Key Developments In Coverage Litigation 2009: Property

Author:Mr C. Tyler Havey and Kellyn J.W. Muller
Profession:Cozen O'Connor

Second Circuit Reverses Summary Judgment Award, Citing Conflict Among New York Intermediate Appellate Courts Concerning The Meaning Of "Collapse"

Dalton v. Harleysville Worcester Mut. Ins. Co., 557 F.3d 88 (2d Cir. 2009)

In Dalton, the Second Circuit Court of Appeals ruled that the trial court erred in interpreting a first party policy's additional coverage for "collapse" as being confined to cases involving "total or near total destruction." Noting that there was disagreement among the intermediate appellate courts of New York as to whether a building must have suffered "near or total destruction" to be covered or whether coverage could arise due to a mere "substantial impairment of the structural integrity," the Second Circuit concluded that the policy's collapse language was capable of two reasonable interpretations. Because of this ambiguity, coverage was allowed where hidden decay had substantially undermined the structural integrity of the insured's property but had not yet caused it to fall. The Second Circuit also rejected the insurer's argument that, to be covered, the loss or damage must result from a "sudden" destructive force. The court noted that the policy covered loss or damage caused by "hidden decay," which was inconsistent with a requirement that the loss occur suddenly.

"All-Risk" Policies Are Not Maintenance Contracts

MarkWest Hydrocarbon, Inc. v. Liberty Mut. Ins. Co., 558 F.3d 1184 (10th Cir. 2009)

In Mark-West, The Tenth Circuit Court of Appeals ruled that the costs incurred by an insured to comply with corrective action orders issued by the government following the failure of a bypass valve in a natural gas liquids pipeline are not covered by a demolition and increased cost of construction endorsement in all-risk property policy. While the question of coverage was largely decided on the basis of an exclusion for corrosion, the court's decision goes farther, explaining why a finding of coverage would be improper in light of the underlying purpose of "all-risk" insurance, which is to cover fortuitous losses. In particular, the court emphasized that "to read the policy as covering [the insured's] costs of complying with safety regulations would be to convert the parties' policy against unforeseen fortuities into a maintenance contract," which would have the unintended result of "misallocate[ing] the ordinary costs of doing business from the company to the insurer."

Dwelling Is "Vacant" And "Unoccupied" Despite Overnight Stays Once Every Two Weeks For Extended Period Of Time

Vushaj v. Farm Bureau Gen. Ins. Co. of Mich., 773 N.W.2d 758 (Mich. App. 2009)

Interpreting a standard vacancy provision providing that coverage was unavailable for loss occurring "while a described building, whether intended for occupancy by owner or tenant, is vacant or unoccupied beyond a period of 30 consecutive days," the Michigan Court of Appeals ruled that the terms "vacant" and "unoccupied" were...

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