Connecticut Legislation Requiring Homeowners Policies to Provide Coverage for Collapse and Mitigation Crumbles, But All Is Not Lost for Homeowners

By on July 27, 2016
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*Republished with permission of the Connecticut Law Tribune and The Insurance Coverage Law Bulletin.

A bill requiring homeowners insurance policies in Connecticut to provide coverage for the peril of collapse and mitigation undertaken to prevent all or part of a covered dwelling from falling down or caving in recently failed in the Connecticut Legislature. Following a very narrow 10-9 joint favorable report from the Insurance and Real Estate Committee, the Connecticut Legislature did not act on House Bill No. 5522, An Act Concerning Homeowners Insurance Policies and Coverage For The Peril Of Collapse (“HB 5522”). The demise of HB 5522 is significant for insurers since homeowners policies are not intended to serve as a home warranty or cover non-fortuitous/non-accidental losses, latent defects, improper workmanship/construction and defective materials. More significantly, HB 5522, aside from myriad coverage issues created by the bill’s language, would have likely resulted in premium hikes for Connecticut homeowners to cover what courts have repeatedly found to be uncovered claims.

HB 5522 would have required every insurance company delivering, issuing for delivery, renewing, amending, or endorsing a homeowners policy in Connecticut on or after the effective date (from passage of the legislation) to provide coverage for:

  1. the peril of collapse, including partial or total impairment of a covered dwelling’s structural integrity due to facts such as (a) hidden decay or (b) defective materials or construction methods used in constructing or renovating part or all of the building; and
  2. any mitigation taken to prevent all or part of a covered dwelling from falling down or caving in.

The impetus behind HB5522 is to provide insurance coverage to homeowners for the period of collapse and mitigation following the discovery of crumbling concrete foundations of numerous homes generally located in eastern Connecticut. The cause(s) of the crumbling foundations is unclear at this point, though it appears that the mineral pyrrhotite in stone aggregate used in the production of concrete is a factor in crumbling foundations. It has been alleged that degradation to foundations has happened over a period of years, and appears to impact homes built in the 1980s and 1990s. The crumbling concrete issue has spawned numerous individual and class action lawsuits by impacted property owners seeking coverage under their homeowners policies.

But All Is Not Lost

Despite HB5522’s loss of footing, the Connecticut Legislature overwhelmingly passed House Bill No. 5180/Public Act 16-25, An Act Concerning Concrete Foundations (“PA 16-25”). Governor Dannel P. Malloy signed the legislation on May 25, 2016. PA 16-25, which has various effective dates, establishes requirements concerning residential and concrete foundations, including: (1) establishing additional requirements to obtain a certificate of occupancy for a new residential or commercial building for which a concrete foundation was installed on or after October 1, 2016; (2) requiring municipalities, at the owner’s request, to reevaluate residential properties with foundations made from defective concrete; (3) requiring the Connecticut Department of Consumer Protection, after consulting with the Connecticut Attorney General, to investigate the cause(s) of failing concrete foundations and submit the report to the Legislature’s Planning and Development Committee no later than January 1, 2017; and (4) requiring executive agencies to maintain records concerning faulty or failing concrete foundations in residential buildings as confidential for at least seven years (notably P.A. 16-25 exempts these records from disclosure under the Connecticut Freedom of Information Act).

Additionally, on October 6, 2015, in response to the crumbling concrete issue, the Connecticut Insurance Department issued a formal notice (“Notice”) to all insurers writing homeowners insurance in Connecticut. The Notice informs insurance companies that they cannot cancel or non-renew a homeowner’s policy due to a crumbling foundation. The Notice specifically “directs that no insurer take any action to cancel or non-renew an affected homeowner’s insurance coverage as a result of a foundation found to be crumbling or otherwise deteriorating.” The Notice warned that any non-renewal action taken by an insurer be strictly in accordance with its underwriting guidelines and rules filed with and recorded effective by the Insurance Department.

The State Continues to Investigate

In July 2015, Connecticut Governor Dannel P. Malloy called on the Department of Consumer Protection and the Office of the Attorney General to conduct an investigation into the crumbling foundation issue. The focus of the investigation is to determine if there is a basis to initiate legal action under the Connecticut Unfair Trade Practices Act, based on the manufacture, sale or installation of concrete foundations in eastern Connecticut. As part of that investigation, the state has retained a civil engineer to take core samples from crumbling foundations in eastern Connecticut and test and analyze them to determine the cause of the deterioration and determine the number of impacted homeowners. At this point, the investigation has determined that pyrrhotite is a factor in crumbling foundations, and the investigation continues to search for other conditions that contribute to deteriorating foundations, but that it does not appear that any consumer protection laws were violated. And only a month ago the state reached an agreement with two eastern Connecticut companies taking concrete products off the residential foundation market until June 2017.

