Court Confirms No Duty to Reimburse for Prophylactic Repairs Prior to Actual Collapse

In Grebow v. Mercury Insurance Company (No. B261172, filed 10/21/15), a California appeals court held that coverage for collapse in a homeowners policy does not extend to prophylactic repairs undertaken to mitigate damage before actual collapse of the structure.

In Grebow, the insureds had a general contractor inspect the rear deck of their house because of recurring watermarks. The contractor discovered severe decay in the steel beams and poles supporting the second floor of the house. He opined that they could not support the upper portion of the house, and that a large portion of the house would fall. A structural engineer agreed, blaming decay and corrosion. The insureds were advised not to enter the top part of the house, and they contracted for repairs. They also made a claim to Mercury, which denied coverage. The insureds ultimately spent $91,000 out of pocket having the home remediated.

The Mercury policy covered collapse as follows: 7. Collapse. We insure for direct physical loss to covered property caused by collapse of a building or any part of a building caused only by one or more of the following perils: a. Perils Insured Against under Coverage C [Personal Property]; b. hidden decay; c. hidden insect or vermin damage; d. weight of contents, equipment, animals or people; e. weight of ice, snow, sleet or rain which collects on a roof; or f. use of defective material or methods in constructions, remodeling, or renovation if the collapse occurs during the course of the constructions, remodeling or renovation. Loss to an awning, fence, patio, pavement, swimming pool, tennis court, underground pipe, flue, drain, cesspool, septic tank, foundation, retaining wall, bulkhead, pier, wharf or dock is not included under items b., c., d., e., and f. unless the loss is a direct result of the collapse of a building. Collapse means sudden and complete breaking down or falling in or crumbling into pieces or into a heap of rubble or into a flattened mass. Collapse does not include settling, cracking, shrinking, bulging, expansion, sagging or bowing, nor a substantial impairment of the structural integrity of a structure or building, nor a condition of imminent danger of collapse of a structure or building.

The Mercury policy excluded coverage for: 4. Neglect, meaning our failure to use all reasonable means to save and preserve property at and after the time of the loss. . . . 13. Corrosion or Electrolysis. . . . 17. Loss caused by: a. wear and tear, marring, scratching, deterioration; b. inherent vice, latent defect, mechanical breakdown; c. rust . . . .

In the bad faith lawsuit that followed, the court granted summary judgment for Mercury. The court rejected the insureds’ argument that collapse had occurred because certain elements of the structure had become detached. The court noted a split of authorities over the scope of collapse coverage when the policies leave the term “collapse” undefined. However, “insurance companies have inserted ‘ever more explicit language in attempts to narrow the scope of collapse coverage.’” The Grebow court pointed out that the Mercury policy included clauses such as “sudden and complete breaking down or falling in or crumbling into pieces or into a heap of rubble or into a flattened mass” and excluded “substantial impairment of the structure or building” and “a condition of imminent danger of collapse of a structure or building.” According to the court, “This language renders the collapse clause unambiguous.”

The Grebow court noted that in Rosen v. State Farm General Ins. Co. (2003) 30 Cal.4th 1070, the California Supreme Court held that under an insurance policy with similar language the policy did not cover an imminent collapse—just an actual collapse—and “[h]ere, no portion of the Grebows’ home or deck had collapsed.”

The Grebow court analyzed extensive authorities to conclude that there was no basis for reimbursement on theories of mitigation and prevention of imminent loss. Although the policy’s duties after loss required the insureds to “protect property from further damage, make reasonable and necessary repairs required to protect the property,” the court noted that the contractual duty to mitigate only arose “[i]n case of a loss to which this insurance may apply,” such that coverage had to attach in the first instance.

The court also found no general duty on the part of insurers to reimburse insureds for preventive measures taken to avoid insurable losses, despite any societal or economic benefits that might offer. The court noted that support for the argument had its historical origins in marine “sue and labor” clauses, but found those distinguishable not only because of the differing factual circumstances, but also because of typical policy wording referring to “imminent” loss.

The Grebow court likewise rejected the concept of an “implied” duty to reimburse preventive measures on theories of quasi-contract or unjust enrichment, finding this inconsistent with the express wording of the Mercury policy: “When parties have an actual contract covering a subject, a court cannot—not even under the guise of equity jurisprudence—substitute the court’s own concepts of fairness regarding that subject in place of the parties’ own contract.”

Finally, the Grebow court held that Mercury’s delay of four months in issuing a denial would not support estoppel, since the work had already been contracted and begun when the claim was made to Mercury, and Mercury did nothing to suggest to the insureds that the claim would be covered if they mitigated prospective damages.

Having found no coverage, the Grebow court agreed that the bad faith claim could not stand, and affirmed summary judgment for the insurer.

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October 23, 2015