Doheny West Homeowners' Ass'n v. American Guarantee & Liability Ins. Co.

• Decision Date: 23 December 1997
• Docket Number: No. B103415,B103415
• Citation: 70 Cal.Rptr.2d 260,60 Cal.App.4th 400
• Court: California Court of Appeals Court of Appeals
• Parties: , 97 Cal. Daily Op. Serv. 9673, 97 Daily Journal D.A.R. 15,421 DOHENY WEST HOMEOWNERS' ASSOCIATION, Plaintiff and Appellant, v. AMERICAN GUARANTEE & LIABILITY INSURANCE COMPANY et al., Defendants and Respondents.

Page 260

70 Cal.Rptr.2d 260

60 Cal.App.4th 400, 97 Cal. Daily Op. Serv. 9673,

97 Daily Journal D.A.R. 15,421

DOHENY WEST HOMEOWNERS' ASSOCIATION, Plaintiff and Appellant, v. AMERICAN GUARANTEE & LIABILITY INSURANCE COMPANY et al., Defendants and Respondents.

No. B103415.

Court of Appeal, Second District, Division 5, California.

Dec. 23, 1997.

Review Denied March 25, 1998.

Quisenberry & Barbanel LLP, John N. Quisenberry, Brian S. Kabateck, and David C. Parisi, Los Angeles, for Plaintiff and Appellant.

Ramsay & Johnson, Janice A. Ramsay and Joseph C. Gebara, Irvine, for Defendants and Respondents.

ARMSTRONG, Associate Justice.

In this case, we consider the scope of collapse coverage in a property insurance policy, an issue which has long been the subject of litigation in other states. The insurance policy before us covered "loss or damage caused by or resulting from risks of direct physical loss involving collapse of a building or any part of a building" resulting from specified causes. We reject the position of a number of states, that such a clause covers only "actual collapse," and agree with those states, and the trial court here, which find that such a clause covers actual or imminent collapse.

Factual and Procedural Summary ¹

Doheny West Homeowners' Association ("Doheny West") is the homeowner's association of a 151 unit condominium complex in West Hollywood. The complex has three levels of enclosed parking, topped with a deck, pool, hot tub, and pool room. Doheny West purchased an insurance policy for the complex from respondent American Guarantee & Liability Insurance Group and Zurich-American Insurance Group ² ("American Guarantee"). The policy, titled a "Commercial Package Policy," included property insurance. A section entitled "Causes of Loss--Special Form" listed a number of exclusions and some additional coverages. Among the exclusions were loss or damage caused by or resulting from "wear and tear;" "rust, ... deterioration, hidden or latent defect or any quality in property that causes it to damage or destroy itself;" "settling, cracking, shrinking or expansion;" "continuous or repeated seepage or leakage of water that occurs over a period of 14 days or more;" and inadequate or defective maintenance, materials, design, workmanship, and construction.

The policy also excluded coverage for collapse, except as provided in the provision entitled "Additional Coverage for Collapse." That additional coverage provided, "We will pay for loss or damage caused by or resulting from risks of direct physical loss involving collapse of a building or any part of a building caused only by one or more of the following: 1. The 'specified causes of loss' ... all only as insured against in this Coverage Part; 2. Hidden decay; ..." The policy defined "specified causes of loss" to include water damage, and defines "water damage" to mean "accidental discharge or leakage of water ... as the direct result of the breaking or cracking of any part of a system or appliance containing water...." The policy also provided that "collapse does not include settling, cracking, shrinkage, bulging or expansion."

In July of 1992, Doheny West hired a structural engineer, David Taubman, to inspect the pool and parking structure. Taubman observed substantial spalling and cracking of the girders, columns, and wall surfaces in the parking structure, especially in the area around the pool vault. In a July 25, 1992 letter to the Board of Directors, he reported that "After inspecting the above referenced swimming pool on July 22, 1992 and reviewing the building plans, I am strongly recommending that the pool be emptied of water as soon as possible. The damage is extensive and an earthquake of large magnitude could cause a complete collapse of the pool."

Doheny West drained the pool, repaired the pool and parking structure, and tendered the claim to American Guarantee. On July 29, 1993, after receiving a report from its adjusters, American Guarantee denied the claim.

Doheny West brought this lawsuit for breach of contract and bad faith, contending, inter alia, that the loss was covered under the additional coverage for collapse. Court trial was held on the breach of contract cause of action. Prior to trial, the court ruled on the contract interpretation issues. In the ruling challenged on this appeal, the court held that the "Additional Coverage for Collapse" covered actual or imminent collapse.

