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First Party Disclaimer "Collapses" in New York

April 10, 2009

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A New York federal appellate court recently addressed the interpretation of the meaning of “collapse” as found in an all-risk policy in <i>Dalton v. Harleysville Wor. Mut. Ins. Co.</i> Plaintiffs owned a three-story townhouse in Brooklyn, and discovered damage to an interior wall. The damage was so extensive, that the NYC Department of Buildings ordered that the building be vacated.
Harleysville disclaimed coverage under its all-risk policy, citing exclusions for decay, and settling. Although the policy had an additional coverage section that provided coverage for damages resulting from “risks of direct physical loss involving collapse of a building or any part of a building caused … by … hidden delay,” the policy did not provide coverage for a collapse that included “settling, cracking, shrinkage, bulging or expansion.” Harleysville also argued that to constitute a collapse, the buiding needed to sustain “total or near total destruction,” and that a “sudden destructive force” was necessary.
The Second Circuit Court of Appeals found that under New York law, the meaning of the term “collapse” is unsettled, and it is not necessary that the building sustain total or near destruction, and that "substantial impairment of structural integrity" would suffice. The Court held the Harleysville policy was ambiguous, did not require “suddenness” as a condition, and notably cited to policy forms used by other insurers that “spoke more directly to the dispute involved here.” Thus, even though one would not typically consider what happened here to be a collapse, the Court held it was a covered loss.
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