Ocean Winds Council of Co-Owners, Inc. v. Auto-Owner Insurance Company
Supreme Court of South Carolina, Opinion No. 25485, heard April 3, 2002, decided June 17, 2002. Justice Moore wrote for the Court; Toal, C.J., and Waller and Burnett, JJ., concurred; Pleicones, J., dissented in a separate opinion, which is printed below in full. The case came to the Court as a certified question from a federal district court. Our text comes from the Caselaw Access Project (case.law), Harvard Law School’s open archive of published U.S. case law. Removed: the reporter’s head-matter block — parallel-citation line, case caption, opinion number, court line, and the hearing and decision dates, all of which appear above — along with the counsel block and the Caselaw Access Project’s bracketed opinion labels. Counsel were W. Jefferson Leath, Jr., and Timothy W. Bouch of Leath, Bouch & Crawford, L.L.P., of Charleston, and W.H. Bundy, Jr., of Smith, Bundy, Bybee & Barnett, P.C., of Mt. Pleasant, for the plaintiff; Robert H. Hood, Robert H. Hood, Jr., and Deborah H. Sheffield of Hood Law Firm, L.L.C., of Charleston, for the defendant. Scan repairs, complete list: (1) “buflding” corrected to “building” in the certified question; (2) a stray period removed from “but has . not yet”; (3) a stray apostrophe removed from “The’ modern trend”; (4) “important to-note” rejoined to “important to note”; (5) a stray period removed from “construed it to. mean”; (6) a hyphen at the end of the dictionary quotation, “give way-”, read as the closing period, “give way.”; (7) the judges’ name lines bolded. Nothing else was altered. Note on the case name: the official reporter caption prints the insurer as “AUTO-OWNER INSURANCE COMPANY,” singular; the case is widely cited as “Auto-Owners.”
The full opinion
OCEAN WINDS COUNCIL OF CO-OWNERS, INC., Plaintiff, v. AUTO-OWNER INSURANCE COMPANY, Defendant.
Justice MOORE.
We accepted this certified question to interpret a property insurance policy providing coverage for “risks of direct physical loss involving collapse of a building or any part of a building.”
FACTS
Plaintiff (Ocean Winds) seeks payment from defendant (Insurer) under collapse coverage in its policy which provides:
- ADDITIONAL COVERAGES
d. COLLAPSE
We will pay for loss or damage caused by or resulting from risks of direct physical loss involving collapse of a building or any part of the building caused only by one or more of the following:
(2) hidden decay;
(3) hidden insect or vermin damage
Collapse does not include settling, cracking, shrinkage, bulging, or expansion.
Ocean Winds alleges its buildings have suffered “substantial structural impairment” from hidden decay as a result of water infiltration and termite damage although the buildings have not yet fallen to the ground. Insurer contends coverage is not triggered until the buildings have actually fallen to the ground. Ocean Winds commenced this action in federal district court which certified this question to us:
In order to trigger coverage [under the policy quoted above], is it required: 1) that the building or part of the building fall to the ground or be reduced to flattened rubble; or 2) that the building manifest substantial structural impairment, but has not yet fallen to the ground or been reduced to flattened rubble?
ISSUE
When is coverage triggered under the policy clause providing coverage for “risks of direct physical loss involving collapse?”
DISCUSSION
As noted by several authorities, the word “collapse” as used in property loss insurance policies has spawned much litigation. See generally Annot., What Constitutes “Collapse” of a Building Within Coverage of Property Insurance Policy, 71 A.L.R.3d 1072 (1976). The modern trend is to find the word “collapse” ambiguous and construe it to mean a “substantial impairment” of the building’s structural integrity. Courts finding the word unambiguous, on the other hand, have generally construed it to mean “a falling in, loss of shape, or reduction to flattened form or rubble.” See, e.g., American Concept Ins. Co. v. Jones, 935 F.Supp. 1220 (D.Utah 1996); Fantis Foods, Inc. v. North River Ins. Co., 332 N.J.Super. 250, 753 A.2d 176 (2000); Rankin v. Generali—U.S. Branch, 986 S.W.2d 237 (Tenn.App.1998) and cases cited therein. In light of this conflict, the federal district court asks this Court to decide which approach is appropriate.
First, it is important to note that most cases involve simply the use of the single word “collapse” and not the entire phrase at issue here: “risks of direct physical loss involving collapse.” As noted by one of the few courts to construe this exact phrase, it is even more ambiguous than the use of the word “collapse” alone. Doheny West Homeowners’ Ass’n. v. Am. Guar. & Liab. Ins. Co., 60 Cal.App.4th 400, 405, 70 Cal.Rptr.2d 260 (1997).
