Second Circuit Court of Appeals: Connecticut Homeowners Insurance Policy Does Not Afford Coverage for Crumbling Concrete Basement Walls
In a previous entry, I referenced the many lawsuits filed by Connecticut homeowners involving crumbling concrete basement walls, in which homeowners seek coverage under their homeowner insurance policies for damage caused by deteriorating basement walls arising from hidden decay believed to be caused by defective concrete.
On April 2, 2019, the Second Circuit Court of Appeals ruled that an Allstate homeowners insurance policy does not afford coverage for basement walls that exhibit significant cracking but remain standing because such conditions do not constitute a collapse as defined by the policy. Valls v. Allstate Insurance Co., No. 17-3495-CV (2d.Cir. April 2, 2019); Carlson v. Allstate Insurance Company, No. 17-3501-CV, Lees v. Allstate Insurance Company, No. 18-007-CV. The Allstate insurance policy was an “all risk” property policy that afforded coverage for sudden and accidental direct physical loss to property unless specifically excluded by the policy. The policy excluded “collapse” from coverage except when there was: (a) an entire collapse of a covered building structure or part of a covered building structure and (b) direct physical loss to covered property caused by a collapse of a covered building structure or part of a covered building structure. The property owners claimed that the basement walls in their home had deteriorated due to hidden decay from defective concrete to the point at which they were in a state of collapse. The Second Circuit disagreed, ruling that coverage for a sudden and accidental loss due to collapse required that a collapse occur both abruptly and unexpectedly. The court concluded that the gradual erosion and cracking of basement walls caused by hidden decay did not occur abruptly. The court also concluded that the gradual decay of the walls did not cause a collapse of the entire building as required by the policy. The court distinguished the Allstate policy language from the collapse language in the insurance policy at issue in Beach v Middlesex Mutual Assurance Co., 205 Conn. 246 (1987). As discussed in the previous entry, the policy at issue in Beach did not define or otherwise qualify the term “collapse” and the Connecticut Supreme Court interpreted the ambiguous term to mean a substantial impairment to the structural integrity of a building.
The Second Circuit considered certifying the insurance issue in Valls v. Allstate to the Connecticut Supreme Court because the Court has yet to rule on the interpretation of the policy language at issue in many of the crumbling concrete cases in Connecticut. The court recognized that its decision, with guidance from the Connecticut Supreme Court, might effectively resolve many state court cases involving a similar issue, while its decision without guidance from the Supreme Court will provide little meaningful instruction on how the Court will rule on the many pending cases. The court did not certify the case, however, over the Allstate’s objection. The court discussed the reasons why federal courts may not wish to certify a question to a state’s highest appellate court, which include: (1) increased expense and delay in resolving a case which, in cases involving modest amounts at stake, may be unjustifiably burdensome; and, (2) certification in diversity cases can effectively defeat a litigant’s constitutionally endorsed right to have its case adjudicated in federal court rather than in state court. Given the cost and delay issues and a party’s right, following a proper removal of the case to federal court, to not to have the case transferred back to state court through the certification process, the Second Circuit in Valls opted not to certify the case to the Connecticut Supreme Court.
While the Valls court is the first federal appellate decision to address the collapse issue in the context of crumbling concrete wall cases pending in Connecticut, policyholders and insurers await the Connecticut Supreme Court’s decision in Karas v. Liberty Insurance Group and Jemiola v. Hartford Casualty Insurance Company. The Supreme Court in these cases is expected to clarify what constitutes a substantial impairment to the structural integrity of a building so as to constitute a collapse as recognized in the Beach case, and whether the term collapse in an insurance policy can include a substantial impairment to the integrity of the building but not an abrupt falling down or caving in as required by certain insurance policies similar to the policy language at issue in Valls. The Connecticut Supreme Court heard oral argument in these cases in December 2018 and a decision is expected soon.