Connecticut court’s concrete ruling could impact thousands

A federal district court in Connecticut has certified an insurance coverage question to the Connecticut Supreme Court that, once resolved, has the potential to determine whether homeowners or their insurers will have to pay for damage resulting from concrete that prematurely deteriorates (and was used in tens of thousands of homes in northeastern Connecticut).

The issue has been the topic of several hearings at the state capitol, and the case is being closely watched by insurance companies, agents, brokers, policyholders and regulators in both the Constitution State and across the U.S.

The case

Steven and Gail Karas sued their insurer, Liberty Insurance Corp., for denying coverage under their homeowners’ insurance policy for a loss to their basement walls that they contended stemmed from their builder’s use of concrete that prematurely deteriorated.

Liberty denied the Karases’ claim, contending that the loss that they described was “deterioration” and, therefore, was not covered under their policy. For their part, the Karases contended that the loss was a “collapse” under the interpretation provided in Beach v. Middlesex Mutual Assurance Co. [205 Conn. 246 (1987)].

In Beach, the Connecticut Supreme Court held that the term “collapse” in a homeowners’ insurance policy, when otherwise undefined, was “sufficiently ambiguous to include coverage for any substantial impairment of the structural integrity of a building.” The court specifically rejected the insurer’s contention that “‘collapse’ … unambiguously contemplates a sudden and complete falling in of a structure,” but did not further define the standard of “substantial impairment of … structural integrity.”

In their suit, the Karases alleged that Liberty:

1. Breached its insurance contract with the Karases;
2. Breached the implied covenant of good faith and fair dealing; and
3. Committed unfair and deceptive practices proscribed by the Connecticut Unfair Insurance Practices Act (CUIPA) and the Connecticut Unfair Trade Practices Act (CUTPA).

Liberty moved for summary judgment. The U.S. District Court for the District of Connecticut denied Liberty’s motion with respect to the breach of contract claim and granted it with respect to the bad faith and CUTPA/CUIPA claim.

Thereafter, Liberty moved to certify questions to the Connecticut Supreme Court to determine whether the definition of “collapse” given in Beach required coverage in the Karases’ case. In particular, Liberty asked the district court to certify the following three questions:

1. Is “substantial impairment of structural integrity” the applicable standard for “collapse” under the provision at issue?
2. If the answer to question one is yes, then what constitutes “substantial impairment of structural integrity” for purposes of applying the “collapse” provision of this homeowners’ insurance policy?
3. Under Connecticut law, do the terms “foundation” and/or “retaining wall” in a homeowners’ insurance policy unambiguously include basement walls? If not, and if those terms are ambiguous, should extrinsic evidence as to the meaning of “foundation” and/or “retaining wall” be considered?

The Liberty policy

The Liberty policy read as follows:

Collapse. We insure for direct physical loss to covered property involving collapse of a building or any part of a building caused only by one or more of the following:

1. Hidden decay;
2. Hidden insect or vermin damage;
3. Weight of contents, equipment, animals or people;
4. Weight of rain which collects on a roof; or
5. Use of defective material or methods in construction,

remodeling or renovation.

Loss to an awning, fence, patio, pavement, swimming pool, underground pipe, flue, drain, cesspool, septic tank, foundation, retaining wall, bulkhead, pier, wharf or dock is not included … unless the loss is a direct result of the collapse of a building.

Collapse does not include settling, cracking, shrinking, bulging or expansion.

The district court’s decision

The district court granted Liberty’s motion to certify only the second question. In its decision, the district court explained that no Connecticut appellate decision had squarely applied Beach and arrived at a definition of “substantial impairment of structural integrity.”

With respect to the first question, the district court found no dispute that the Liberty policy did not define “collapse,” which meant that Beach “clearly” provided the relevant standard.

With respect to the third question, the district court pointed out that Connecticut courts had “consistently rejected” insurers’ arguments concerning the term “foundation,” had “determined that th[ose] policy terms were ambiguous,” and had “construed them against” the insurers.

The district court, however, decided that Liberty’s second proposed question warranted certification. It pointed out that, in Roberts v. Liberty Mutual Insurance Co. [264 F. Supp. 3d 394 (D. Conn. 2017)], it “interpret[ed] Beach to require that a ‘collapse’ — in the form of ‘substantial impairment of [ ] structural integrity’ — be proved by evidence that a building ‘would have caved in had the plaintiffs not acted to repair the damage.’” The district court concluded that the Connecticut Supreme Court should have the opportunity to decide whether that interpretation of Beach was correct.

The case is Karas v. Liberty Ins. Corp., No. 3:13-cv-01836 (SRU) (D. Conn. April 30, 2018).

Defining ‘abrupt’

A case currently pending before the Connecticut Supreme Court, Jemiola v. Hartford Casualty Ins. Co. (No. SC 19978), might already provide an opportunity to clearly define “substantial impairment of structural integrity.”

The policy in Jemiola, however, includes the qualification that the collapse must be “abrupt,” which the trial court in that case interpreted to mean that “a ‘collapse’ requires a sudden and catastrophic type event.”

Thus, the Connecticut Supreme Court might decide Jemiola on the grounds that the loss — regardless of whether it constituted a “substantial impairment” — was not “abrupt.” The policy in Karas does not include an “abrupt” or “sudden” qualifier, so it more squarely presents the issue of what constitutes a “substantial impairment of structural integrity.”

Steven A. Meyerowitz, Esq., (smeyerowitz@meyerowitzcommunications.com) is director of FC&S Legal, editor-in-chief of Insurance Coverage Law Report, and founder and president of Meyerowitz Communications, Inc.

See also:

9 vital homeowner maintenance tips to prevent costly damage & losses

3 challenges with property claims