Insurer Not Entitled to Dismissal of Claim Arising from Cracking and Decay of Basement Walls Under Homeowner Property Policy
According to recent Connecticut news reports, many homeowners in Northeast Connecticut have suffered damage to their homes caused by severe cracking of concrete in the basement walls of their homes that is believed to be the result of a chemical compound known as pyrrhotite in stone used as concrete Reports indicate that numerous homeowners have submitted claims to insurance companies which have been denied, and litigation has followed on the issue of whether the damage to the home is covered under homeowner insurance policies. The United States District Court for the District of Connecticut recently denied a motion to dismiss filed by Liberty Mutual Insurance Company in a case involving a claim for property damage under a homeowner's policy after concluding that cracking in the basement walls of the insured house did not clearly fall within the terms "foundation" and "foundation wall" as used in the Liberty Mutual policy so as to be excluded from coverage. As a result, the homeowners may pursue claims against Liberty Mutual for breach of contract, violation of the covenant of good faith and fair dealing, and violation of the Connecticut Unfair Insurance Practices Act and Unfair Trade Practices Act. You may read the court's decision here.
In Metsack v. Liberty Mutual Fire Insurance Company, 3:14-cv-01150-VLB (D.Conn. Sept. 30, 2015), the homeowners discovered water in their basement and horizontal and vertical cracks throughout their basement walls. A contractor advised the homeowners that the cracking was due to a chemical compound found in certain basement walls constructed with concrete most likely from J.J. Mottes Concrete Company. The homeowners sought coverage for the damage to their house under their homeowners insurance policy issued by Liberty Mutual, claiming that the basement walls of their house were substantially impaired. Liberty Mutual denied the insurance claim, contending that the policy did not provide coverage for settling, earth movement or seepage of ground water. The insureds then sued Liberty Mutual for breach of contract, breach of the covenant of good faith and fair dealing, and violation of the Connecticut Unfair Insurance Practices Act and Connecticut Unfair Trade Practices Act.
The Liberty Mutual policy provided coverage for "direct physical loss to covered property involving collapse of a building or any part of a building caused by one or more of the following . . . (b) Hidden decay . . . or (f) Use of defective material or methods in construction, remodeling or renovation." An exclusion in the policy, however, provided that "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." Because there was no claim that the homeowners' loss was a direct result of the collapse of the house, Liberty Mutual argued that the insureds' complaint should be dismissed because the policy excluded coverage for loss to a "foundation" or "retaining wall." Liberty Mutual contended the terms "foundation" and "retaining wall" in the policy exclusion included the damaged basement walls. The Court ruled against Liberty Mutual, after finding that the terms "foundation" and "retaining wall" as used in Liberty Mutual's policy were ambiguous and did not necessarily include basement walls. The court determined that the term "foundation" could refer to the footings of a structure underneath the basement wall or floor in homes that had a basement and not the concrete walls of the basement. The court construed the insurance policy as a whole and also found the policy provisions prescribing the method for calculating the replacement value of a covered building following an insured loss differentiated between "foundation walls" if there was no basement and "foundations below the subsurface of the lowest basement floor" in buildings with a basement. The court ruled that the term "foundation" as used in the policy referred to a more ancillary structural part of the house than a wall of a basement room and denied Liberty Mutual's motion.
The court also rejected Liberty Mutual's argument that the term "retaining wall" as used in the policy exclusion included the basement walls. The court found the term "retaining wall" as used in the policy was ambiguous and construed the ambiguity against Liberty Mutual. According to the court, a "retaining wall" could refer to a "wall built to resist lateral pressure other than wind pressure; esp. one to prevent an earth slide", as argued by the insurer, or it could refer to a free-standing wall "for holding in place a mass of earth or the like, as at the end of a terrace", as the insured contended.
Interestingly, Liberty Mutual requested the court to certify to the Connecticut Supreme Court the question of whether the terms "foundation" and "retaining wall" as used in its policy were ambiguous. Judge Bryant, however, denied the request as premature at the pleadings stage of the proceeding because the Connecticut Supreme Court had previously provided the necessary guidance for the court to determine whether the terms were ambiguous under the policy at issue. The court left open the question of whether certification of the issues raised might be appropriate at a later stage of the proceedings after the factual record been developed.
For now, the issue of whether homeowners may recover under a property policy for damage to a home caused by cracking or decay of concrete walls in the basements of their homes caused by material in the concrete remains an open issue in Connecticut. The Metsack case provides another example of the importance of reviewing and understanding the entire insurance policy when interpreting whether a particular loss is covered under the policy. 10/21/2015