The Connecticut Supreme Court recently ruled that an insurance policy form, which had been reviewed by this Court in the past and which potentially provided coverage for crumbling foundations, requires the policyholders’ home to have actually collapsed or be in imminent danger of collapsing in order to provide coverage. This strict standard has effectively taken coverage away from any policyholders in Connecticut suffering from the pyrrhotite-affected concrete supplied by the J.J. Mottes Company.
In a troubling decision, the Connecticut Supreme Court dealt a devastating blow to Connecticut property owners whose properties were damaged as a result of foundations crumbling due to pyrrhotite-affected concrete. In doing so, not only did the Connecticut Supreme Court effectively terminate a multitude of litigation brought against insurance companies relating to concrete foundation claims in Connecticut, it also reversed longstanding legal precedent.
In Karas v. Liberty Ins. Corp., No. SC 20149 (Ct. Sup. Ct. Nov. 12, 2019), the Connecticut Supreme Court considered a request for certification made by District Court Judge, Hon. Stephan Underhill, in the underlying case. In addressing the longstanding precedent that collapse was defined as a “substantial impairment of structural integrity,” established in Beach v. Middlesex Mutual Assurance Co., 205 Conn. 246, 532 A.2d 1297 (1987), Judge Underhill requested the Connecticut Supreme Court determine, as a matter of law, what “substantial impairment of structural integrity” means, in the context of insurance policy language providing coverage for collapse. Prior to Judge Underhill’s request, whether a property had “substantial impairment” of its structural integrity was a question of fact finding, often revolving around expert testimony.
It is important to note that there are two different types of policy forms containing collapse coverage, one known as the “older version” and a second known as the “newer version.” The older version did not contain language requiring an insured building actually collapse or fall down. The older version is the policy language examined by the Court in Beach, where the Court determined that the building need only suffer a breach of the structural integrity and defined collapse to include “substantial impairment to structural integrity of the home.” The newer form, which was in likely issued in response to an increased number of decaying and crumbling foundation claims, requires that the insured building actually cave-in or fall down. This newer policy language defines collapse as, “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 current intended purpose.” For those policyholders who may have properly received and were aware of the newer policy language, their crumbling foundation claims were likely excluded from coverage given the requirement in the policy that the property actually “cave in.”
However, despite a substantial number of policyholders suffering from pyrrhotite-affected, crumbling concrete possessing insurance policies with the “old version” of the collapse language, coverage was not routinely provided for these claims, and many policyholders were forced to file litigation, arguing that coverage should have been afforded. Those policyholders often had experts who opined the property in question had sustained “a substantial impairment” to its structural integrity, bringing the claim within the coverage of the older form, based on the Beach decision.
In what appears to be a departure from the Beach decision, the Supreme Court’s decision in Karas holds: “to meet the substantial impairment standard, policyholders whose homes had not actually collapsed must present evidence demonstrating that the home nevertheless is in imminent danger of such a collapse.” The Court’s rationale was that to determine substantial impairment meant otherwise would: “not only nullify the exclusion contained in the plaintiffs’ homeowners insurance policy for losses related to ‘settling, cracking, shrinkage, bulging or expansion’ but would strip the term ‘collapse’ of its natural and ordinary meaning.” Whether or not a property is in imminent danger of collapse is dependent on the facts and strengths and credibility of both fact and expert testimony.
In rendering this decision, the Supreme Court tried to justify its ruling by arguing that its earlier decision in Beach somehow impliedly supported its argument. However, a careful reading of that decision and other decisions issued throughout the years demonstrates that the Court went far beyond what was necessary and may have set dangerous precedent for other claims and other policyholders in Connecticut.
