Opinion
Civil Action No. CCB-07-1779.
June 2, 2008
MEMORANDUM
Defendant Millers Capital Insurance Company ("Millers") filed a motion for summary judgment against plaintiff 130 Slade Condominium Association, Inc. ("130 Slade") on the grounds that its property insurance policy (the "Policy") does not cover the damage to plaintiff's building. 130 Slade responded by filing a cross motion for partial summary judgment on the Policy coverage issue. The issues in this case have been fully briefed and a hearing was held on May 23, 2008. Because 130 Slade has satisfied the Policy coverage provisions concerning building "collapse," Millers' motion for summary judgment will be denied and 130 Slade's cross motion will be granted.
Because 130 Slade's cross motion concerns only the issue of Policy coverage and not determination of damages, the motion will be construed as one for partial summary judgment.
BACKGROUND
In October 2006, Jeannette Nesmith, a resident at 130 Slade, was in her condominium unit when she heard a loud noise sounding "like a truck had hit the building." (Pl.'s Opp. Mem. at Nesmith Aff., ¶ 3.) The next morning, Nesmith "noticed that the ceiling of [the] master bedroom had separated from the wall over the bed and there was a large crack in the wall." ( Id. at ¶ 5.) Nesmith contacted management at 130 Slade, and Kevin Merriman, a professional engineer, was asked to inspect the property.
On October 23, 2006, Merriman visited the six story 130 Slade condominium property, and upon inspection discovered that four corner columns supporting the building "appeared to be significantly deteriorated due to rust. The northwest corner column [had] failed in compression and [had] locally buckled approximately three inches down and three inches to the south. The column movement [had] resulted in cracking of the exterior brick at the corner, and cracking of the interior finishes within the corner units above the portico." (Pl.'s Opp. Mem. at Merriman Aff., ¶ 4.) Merriman added that to a "reasonable degree of probability" in his field, the building "was in danger of further collapse and had to be evacuated immediately." (Id. at ¶ 5.) According to 130 Slade, no one was allowed back into the building for two to three days until adequate shoring of the portico columns was installed and inspected by a structural engineer.
Well prior to this event, 130 Slade had entered into a commercial "Businessowners Policy" with Millers on October 6, 1999. The Policy generally provided that Millers would "pay for direct physical loss of or damage to Covered Property at the premises . . . caused by or resulting from any Covered Cause of Loss." (Def.'s Reply Mem. at Policy, § IA.) To analyze the provisions at issue here, it is important to clarify the structure of this somewhat confusing Policy. Section IA generally discusses the "Coverage" of the Policy, while Section IB deals with specific "Exclusions." Section IA ¶ 5 provides for "Additional Coverages," which includes "Collapse." More specifically, the relevant Policy provisions include:
IA ¶ 3 Covered Causes of Loss
Risks of direct physical loss unless the loss is:
A. Excluded in Paragraph B. "Exclusions in Section I"; or
B. Limited in Paragraph 4. "Limitations in Section I."IA ¶ 5 § d Additional Coverages — Collapse
(1) With respect to buildings:
(a) Collapse means an abrupt falling down or caving in of a building or any part of a building with the result that the building or part of the building cannot be occupied for its intended purpose;
(b) A building or any part of a building that is in danger of falling down or caving in is not considered to be in a state of collapse;
(c) A part of a building that is standing is not considered to be in a state of collapse even if it has separated from another part of the building;
(d) A building that is standing or any part of a building that is standing is not considered to be in a state of collapse even if it shows evidence of cracking, bulging, sagging, bending, leaning, setting, shrinkage, or expansion.
(2) We will pay for direct physical loss or damage to Covered Property, caused by collapse of a building or any part of a building that is insured under this policy, if the collapse is caused by one or more of the following:
(b) Decay that is hidden from view, unless the presence of such decay is known to an insured prior to collapse;IB Exclusions
2. We will not pay for loss or damage caused by or resulting from any of the following:
(i) Collapse
Collapse, except as provided in the Additional Coverage for Collapse. But if collapse results in a Covered Cause of Loss, we will pay for the loss or damage caused by the Covered Cause of Loss.
(1) Other Types of Loss
(1) Wear and tear;
(2) Rust, corrosion, fungus, decay, deterioration, hidden or latent defect or any quality in property that causes it to damage or destroy itself;
Believing its property had "collapsed" as defined by the Policy, 130 Slade promptly filed a claim with Millers. On December 18, 2006, Millers sent a letter to 130 Slade denying the claim and stating that "our investigation determined that your building has not collapsed and your damages resulted from wear and tear, rust, corrosion and deterioration. Therefore, your claim is not a covered loss and the above exclusions apply." (Pl.'s Opp. Mem. at 7.) 130 Slade subsequently filed this lawsuit.
