Written by Attorney William O. Krekstein

Note: This article is an interpretation of current law and is offered for informational purposes only. This material is not legal advice and should not be construed or used as a substitute for the advice of an attorney.

The Pennsylvania Supreme Court has held that a common insurance policy provision providing coverage for collapse is ambiguous and will therefore apply to situations where damages are caused by imminent collapse as well as actual collapse. This holding definitively changes long-standing Pennsylvania law interpreting collapse coverage as insurers are now obligated to pay those claims where there is imminent collapse. The decision follows an ever-increasing list of jurisdictions willing to expand the common policy coverage for “risks of direct physical loss” to include even losses that have not yet occurred. As predicted by the dissenting opinion, this decision may form the basis for policyholders to seek further expansion of the scope of insurance coverage to include not only those losses that are real, but also those that are merely contemplated.

In 401 Fourth Street , Inc. v. Investors Ins. Group, 2005 WL 1688324 ( Pa. July 20, 2005), the policyholder submitted a claim due to the bowing of a parapet wall. The relevant policy provided coverage for “risks of direct physical loss involving collapse.” Though experts retained by both the policyholder and the insurer disagreed on the cause of the problem, both agreed that if repairs were not commenced immediately, the wall could completely collapse. Both parties filed cross-motions for summary judgment. The Court of Common Pleas of Montgomery County granted the insurer’s motion relying on numerous Pennsylvania cases that defined the term “collapse” as an actual falling down of the structure. Since the parapet wall had not fallen, there was no collapse coverage.

On appeal, the Pennsylvania Superior Court reversed the granting of summary judgment in favor of the insurer. 401 Fourth Street, Inc. v. Investors Insurance Group, 823 A.2d 177 ( Pa. Super. 2003). The court reasoned that since the policy language at issue contained terms such as “risks” and “involving,” the case was distinguishable from prior cases interpreting collapse coverage and these terms broadened the collapse coverage to include events less than a building falling to the ground. In a dissent from the majority opinion, Judge Joan Orie Melvin concluded that the term “collapse” did not include “bulging”, the term “risks” did not expand coverage and therefore the claim was not covered. Judge Melvin also expressed concern that the majority’s decision would open a floodgate of claims and provide coverage in every situation where there was some minor chance of collapse. Id. at 180.

The Supreme Court of Pennsylvania then granted allocatur to interpret the policy’s collapse coverage. Chief Justice Cappy, writing the majority opinion, noted that the court should not focus on the meaning of the term “collapse”, but rather on the entire policy provision providing coverage for “risks of direct physical loss involving collapse of a building or any part of a building.” Judge Cappy then analyzed the treatment of similar language by other jurisdictions including California, South Carolina and New Jersey [1]and found a growing trend that expanded collapse coverage to also include situations where there was a danger of imminent collapse. Concluding that the policy language was undefined and reasonably susceptible of more than one construction, the Court held that the phrase was ambiguous and would be construed in favor of the policyholder. Thus, the collapse coverage in the policy was held to include an “imminent falling down of a building or part hereof.” 2005 WL 1688324 *7.

In a dissenting opinion, Judge Saylor agreed with the majority’s approach broadening collapse coverage to include situations where there is danger of imminent collapse. However, he believed that this interpretation should be applied prospectively to future policies, rather than those currently in force where companies relied on previous case law upholding a more narrow interpretation. Though agreeing that collapse coverage includes situations where collapse is imminent, Judge Saylor did not believe that coverage should be extended for losses or expenses incurred in contemplation of future collapse. Reasoning that insurance coverage is meant to protect against fortuitous events and not in anticipation of future events, Judge Saylor believes that the decision may “have wider ranging consequences than it may anticipate.” Id. at *9.