Daily Development for Wednesday, November 7, 2001
By: Patrick A.
Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
prandolph@cctr.umkc.edu
WORDS AND PHRASES; "DECAY:" In the context of a
property insurance policy, "decay" does not include only weakness
caused by organic processes, but can include simple failure of structural
elements due to stress aand temperature changes over a fifty year period.
Stamm Theatres, Inc. v. Hartford Casualty Insurance
Co., 2001 WL 1337599 (Cal.App. 1 Dist.
10/31/2001)
This dispute involved the failure of certain roof supports,
leading to falling plaster and the imminent collapse of the building. The property had served as a theatre for
almost fifty years. When constructed,
the parties conceded, the roof support system met all relevant structural
standards and, as the court pointed out, indeed the roof had stood for fifty
years. Experts all conceded that there
was no indication of insect infestation or organic decomposition. They differed as to the precise cause of the
failure, but all agreed that a significant factor was simple expansion and
contraction, under stress, resulting from temperature changes over the
preceding decades.
Insurer won a summary judgment from the trial court, which
interpreted the insurance policy provision committing the company to pay for
structural problems resulting from "decay" to be limited to "rot
or decomposition" brought about by special foreign elements not part of
the ordinary environment in which the structure was expected to function.
The trial court stated: "the policy excluded shrinkage
or expansion which ostensibly results from moisture in the air." The court
reiterated that decay means the destruction of organic matter by rot or
decomposition, and concluded "the reaction of the wooden roof trusses at
the theatre to heat and moisture in the air that existed from the time of
construction onward is a wear and tear factor and not a catastrophe of the type
that the policy is intended to cover."
It commented that "moisture
in the air is not a foreign agent as humidity is a natural condition."
On appeal: Held: Reversed.
The California Court of Appeals bought the insured's
argument that the policy term "decay" is broadly synonymous with
deterioration, connoting a decline in strength or soundness. If ambiguity
arises from the narrower connotation of "decay" as rot or
decomposition, the court concluded, the ambiguity must be resolved against the
insurer, under the settled principles of sticking all ambiguity in insurance
policies to the insurer.
In the context of this property insurance policy, the
appeals court noted that the "rot" definition adopted by the trial
court excludes the deterioration of such common inorganic building materials as
cement, brick, stone, and steel. This immediately suggested, the court found,
an unduly narrow limitation, as a reasonable insured could surely expect
coverage if an imminent collapse was brought on by hidden decay in such
materials, which cannot "rot." While "decay" as applied to
wooden components may first bring to mind the notion of "rot," the
court noted, the broader connotation of gradual loss of strength is also an
ordinary meaning of the term, and is fully consistent with the intended
function of the policy term "hidden decay."
The court noted that the concept of "decay"
connoted a gradual deterioration. It
further pointed out that the insurer was liable only for structural failure as
a consequence of such decay.
Consequently, it concluded the insurance policy was not being turned
into a "maintenance agreement," but simply a guarantee against
catastrophic building failure due to hidden, gradual deterioration.
As to the policy exclusion for "wear and tear,"
the court held that this exclusion, by the policy's own terms, did not impose
or imply a restriction on the coverage for collapse caused by "hidden
decay." The "wear and tear" exclusion was followed immediately
by an exclusion for damage caused by "rust, corrosion, fungus, decay,
deterioration, hidden or latent defect or any quality in property that causes
it to damage or destroy itself." (Italics added.) Further, this exclusion
was subject to the more specific coverage for "collapse," where the
reference to "decay" appears. In response to the insurer's claim that
the broader definition to which the court came would essentially make the
insurer liable whenever a building failed from simple old age, the court's
answer is simply - write the policy better.
Comment: Ouch!!
Although the Editor generally is partial to sticking it to the insurers
whenever possible, since they dictate their own exclusions, entertain no
bargaining, and look for ways to limit coverage, the Editor grieves for the
insurer here.
It defies the Editor's imagination (and that's not easy) to conceive that the owner really thought that the failure of the roof trusses as a consequence of fifty years of ordinary temperature and and moisture was the kind of catastrophic incident covered by the property insurance policy coverage for "decay." Buildings wear out. That's a risk one takes when buying an old building. Insurers normally don't cover that risk without evaluating the building.
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