Millers acknowledges that in insurance policies where the meaning of the term "collapse" is ambiguous, Maryland has adopted the minority rule in finding that "any serious impairment of structural integrity is a collapse within policy coverage." Kay v. United Pacific Ins. Co., 902 F. Supp. 656, 659 (D. Md. 1995) (citing Government Employees Ins. Co. v. DeJames, 261 A.2d 747, 751 (Md. 1970)). Millers argues, however, that Maryland case law does not preclude an insurance policy from explicitly defining and qualifying "collapse," whereby a structure must completely fall down or be reduced to rubble before triggering coverage. Millers then states that the Policy in question specifically defines "collapse" to require "an abrupt falling down by [sic] caving in of a building or any party of a building with the result that the building or part of the building cannot be occupied for its intended purpose." (Def.'s Mem. at 9 (emphasis added).) Critically, Millers appears to consistently misquote the Policy throughout its briefs in that the word emphasized above — "by" — is actually the word "or" in the Policy. Millers' counsel did not acknowledge this error found in both the initial motion and reply brief until specifically questioned by the court despite significant reference to the misquoting in 130 Slade's opposition brief. ( See Pl.'s Opp. Mem. at 9.)
Nevertheless, Millers further argues that the Policy excludes a building ". . . that is standing or any part of a building that is standing [as it is] not considered to be in a state of collapse even if it shows evidence of cracking, bulging, sagging, bending, leaning, setting, shrinkage, or expansion." (Def.'s Mem. at 9.) Millers then points to one of the exclusion paragraphs under section IB, which disclaims loss attributable to "rust, corrosion, fungus, decay, deterioration, hidden or latent defect or any quality in [the] property that causes it to damage or destroy itself." ( Id. at 10.) Finally, Millers asserts that because the building has continued to be occupied for its intended use, albeit with supports, it has not collapsed under the terms of the Policy.
In addition to identifying Millers misquoting of the Policy, 130 Slade notes that the definition of "collapse" in the Policy includes both "falling down or caving in." 130 Slade thus contends that the building did in fact "cave in." According to 130 Slade, hidden decay caused the building to "collapse," the collapse was sudden and accidental, and the building was immediately evacuated and remained uninhabitable until after adequate shoring of the columns had been completed. (Pl.'s Opp. Mem. at 11.) 130 Slade further argues that some of the qualifications and exceptions relied upon by Millers are inapplicable to the additional coverage "collapse" provision.
STANDARD OF REVIEW
Rule 56(c) of the Federal Rules of Civil Procedure provides that summary judgment:
shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.
The Supreme Court has clarified this does not mean that any factual dispute will defeat the motion:
By its very terms, this standard provides that the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact.Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986) (emphasis in original).
"The party opposing a properly supported motion for summary judgment `may not rest upon the mere allegations or denials of [his] pleadings,' but rather must `set forth specific facts showing that there is a genuine issue for trial.'" Bouchat v. Baltimore Ravens Football Club, Inc., 346 F.3d 514, 525 (4th Cir. 2003) (alteration in original) (quoting Fed.R.Civ.P. 56(e)). The court must "view the evidence in the light most favorable to . . . the nonmovant, and draw all reasonable inferences in her favor without weighing the evidence or assessing the witness' credibility," Dennis v. Columbia Colleton Med. Ctr., Inc., 290 F.3d 639, 644-45 (4th Cir. 2002), but the court also must abide by the "affirmative obligation of the trial judge to prevent factually unsupported claims and defenses from proceeding to trial." Bouchat, 346 F.3d at 526 (internal quotation marks omitted) (quoting Drewitt v. Pratt, 999 F.2d 774, 778-79 (4th Cir. 1993), and citing Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986)).
ANALYSIS
The plain language of the Policy in question here appears to provide coverage for the "collapse" event 130 Slade suffered in October 2006. Moreover, a survey of Maryland law concerning "collapse" provisions in insurance policies reveals that while insurance companies may be able to qualify or limit collapse coverage in a policy, any remaining ambiguity will be construed against the insurer by not requiring that a building be reduced to rubble before an insured party can invoke coverage. Therefore, even if the "collapse" provision in the Policy here were ambiguous, 130 Slade would still be entitled to partial summary judgment on the coverage issue.