To view the CT Law Tribune article, click here.

Filed under Collapse, Construction Defect, First Party Policy

BREAKING: Connecticut Legislation Requiring Homeowners Policies to Provide Coverage for Collapse and Mitigation Crumbles

By on May 6, 2016
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A bill requiring homeowners insurance policies in Connecticut to provide coverage for the peril of collapse and mitigation undertaken to prevent all or part of a covered dwelling from falling down or caving in failed in the Connecticut Legislature. Following a very narrow 10-9 joint favorable report from the Insurance and Real Estate Committee, the Connecticut Legislature did not act on the bill. The demise of House Bill No. 5522, An Act Concerning Homeowners Insurance Policies and Coverage For The Peril Of Collapse (“HB 5522”), is significant for insurers since homeowners policies are not intended to serve as a home warranty or cover non-fortuitous/non-accidental losses, latent defects, improper workmanship/construction and defective materials. More significantly, HB 5522, aside from myriad coverage issues created by the bill’s language, would have likely resulted in premium hikes for Connecticut homeowners to cover what courts have repeatedly found to be uncovered claims.

HB 5522 would have required every insurance company delivering, issuing for delivery, renewing, amending, or endorsing a homeowners policy in Connecticut on or after the effective date (from passage of the legislation) to provide coverage for:

  1. the peril of collapse, including partial or total impairment of a covered dwelling’s structural integrity due to facts such as (a) hidden decay or (b) defective materials or construction methods used in constructing or renovating part or all of the building; and
  2. any mitigation taken to prevent all or part of a covered dwelling from falling down or caving in.

The impetus behind HB5522 is to provide insurance coverage to homeowners for the period of collapse and mitigation following the discovery of crumbling concrete foundations of numerous homes generally located in north-central and northeastern Connecticut. The cause of the crumbling foundations is unclear at this point, and it has been alleged that degradation to foundations has happened over a period of years, and appears to impact homes built in the 1980s. In July 2015, Connecticut Governor Dannel P. Malloy called on the Department of Consumer Protection (“DCP”) and the Office of the Attorney General to conduct an investigation into the crumbling foundation issue. Since that time, other state agencies, including the Insurance Department, Department of Banking, Department of Administrative Services, and Department of Housing, as well as federal, state and municipal officials, have worked with DCP on the issue. During this time, numerous individual and class action lawsuits have been instituted by impacted homeowners seeking coverage under their policies.

Also significant for insurers is that on October 6, 2015, in response to the crumbling concrete issue, the Connecticut Insurance Department issued a formal notice (“Notice”) to all insurers writing homeowners insurance in Connecticut. The Notice informs insurance companies that they cannot cancel or non-renew a homeowner’s policy due to a crumbling foundation. The Notice specifically “directs that no insurer take any action to cancel or non-renew an affected homeowner’s insurance coverage as a result of a foundation found to be crumbling or otherwise deteriorating.” The Notice warned that any non-renewal action taken by an insurer be strictly in accordance with its underwriting guidelines and rules filed with and recorded effective by the Department.

Filed under Collapse, Construction Defect, First Party Policy

Washington Supreme Court Defines Collapse in a Property Policy

By , and on June 25, 2015
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Until recently, Washington law on what constitutes “collapse” in a first-party property insurance policy has been unsettled. But that issue has now been resolved with the Washington Supreme Court’s answer to the Ninth Circuit Court of Appeals certified question on the definition of “collapse” as “substantial impairment of structural integrity.”

The Queen Anne Park Condominium in Seattle, Washington, was originally constructed in the 1980’s. In 2009, the Queen Anne Park Homeowners Association (“HOA”) discovered that the siding on the buildings 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 further stated that “[c]ollapse does not include settling, cracking, shrinking, bulging or expansion.” The term “collapse” was not defined in the State Farm Policy.

5-25The 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, the Court noted 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 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” meant “substantial impairment of structural integrity.” Mercer Place Condominium Assoc. v. State Farm Fire & Cas. Co., 104 Wn. App. 597, 17 P.3d 626 (2000).

Because the term “collapse” was ambiguous, the Court adopted a definition that is reasonable and most favorable to the insured, i.e. “substantial impairment of structural integrity.” The Court explained that the “structural integrity” of a building means a building’s ability to remain upright and that “substantial impairment” means a severe impairment. The Court stated that, “[t]aken 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.”

Because the newer collapse coverage forms usually define the term “collapse” as an actual falling down or caving in of a building or any part of a building, the Washington Supreme Court’s clarification on the definition of “collapse” will not be an issue. However, when the term “collapse” is undefined, the parties will likely engage in an expensive and prolonged battle of the experts as to what constitutes a building or part of a building to be “unfit for its function or unsafe,” and when such condition occurred.

 

Image courtesy of Flickr by Paul Sableman

Filed under Collapse, First Party Policy