terms of the policy. (Citing, among others, Doheny West Homeowners’ Assn. v. American Guarantee & Liability Ins. Co., 60 Cal. App. 4th 400, 406, 70 Cal. Rptr. 2d 260 (1997) (‘‘since any of the excluded causes could result in collapse if the initial damage was neglected for a long enough period, an [imminence] limitation is logically necessary if we are to avoid converting this insurance policy into a maintenance agreement,’’ and ‘‘[t]his construction of the policy . . . is consistent with the policy language and the reasonable expectations of the insured’’).
The policyholders argued that the substantial impairment standard should be satisfied by proof that the structure will eventually fall down, even in the absence of a present danger; and that the imminent danger construct renders the coverage illusory. The carriers instead argued that a process that spans years and decades is not a collapse. They wrote that, “[a] gradual process that may (or may not) result in a structure falling down at some indeterminate date decades from now is not a ‘collapse’ today.” Agreeing with the carriers, the Court reasoned that the policyholders’ position would strip ‘‘collapse’’ of its natural and ordinary meaning.
To meet the substantial impairment standard under Connecticut law, an insured whose home has not actually collapsed must present evidence demonstrating that the home is in imminent danger of collapse.
Under the post-2005 definition, Jemiola’s arguments notwithstanding, the Court found “that there is no plausible construction of the phrase ‘abrupt falling down or caving in . . . with the result that the building . . . cannot be occupied for its current intended purpose’ that reasonably encompasses a home, such as the plaintiff’s, that is still standing and capable of being safely lived in for many years—if not decades—to come.”
Foundation Includes Basement Walls
In a decision of first impression under Connecticut law, the Court rejected lower court and federal rulings that basement walls are not part of a foundation, as defined in a homeowner’s insurance policy’s exclusion for collapse of a foundation. The Court determined that Connecticut building codes and building professionals deem basement walls as part of a building’s foundation. The Court also found support in various dictionary definitions. And, finally, it found persuasive that Connecticut has used the term “foundation wall” when referring to a basement wall for over a century.
“We conclude that the term ‘‘foundation’’ in the plaintiffs’ homeowners insurance policy unambiguously includes the plaintiffs’ basement walls and that the collapse provision in that policy applies to any foundation located on the plaintiffs’ property, including the one beneath the plaintiffs’ house.”
These long-awaited decisions from the Supreme Court give critical guidance to the trial courts, carriers, and policyholders as Connecticut continues to face a crumbling concrete crisis. It appears now that the cost of repairs will not be borne by the carriers but rather by individual insureds; or help will have to come from the Legislature in Hartford (which, of course, is just another form of shared risk which will come from tax revenues instead of premium payments).