Courts construing this phrase have taken various approaches. Three have construed it to mean collapse must be imminent. Whispering Creek Condominium Owner Ass’n v. Alaska Nat’l Ins. Co., 774 P.2d 176 (Alaska 1989); Doheny West, supra; Fantis Foods, supra. “Imminent” means collapse is “likely to happen without delay; impending or threatening” and requires a showing of more than substantial impairment. Doheny West, 60 Cal.App.4th at 406, 70 Cal.Rptr.2d 260. Two courts have construed the phrase to mean “substantial impairment,” the most lenient standard, see Island Breakers v. Highlands Underwriters Ins. Co., 665 So.2d 1084 (Fla.App.1995); Rankin, supra; and two have required actual collapse, the most stringent. Fidelity and Cas. Co. of New York v. Mitchell, 503 So.2d 870 (Ala.Civ.App.1987); Heintz v. United States Fidelity and Guar. Co., 730 S.W.2d 268 (Mo.App.1987).
In our view, to construe the phrase “risks of direct physical loss involving collapse” as requiring actual collapse is too narrow an interpretation. This phrase is more expansive than the word “collapse” and appears to cover even the threat of loss from collapse. See Doheny West, supra. Further, as noted by courts rejecting the actual collapse standard, such an interpretation encourages an insured to neglect repairs and allow a building to fall, which is economically unsound and contrary to the insured’s duty to mitigate damages. See American Concept, supra; Royal Indem. Co. v. Grunberg, 155 A.D.2d 187, 553 N.Y.S.2d 527 (1990).
On the other hand, as courts rejecting the “substantial impairment” standard have noted, collapse coverage should not be converted into a maintenance agreement by allowing recovery for damage which, while substantial, does not threaten collapse. See Doheny West, supra; Clendenning v. Worcester Ins. Co., 45 Mass.App.Ct. 658, 700 N.E.2d 846 (1998).
We find a requirement of imminent collapse is the most reasonable construction of the policy clause covering “risks of direct physical loss involving collapse.” We define imminent collapse to mean collapse is likely to happen without delay. This construction protects the insured without distorting the purpose of the clause to protect against damage from collapse. The policy at issue therefore requires proof of imminent collapse for coverage to be triggered.
CERTIFIED QUESTION ANSWERED.
TOAL, C.J., WALLER and BURNETT, JJ., concur.
PLEICONES, J., dissenting in a separate opinion.
Justice PLEICONES.
I respectfully dissent. In my opinion, the policy as written is unambiguous, and requires collapse of a building to trigger coverage.
“Collapse” means “1. to fall down or fall to pieces, as when supports or sides fail to hold; cave in; shrink together suddenly[.] 2. To break down suddenly; fail; give way.” Webster’s New World College Dictionary 286 (Michael Agnes ed., 4th ed., McMillan USA 1999). While there can be little doubt when a building or a part thereof has collapsed, in my opinion there could be considerable debate as to when “collapse is likely without delay.” The majority’s construction of the policy replaces the unambiguous coverage-triggering event, collapse, with the ambiguous phrase “collapse is likely without delay.” I would opt for a dictionary definition of collapse, and require, as does the plain language of the policy, actual collapse to trigger coverage. Should an insured desire coverage for damage which substantially impairs the structural integrity of a building, but does not result in collapse, she can contract for such coverage.
What it decided
A Charleston-area condominium council said hidden decay — water infiltration and termite damage — had left its buildings substantially impaired structurally. The insurer said collapse coverage does not pay until a building has actually fallen down. A federal district court sent the question to the South Carolina Supreme Court with two choices: actual collapse, or substantial structural impairment.
The Court picked neither one. It adopted a third standard: imminent collapse, “define[d] … to mean collapse is likely to happen without delay.”
The reasoning runs on the exact words of the clause. The policy did not simply insure “collapse” — it insured “risks of direct physical loss involving collapse,” and the Court treated that longer phrase as the thing being construed. “This phrase is more expansive than the word ‘collapse’ and appears to cover even the threat of loss from collapse.” Requiring an actual fall would also be perverse: it “encourages an insured to neglect repairs and allow a building to fall, which is economically unsound and contrary to the insured’s duty to mitigate damages.”
