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July 2, 2019

Second Circuit Determines Gradual Deterioration of Walls Was Not a Covered Collapse Under Homeowner's Policy

In Carlson v. Allstate Ins. Co., Lees v. Allstate Ins. Co., and Valls v. Allstate Ins. Co., the US Court of Appeals for the Second Circuit, applying Connecticut law, recently determined there was no coverage under the collapse provision of a property insurance policy where the alleged loss was caused by the gradual deterioration of basement walls without a sudden or abrupt collapse event.

The issue in the three lawsuits, which have been referred to as the “crumbling concrete cases,” was whether the policies issued by Allstate (collectively, “the policy”) afforded coverage to Connecticut homeowners for the repair of basement walls that showed horizontal and vertical cracks but remained standing. The homes were constructed with allegedly defective concrete.

The homeowners filed claims with Allstate for the cost to repair the cracks in their respective basement foundations. Allstate declined coverage, and the insureds sued for a declaratory judgment, claiming the damage was caused by a covered “collapse” under the policy.

The policy was an “all-risk” policy that generally excluded collapse but contained an “additional protection” provision that provided coverage for the “entire collapse” of the building. The policy defined entire collapse as “a sudden and accidental direct physical loss” caused by hidden decay of the building structure or defective materials used in construction. The court granted Allstate’s motions to dismiss the lawsuits on the basis that the subject collapses were not covered under the policy since the subject losses did not constitute an entire collapse.

On appeal, the Second Circuit affirmed the dismissals. Applying Connecticut law, the court determined the gradual deterioration of the insureds’ basement walls was not a covered collapse under the policy. The court reasoned that since the policy explicitly defined collapse as a “sudden” event, the court was limited to the plain meaning of those terms in determining whether coverage existed. The court concluded the gradual erosion of the condition of the basement walls was not necessarily sudden or abrupt, and, therefore, under the narrow definition of collapse in the policy, no coverage was afforded. Finally, the court pointed out that although there may be coverage under the policy for gradual decay, there is only coverage under those circumstances if the gradual damage results in an entire collapse.

Although the Second Circuit’s holding is expressly limited to cases governed by Connecticut state law, it could have significant precedential value since the language in the Allstate policy for “collapse” coverage is similar to many other homeowners’ policies. Homeowners in Connecticut, as well as their insurers, should be aware of this decision.

If you have any questions regarding the content of this alert, please contact Arianna Kwiatkowski, associate, at akwiatkowski@barclaydamon.com or another member of the firm’s Insurance Coverage & Regulation Practice Area.

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