A. Maryland Law
As a threshold matter, under Maryland law, courts determine the meaning of contract language by adhering "to the principle of the objective interpretation of contracts." ABC Imaging of Washington, Inc. v. The Travelers Indemnity Co. of America, 820 A.2d 628, 632 (Md.Ct.Spec.App. 2003). Because "[a]n insurance policy is a contract between the insurer and the insured," "where the language employed . . . is unambiguous, a court shall give effect to its plain meaning and there is no need for further construction by the court." Id. at 632-33. Where, however, the language of an insurance contract is ambiguous, "construction is for the jury . . . and the ambiguity is to be resolved against the company which prepared the policy and in favor of the insured." DeJames, 261 A.2d at 749.
In the context of ambiguous "collapse" provisions in insurance policies, the Maryland Court of Appeals adopted the liberal minority view by rejecting a complete "falling down" definition and finding that "ambiguity [in a policy] is resolved in favor of the insured by holding that any serious impairment of structural integrity is a collapse within the policy coverage." Id. at 751; see also Kay, 902 F. Supp. at 659. Millers points out, though, that DeJames quotes language from Travelers Fire Ins. Co. v. Whaley, 272 F.2d 288 (10th Cir. 1959), which indicated an insurance company could expressly define or qualify what constitutes a "collapse" event. Id. at 752. The Millers' Policy, however, does not define "collapse" to mean "reduced to rubble," as counsel attempts to suggest. As noted, "collapse" is defined, in part, as an "abrupt falling down or caving in of a building." The meaning of this provision is discussed below.
This liberal definition of "collapse" is both logical and practical. If a "collapse" provision does not provide coverage until a building has been reduced to rubble, then the insured has a perverse incentive to await such an outcome. Of course, the insured may have a duty to mitigate damages upon finding a defect that could result in a complete collapse, which would then severely limit the likelihood that an insured could ever recover under the insurance policy. See DeJames, 261 A.2d at 750.
B. The Policy 1. Coverage Provision
The plain language of the Policy in question appears to provide coverage for the "collapse" event experienced by 130 Slade. Section IA paragraph 5 provides for specific additional coverages of the Policy. Subparagraph `d' covers "Collapse," and as noted above, includes four elements that contribute to define the term. When read together, the elements appear to require an actual, abrupt, and major event that renders the building structure unusable.
The first element provides that a "collapse" means "[a]n abrupt falling down or caving in" event, which causes the building not to be occupied for its intended purpose. The ordinary meaning of "falling down" is clear, however, the Policy does not further define "caving in." Here, 130 Slade did not fall down, but instead appears to have "caved in," under its ordinary meaning, when the steel supporting column "buckled approximately three inches down and three inches to the south." (Pl.'s Opp. Mem. at Merriman Aff., ¶ 4 (emphasis added).) Indeed, even counsel representing Millers noted in his own handwriting in the margin of a copy of the Policy submitted to the court that "arguably, [130 Slade] did cave in." (Def.'s Mem. at Policy, at 4.) To the extent that the "caving in" language is ambiguous, even when informed by the remaining three elements of the subsection, the court adopts the "any serious impairment of structural integrity" definition of "caving in" as used to define "collapse." See DeJames, 261 A.2d at 751. A building that buckles three inches down and three inches to the south during an abrupt event, which renders the building unsafe and subject to evacuation, certainly suffers a serious impairment to its structural integrity. (See Pl.'s Opp. Mem. at Merriman Aff., ¶ 4.)
During the hearing, Millers' counsel did not discuss the "caving in" language of the Policy provision, but rather continued to argue that 130 Slade did not "fall down." Had Millers intended to limit policy coverage to situations where a building falls down into rubble, it could have done so.
When questioned on this point at the hearing, Millers' counsel did not attempt to explain the significance of his observation.
The second and fourth elements used to define "collapse" in the Policy provide that a building does not collapse if it is only "in danger of falling down or caving in," or if it shows "evidence of cracking, bulging, sagging, bending, leaning, settling, shrinkage or expansion." While these provisions could be seen as narrowing a "collapse" event to when a building actually falls down into rubble, that interpretation would render the "caving in" language meaningless. Instead, when read with the first element, these elements contribute to the interpretation that "caving in" requires an actual, abrupt, and major event that renders the structure unusable for its intended purpose. This interpretation is consistent with both the Policy language and the liberal definition Maryland law attaches to arguably ambiguous "collapse" provisions. See DeJames, 261 A.2d at 751 (finding a "collapse" provision with similar exclusionary language to be ambiguous); see also Weiner v. Selective Way Ins. Co., 793 A.2d 434, 444 (Del.Super.Ct. 2002) (adopting a "serious impairment of structural integrity that connotes imminent collapse" definition of collapse, and noting that the plaintiffs "could not reasonably have expected the Policy to cover mere impairment of structural integrity," but also that it "would be illogical to force the Plaintiffs to wait for the actual falling down of the Property before they could make a claim").