At trial, Doheny West presented expert testimony that the structure was in a state of imminent collapse. American Guarantee presented expert opinions to the contrary. The court found that Doheny West had not met its burden of proving that any part of the building was in a state of imminent collapse, and entered judgment for American Guarantee.

Discussion

The sole legal issue on this appeal concerns the trial court's interpretation of the collapse coverage. Both Doheny West and American Guarantee contend that the court erred in finding that the policy covered actual or imminent collapse, although they urge different coverage interpretations, with American Guarantee arguing that "collapse" means "actual collapse," and Doheny West contending that the policy covers substantial impairment of the structural integrity of a building. We find that the trial court's ruling was correct.

As both parties point out, the word "collapse," as used in insurance policies, has been considered by many courts throughout the country, for many years. One commentator has noted that "the collapse peril first appeared in property insurance policies in 1954. It is perhaps an understatement to say that it has 'spawned much litigation' since that time." (1 Cozen, Insuring Real Property (Matthew Bender 1997) § 2.02 p. 2-25; 71 A.L.R.3rd 1072.)

The case law falls into two general categories, with some courts adopting what we may for convenience's sake term a narrow definition of "collapse," and some adopting a broader one. Courts that adopt the narrow definition generally hold that the word "collapse" is unambiguous, ³ and that a building or part thereof has not collapsed unless it has fallen down or caved in. "The word 'collapse' is not one of art, but is unambiguous and is generally understood to have the meaning of to fall or shrink together, to cave in, to fall into a flattened, distorted or disorganized state." (Employers Mut. Cas. Co. of Des Moines, Iowa v. Nelson (1962) 361 S.W.2d 704, 708 [Texas law].) According to those courts, "the word connotes a complete change in a structure, where the building loses its distinctive character as a building" (Higgins v. Connecticut Fire Ins. Co. (1967) 163 Colo. 292, 430 P.2d 479 [Colorado law] ) or "a flattening or breaking down because of a loss of [the building's] structural rigidity or by falling into or against itself." (Sherman v. Safeco Ins. Co. of America (1983) 670 P.2d 16, 17 [Colorado law].)

American Guarantee asks us to adopt this rule. We cannot, however, interpret this policy to mean that there is coverage only if a building falls, and to exclude coverage for collapse which is inevitable but which has not yet taken place. First, as Doheny West argues, and many of the "broad definition" cases have pointed out, such an interpretation would require an insured seeking the benefits of its insurance coverage to neglect repairs and allow a building to fall, a course of action which could not possibly comport with the expectation and intent of the insured, or advance the best interests of the insured, the public, or even the insurer, if the actual collapse took place at a time which brought it under the insurer's coverage. As one court has said, such a construction "would be unreasonable, to say the least." (Royal Indem. Co. v. Grunberg (1990) 155 A.D.2d 187, 189-190, 553 N.Y.S.2d 527 [New York law]; see also Beach v. Middlesex Mut. Assur. Co. (1987) 205 Conn. 246, 532 A.2d 1297, 1300 [Connecticut law].)

Such an interpretation would also be inconsistent with the policy language. In many of the cases cited to us, the policy covers "collapse of buildings." (See Higgins v. Connecticut Fire Ins. Co., supra, 163 Colo. 292, 430 P.2d 479 [Colorado law]; Sherman v. Safeco Ins. Co. of America, supra, 670 P.2d 16, 17 [Colorado law].) Here, in contrast, the policy covers "loss or damage caused by or resulting from risks of direct physical loss involving collapse of a building."

Under California law, our task is to construe not merely a single word, "collapse," but the entire coverage clause. (Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1265, 10 Cal.Rptr.2d 538, 833 P.2d 545.) That clause cannot be said to be clear, explicit, and unambiguous, and thus must be interpreted to protect the objectively reasonable expectations of the insured. (Id. at pp. 1264-1265, 10 Cal.Rptr.2d 538, 833 P.2d 545.) We examine the clause with those rules in mind.

It is undisputed that the clause covers "collapse of a building," that is, that there is coverage if a building falls down or caves in. However, the clause does not limit itself to "collapse of a building," but covers "risk of loss," that is, the threat ⁴ of loss. Further, on its terms it covers not only loss resulting from an actual collapse, but loss "involving" collapse. Thus, with the phrases "risk of loss," and "involving collapse," the policy broadens coverage beyond actual collapse.

We do not, however, agree with Doheny West that those words broaden coverage to the extent that the clause covers "substantial impairment of structural integrity." First, we do not believe that an insured purchasing a coverage entitled "Additional Coverage for Collapse," would reasonably expect the policy to cover mere impairment of structural integrity. Further, the language of the policy when considered as whole does not support such an interpretation. This is so because the policy provides that "collapse does not include settling, cracking, shrinkage, bulging or expansion,"...