Then the Court closed the other door just as firmly. “[C]ollapse coverage should not be converted into a maintenance agreement by allowing recovery for damage which, while substantial, does not threaten collapse.” And the Court adopted the imminence definition from a California case that says out loud what it costs the insured: imminence “requires a showing of more than substantial impairment.”
Justice Pleicones dissented, and his objection is a fair one — he thought “collapse” was unambiguous, and that the majority had traded a clear trigger for a vague one, since “there could be considerable debate as to when ‘collapse is likely without delay.’”
What it did NOT decide
It did not give Ocean Winds what it asked for. Ocean Winds pleaded “substantial structural impairment.” The Court called substantial impairment “the most lenient standard” and declined to adopt it. If someone hands you this case as authority that structural impairment triggers collapse coverage in South Carolina, they have not read past the first half. The Court also decided nothing about whether these particular buildings met the imminent-collapse test — this was a certified question about the legal standard, and the facts went back to the federal court.
It did not construe every collapse clause in South Carolina. The Court’s own framing is the limit: “most cases involve simply the use of the single word ‘collapse’ and not the entire phrase at issue here.” The holding is built on “risks of direct physical loss involving collapse.” A policy that insures bare “collapse,” or one that supplies its own definition — many forms written since this decision define collapse as an abrupt falling down or caving in, and expressly say a building in danger of falling down is not in a state of collapse — presents a different question that this opinion does not answer. Pull your own policy and read the collapse provision word for word before you rely on Ocean Winds.
It did not disturb the clause’s other limits. The additional coverage here reached collapse “caused only by one or more of the following,” and the two subsections printed in the opinion are hidden decay and hidden insect or vermin damage. The word doing quiet work is hidden. And the clause ends with a sentence policyholders should read twice: “Collapse does not include settling, cracking, shrinkage, bulging, or expansion.” Those are the very words a carrier’s engineer is likely to use for the symptoms of long-term decay. The Court did not address that sentence, and it did not decide how it interacts with the imminence standard.
It did not decide anything about claim handling, bad faith, or fees. This opinion answers one question of policy interpretation. It says nothing about what an insurer owes you in the way of investigation or timing.
Why it matters to policyholders
Collapse claims on older buildings and coastal condominium stock are usually won or lost on evidence, not argument, and Ocean Winds tells you exactly what the evidence has to prove: not that a wall is cracked, not that a floor is soft, but that collapse is likely to happen without delay. That is an engineering conclusion, and it needs an engineer.
Do not wait for it to fall. That instinct is understandable and it is wrong on both ends. The Court expressly refused to reward neglect, and it noted the insured’s duty to mitigate damages. Waiting also destroys the one thing that proves your case — the hidden condition itself. Document the decay while it is exposed: photographs with a scale in frame, moisture readings, probe results, member-by-member notes on which structural elements have lost capacity, and a dated engineer’s report that states a conclusion in the language of imminence rather than the language of impairment.
Watch the word “hidden.” The clause covers hidden decay and hidden insect or vermin damage. Anything in the file suggesting the condition was visible, known, or reported and left alone works directly against the coverage. So does maintenance history. Get your records straight early.
Expect the settling-and-bulging sentence. When an adjuster’s report describes the condition as settling, cracking, bulging, or shrinkage, that is not casual vocabulary — it is the exclusionary sentence in your own policy being quoted back at you. The answer is a structural opinion that speaks to load-bearing failure and likelihood of collapse, not one that describes appearances.
Know the South Carolina levers if the carrier stalls. South Carolina lists the claim-handling practices it prohibits in § 38-59-20, and § 38-59-40 gives a court power to award attorney’s fees against an insurer that unreasonably refuses to pay, after a 90-day demand. If the dispute becomes one about the amount rather than whether the coverage applies, the policy’s appraisal clause may be in play — and Harwell v. Home Mutual is a hard lesson in what happens to a policyholder who refuses a demanded appraisal.
One South Carolina rule specific to this kind of claim. Collapse work is contractor work, and the temptation is to let the contractor “handle the insurance.” South Carolina makes acting as both contractor and public adjuster on the same claim a felony — see the public adjuster chapter, §§ 38-48-10 through 38-48-160. Keep the roles separate.
A public adjuster’s part here is the record: inspect, bring in the right structural expert, document the hidden condition and the extent of the damage, price the repair, present the claim, and negotiate the amount. Deciding whether coverage applies at all is ultimately a court’s job, and a coverage lawsuit or a bad-faith action is attorney work that we refer out. More South Carolina claim law is on the state shelf.
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