The third element provides that "[a] part of a building that is standing is not considered to be in a state of collapse even if it has separated from another part of the building." While this element may limit the extent of damages, it does not contribute materially to the application of the "collapse" provision for the purposes of granting summary judgment on the coverage issue.
In any event, the 130 Slade building was not just in danger of collapse or merely showing evidence of cracking, bulging, sagging, bending, leaning, settling, shrinkage or expansion. Instead, when Jeannette Nesmith heard a loud noise sounding "like a truck had hit the building," the building indeed abruptly "caved in." Therefore, under either the plain language of the Policy or the definition applied by Maryland courts to otherwise ambiguous "collapse" provisions, 130 Slade is entitled to coverage under the Policy.
Immediately following the four-element definition of "collapse," the Policy states that Millers will pay for direct loss or damage caused by a building collapse when that collapse is caused by "[d]ecay that is hidden from view." Here, the rust and deterioration to the columns that caused the structural deficiency appear to have been hidden from view by cosmetic architectural finishes. (See Pl.'s Opp. Mem. at Merriman Aff., ¶ 4.) Millers incredibly suggests that rust is not contained within the definition of decay. Decay has been defined as "[w]asting or wearing away, disintegration; dilapidation, ruinous condition." Norfolk Dedham Mut. Fire Ins. Co. v. DeMarta, 799 F. Supp. 33, 35 (E.D. Pa. 1992) (quoting IV Oxford English Dictionary, 332 (Clarendon Press, 2d Ed. 1989)). Merriman's affidavit notes that "[a]ll four columns appeared to be significantly deteriorated due to rust." (Pl.'s Opp. Mem. at Merriman Aff., ¶ 4.) It strains reason to suggest that the Policy's "hidden decay" language does not cover this damage. Indeed, little other than rust could cause decay to steel columns.
2. Exclusion Provisions
Millers further argues that subparagraphs `k' and `l' in the IB — Exclusions section of the Policy preclude coverage. Those sections exclude damage caused by "neglect" or by wear and tear, rust, corrosion, fungus, decay, deterioration, and hidden or latent defect.
Although the parties dispute the issue, under Maryland law "the burden rests on an insurer to establish the applicability of a particular exclusion from coverage." Warfield-Dorsey Co., Inc. v. Travelers Cas. Sur. Co. of Illinois, 66 F. Supp. 2d 681, 689 (D. Md. 1999).
The exclusions Millers points to, however, do not appear to qualify the "collapse" coverage offered by the Policy. First, subparagraph `i' of section IB excludes "collapse" from coverage, "except as provided in the Additional Coverage for Collapse" section. Thus, this subparagraph indicates that the additional collapse coverage is not modified or qualified by any of the other listed exclusions that apply instead to the general coverage provisions. Second, it would make no sense for subparagraph `l' to modify the collapse coverage, because then the collapse coverage would include "hidden decay," while the exclusion section excludes "decay" or a "hidden defect." Millers effectively conceded at the hearing that the exclusions do not modify the "collapse" coverage when counsel indicated that had 130 Slade completely fallen into rubble, because of the column rust, the Policy's "collapse" provision would have provided coverage. Therefore, the exclusion provisions relied upon by Millers do not modify the additional "collapse" coverage provided by the Policy.
Somehow, however, Millers continued to maintain that the exclusion did apply to 130 Slade, because the building did not completely fall down into rubble.
For the foregoing reasons, the court finds that the 130 Slade building suffered a "collapse" under both the plain language of the Policy and the liberal definition Maryland law applies to ambiguous "collapse" provisions. 130 Slade is therefore entitled to partial summary judgment on the issue of coverage.
A separate order follows.
ORDER
For the reasons stated in the accompanying Memorandum, it is hereby ORDERED that:1. the defendant's motion for summary judgment (docket entry no. 31) is DENIED; and
2. the plaintiff's cross motion for partial summary judgment (docket entry no. 32) is GRANTED.