In Joy Tabernacle — The New Testament Church v. State Farm Fire & Cas. Co., 2015 WL 3824733, 2015 U.S. App. LEXIS 10707 (6th Cir., Jun. 22, 2015), a unanimous panel of the federal Court of Appeals recently held that a collapse extension of coverage negates a policy’s exclusions for cracking and faulty workmanship and design because more specific provisions of a contract of insurance are controlling over general ones.  The court noted that any collapse necessarily entails “the cracking of beams and walls” and that giving effect to the exclusion under those circumstances would render the extension nugatory.  In addition, the defective design exclusion was ineffective because the collapse extension specifically recited that collapse caused at least in part by one of its enumerated perils was covered even if faulty workmanship and design was a contributory factor.

The insured was a Presbyterian church in Flint, Michigan.  On December 15, 2012, the plaster ceiling of the sanctuary of the congregation’s 85-year-old building collapsed.  The insurer made initial payments for clean-up costs, but after a series of inspections were conducted, it elected to deny the claim, and litigation ensued.  The district court granted summary judgment to the carrier, and that led to an appeal.

The contract of insurance afforded coverage for “accidental direct physical loss,” but it contained exclusions for both losses resulting from “[s]ettling, cracking, shrinking or expansion” and losses resulting from “faulty, inadequate or defective . . . [d]esign, specifications, workmanship, repair, [or] construction[.]”  There was an extension of coverage for collapse, however, which recited that the insurer would pay for collapses occasioned by six enumerated perils, including “[d]ecay that is hidden from view, unless the presence of such decay is known to an insured prior to the collapse.”  This provision also recited that “if the collapse occurs after construction . . . is complete and is caused in part by [one of the enumerated perils], we will pay for the loss even if the use of defective material or methods in construction . . . contributes to the collapse.”

The inspections indicated that poor construction definitely played a causative role; the manner in which the church’s roof trusses were fabricated weakened the building’s load-bearing capacity and led to long-term deterioration and cracking and splitting of the wood.  This was unknown to the policyholder, however.  The pastor testified that he knew of no problems with the roof and observed no distress during his rare visits to the attic space where the trusses were located.

The district court held that the exclusions for cracking and defective design both operated to bar coverage, and it also found that the insured had failed to produce evidence of hidden decay, which the trial judge interpreted narrowly to denote only “organic rot.”  On appeal, the Sixth Circuit reversed both of these determinations, holding that the exclusions were inapplicable and remanding for a trial on the issue of whether the collapse was occasioned by the enumerated peril of decay.

Judge Jane Stranch’s opinion began by addressing the meaning of decay.  The panel noted that dictionary definitions encompassed “a general decline or deterioration over time,” “a progressive decline,” and “the slow loss of strength . . . of a building.”  The court also found a recent decision by Michigan’s intermediate level appellate court — which construed the term as “a gradual and progressive decline” — to be persuasive authority.  It therefore rejected the trial court’s narrow reading of the word.

With respect to the exclusions, Judge Stranch held that “the general exclusions for defective design and cracking do not foreclose coverage if the collapse extension is triggered.”  In her words:

A specific contract provision generally controls over a related but more general contract provision.  . . . [W]hile the extensions of coverage are [subject to the exclusions] of the policy, . . . where the plain language of the collapse extension clearly negates aspects of those general exclusions, the court must interpret the specific provisions of the policy both as controlling and so as to avoid rendering any of its words or phrases surplusage or nugatory.

The panel observed that the collapse extension explicitly provided “that where an enumerated ‘cause of loss’ — such as ‘decay’ — has ‘caused in part’ a collapse after construction is complete, the policy extends coverage even if ‘use of defective material or methods in construction’ also ‘contributes to the collapse.’ ”  In addition, it stated that:

the parties do not dispute that the church ceiling partially collapsed.  To find a general exclusion for “cracking” precludes coverage where collapse actually occurred renders the entire collapse extension nugatory, as the collapse of a structure often involves the cracking of beams and walls.