For instance, in Roberts v. Liberty Mut. Fire Ins. Co., 264 F. Supp. 3d 394 (D. Conn. 2017), the District Court of Connecticut determined that the underlying decision in Beach did not require a structure to be in “imminent danger of collapsing” for it to be considered structurally impaired. Instead, relying on Beach, it held that coverage would be afforded if the structure “would have caved in had the plaintiffs not acted to repair the damage.” Id. at 409. This interpretation, while requiring more than just mere cracking and settling, is less stringent than the Karas decision in that it affixed no time element to an eventual cave-in or collapse. See also the Connecticut Superior Court decision in Dino v. Safeco Ins. Co. of Am., No. CV166010428S, 2018 WL 3518587 (Conn. Super. Ct. June 28, 2018), where the court rejected the insurer’s argument that the building must be in imminent danger of collapsing.
The Karas decision is a departure from Beach, in that the Beach Court rejected an “imminent danger” interpretation and noted that the insurance industries’ interpretation would effectively encourage homeowners to wait for the property to actually collapse before making a claim. In Beach, the Court said it would make no sense for an insurance company to not want to repair a property that had suffered an impairment of its structural integrity when a much more drastic or substantial claim would likely occur if the property actually collapsed. “Requiring the insured to await an actual collapse would not only be economically wasteful… but would also conflict with the insured’s contractual and common law duty to mitigate damages.” Beach, at n.2.
The Beach decision had been utilized by many practitioners of property insurance coverage throughout the State who were able to obtain coverage for policyholders whose property suffered hidden decay, rot, insect damage, and, as in the case of the foundation cases, hidden structural damage to the foundation as a result of decaying concrete. Consider, for example, a home infested by hidden termites or hidden rot. In the past, upon discovery of such damage, if the homeowner was able to demonstrate that the structural integrity of the home or a portion of the home was significantly impaired, it was entitled to coverage under the older policy language. Now, with the Supreme Court’s decision in Karas, that homeowner must demonstrate that the property is in “imminent danger” of collapse.
Any experienced practitioner of property insurance litigation or expert in the area knows that rot, insect damage, and other losses which effect homes, could take many years to actually cause the home to fall down or cave in, or put the property in such a state as to be characterized as in “imminent danger” of collapsing. The question is, under what circumstances would a collapse claim now be viable in Connecticut under the “old version” of collapse coverage? As the availability of the older forms is becoming increasingly rare, most policyholders will have the newer version which requires that the property actually cave-in. However, for those policyholders that may have the older version, the Karas decision now creates a new impediment to policyholders attempting to make a claim before their structure actually collapses– they will now have to demonstrate that it is in imminent danger of collapsing. The Court’s decision has taken potential coverage away from a number of Connecticut policyholders and represents another unfortunate step in the wrong direction regarding the rights of policyholders.
So what remedy is available for Connecticut policyholders with crumbling foundations? In 2017, Connecticut’s legislature established the Connecticut Foundation Solutions Indemnity Company (CFSIC) to help with the cost of repairing crumbling concrete issued caused by concrete mixtures found to contain pyrrhotite. Currently, in Connecticut, upwards of 35,000 homes are facing crumbling foundation issues due to the pyrrhotite-affected concrete. CFSIC was created to help cover the cost to fix these concrete issues. However, CFSIC only covers concrete work, and not any additional work homeowners may need to have done to their property to fully fix the issue. Further, CFSIC has limited funding each year to repair these homes, and is currently only slated to receive funding for five years, ending in 2022. The funding necessary to repair all these homes is currently unknown, but is expected to cost far more than the funds allotted to CFSIC.
Homeowners with crumbling foundations may apply for help with the cost at https://crumblingfoundations.org/. The website offers two application processes: Type 1, for those who have not yet begun repairing the crumbling foundation, and Type 2, for those who have already repaired the crumbling foundation and are seeking reimbursement. The CFSIC was planning on taking applications until February 29, 2020, pending the availability for funds for the year. However, given the development of COVID-19, homeowners should check their website for any updated deadlines. It is also important to note that if you are currently in litigation with its insurance company for coverage of the crumbling foundation, then your application will be put on hold until that litigation is settled or withdrawn.