Washington Supreme Court Defines “Collapse”

In Queen Anne Park Homeowners Ass’n v. State Farm Fire & Cas. Co., the Ninth Circuit Court of Appeals asked the Washington Supreme Court to define what “collapse” meant under Washington law when that term was left undefined in an insurance policy.

Queen Anne Park Homeowners Association (the “HOA”) had an insurance policy from State Farm which provided insurance coverage for “collapse of a building or any part of a building caused [by] hidden decay.”  But the State Farm policy did not define collapse, other than stating that “collapse does not include settling, cracking, shrinking, bulging or expansion.”

In 2010, the HOA filed an insurance claim with State Farm alleging that the HOA’s condominiums had several areas of hidden decay that had reached a state of “substantial impairment of structural integrity” (“SISI”), which is a term of art in the insurance industry. State Farm inspected the two buildings and denied the claim, in part, because it determined that a collapse had not occurred during the period State Farm insured the HOA’s condominiums.  The HOA then sued State Farm in federal district court, which later granted summary judgment in State Farm’s favor. The HOA appealed and the Ninth Circuit submitted a certified question to the Washington Supreme Court, asking it to define the term “collapse” in the State Farm policies provided to the HOA.

The Washington Supreme Court reviewed three collapse standards adopted by other courts—actual collapse, imminent collapse, and SISI—and held that the State Farm’s policy term of “collapse” was ambiguous and must be construed in favor of coverage because undefined terms should be given their plain, ordinary and popular meaning.  For this reason, the court interpreted collapse to encompass SISI. According to the court, SISI means “impairment so severe as to materially impair a building’s ability to remain upright.”

The Court provided that SISI means “substantial impairment of the structural integrity of a building or part of a building that renders such building or part of a building unfit for its function or unsafe in a manner that is more than mere settling, cracking, shrinkage, bulging or expansion.”

This case is important because it creates a definition for “collapse” in insurance coverage cases if that term is left undefined.  Depending on the insurance policy language, the Court’s opinion may have an impact on homeowner, developers, contractors and insurance companies.