Washington State has long been a jurisdiction with no judicial pronouncement as to the meaning of the term “collapse” in a property insurance policy, but that changed last Thursday when the state’s Supreme Court issued its decision in Queen Anne Park Homeowners Ass’n v. State Farm Fire & Cas. Co., 2015 WL 3795796, 2015 Wash. LEXIS 695 (Wash., Jun. 18, 2015). The court found that the term, as used in the insurance policy before it, was ambiguous. It then adopted a definition of “collapse,” but its use of uncertain terms in that definition may only lead to further ambiguity, and the likely result will be yet more expensive litigation concerning older policies that contain similar “collapse” language.
The Queen Anne Park Condominium in Seattle was insured by a State Farm policy against “accidental direct physical loss” unless excluded. The policy extended coverage to “any accidental direct physical loss to covered property involving collapse of a building or any part of a building caused by . . . hidden decay.” The coverage extension also stated that “collapse does not include settling, cracking, shrinking, bulging or expansion.” Other than that, however, the policy left the term “collapse” undefined.
In 2010, the Queen Anne Park Homeowners Association (HOA) presented the insurer with a claim under the policy for damage caused by hidden decay. HOA’s engineer found hidden decay in some shear walls and was of the opinion that the decay had substantially impaired the walls’ ability to resist lateral loads. The policyholder believed that the areas of hidden decay suffered a substantial impairment of structural integrity and that that constituted a “collapse” that was covered by the policy. After the insurer denied the claim (the building remained standing), HOA sued in federal court. The district court granted summary judgment to the carrier, and the insured appealed to the Ninth Circuit, which certified the following question of law to the Washington Supreme Court:
What does “collapse” mean under Washington law in an insurance policy that insures “accidental direct physical loss involving collapse,” subject to the policy’s terms, conditions, exclusions, and other provisions, but does not define “collapse,” except to state that “collapse does not include settling, cracking, shrinking, bulging or expansion”?
The insurer argued that “collapse” meant the structure’s complete falling to the ground, or at least a “significant falling or caving in that does not reach the ground.” HOA promoted a much broader collapse definition, arguing that “collapse” meant “substantial impairment of structural integrity.” The policyholder’s definition did not require an actual falling down or caving in nor did it require that the structure be dangerous or uninhabitable to be considered collapsed.
The Supreme Court decided that the term “collapse” in this insurance policy was ambiguous, meaning that it was subject to more than one reasonable interpretation. Instead of examining how or why the proposed definitions of the term were, or were not, reasonable, however, the court found ambiguity by relying upon the diversity of definitions for “collapse” in judicial decisions across the country. The court noted that some courts have defined “collapse” as a falling down, falling together, or caving into an unorganized mass, while others have defined it as substantial impairment of structural integrity and still others as an imminent collapse that threatens the preservation of the structure or health and safety. The court apparently assumed that these interpretations were all reasonable—because other courts had adopted them—and concluded that “collapse” therefore must be ambiguous.
The court referred to the established rule in Washington that undefined terms in an insurance policy must be interpreted according to the understanding of the average purchaser of insurance and that the terms should be given their plain, ordinary and popular meaning. Washington courts have traditionally referred to standard English dictionaries for guidance as to the plain, ordinary and popular meaning of undefined terms. Having stated the rule, the Supreme Court in Queen Anne Park cited to no dictionary definition, however, and it concluded that the undefined word “collapse” in the insurance policy was ambiguous “because it is susceptible to more than one reasonable interpretation, demonstrated by the range of reasonable definitions of ‘collapse’ adopted by various courts.” The court then concluded that HOA’s definition was reasonable and preferable to the insurer’s definition “because it comports with the common sense meaning of ‘collapse,’ which is evident from it having been adopted as the definition of ‘collapse’ by many courts across the country [.]”
The court’s reliance on differing definitions adopted in other jurisdictions is troublesome because it ignores the Washington court’s own precedent that specifically rejected the rule that a difference of opinion in the courts of other states is evidence of ambiguity. In Crunk v. State Farm, 106 Wn.2d 23, 719 P.2d 1338 (1986), five of the Court’s nine justices agreed that differences in other courts’ interpretations were irrelevant to the analysis. As explained by Justice Dore’s dissent:
[T]his state has never allowed other courts in other states to determine whether an ambiguity exists. . . . [T]his court has found terms in insurance policies unambiguous even though other jurisdictions have differed as to the terms’ meanings. To do otherwise would mean whenever two reasonable courts disagreed on the interpretation of a term in an insurance policy, the insured would prevail.
Having agreed with HOA on the definition of collapse and rejected the insurance company’s definition, the court acknowledged that the policy stated plainly that “collapse” had to mean something more than mere “settling, cracking, shrinking, bulging or expansion.” The court therefore concluded:
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.
The Queen Anne Park case provided the Supreme Court with an opportunity to clarify a contentious and confusing area of law. Unfortunately, the definition adopted by the court is likely only to perpetuate the confusion. The court neither discussed the meaning of the words “impairment” or “substantial” nor commented on the meaning of “unfit for its function.” Obviously, those words can take on a wide range of meaning in scope or degree. What is “substantial” to one person may in fact be insignificant to another. Some might consider a building to be “impaired” only if interior rot has progressed so far as to weaken its load-bearing structural members to the point of imminent failure, posing a danger to life. Others might regard a building to be “impaired” if some condition has reduced its useful life from 50 to 30 years even though the structure remains sound and fully-functional. These are very different meanings of “impairment,” which the Supreme Court left unaddressed.
The Queen Anne Park decision was not unanimous. Three of the Court’s nine justices dissented, finding no ambiguity in the term “collapse,” based on dictionary definitions, and determining that “substantial impairment of structural integrity” is far removed from the ordinary meaning of “collapse.”