On September 19th, a federal court in Pennsylvania held that a wall collapse was not fortuitous because the insureds knew that the wall was unstable and likely to fall and yet took no steps to correct the problem.  No one could say the loss was certain to happen, but the court effectively held that the insureds’ inaction was enough to make the collapse non-fortuitous given the likelihood that the wall would fail if it wasn’t repaired or braced.  The decision is Fry v. Phoenix Ins. Co., 2014 WL 4662481, 2014 U.S. Dist. LEXIS 131504 (E.D.Pa., Sept. 19, 2014).

The Frys owned a home in Fleetwood, Pennsylvania.  The house was a wood-frame structure with a stone veneer, and they noticed that the veneer was bulging in 2003.  An engineering report that they commissioned at the time attributed the problem to “an insufficient number of veneer wall ties and fasteners,” and the Frys paid $22,000 to have the exterior wall repaired.

As of 2011, the policyholders were insured by Phoenix Insurance Company, and the contract of insurance extended coverage to the peril of collapse, which was defined as “an abrupt falling down or caving in” of a portion of the structure.  In July of that year, the Frys made claim for bulging of the veneer’s exterior after a storm, and both the policyholders and Phoenix then secured expert reports.  The insured’s expert attributed the movement to the fact that “there is not a good connection between the stone veneer and the framed wall,” and he recommended repair and temporary bracing from outside if repairs could not be done “within the next couple months.”  The carrier’s expert ascribed the problem to “inadequate anchorage to the wood-framing” as well and also recommended repair and temporary bracing until that could be accomplished.  The insurer denied liability because the bulging was “not sudden and accidental” in nature.

Mr. and Mrs. Fry made no repairs, nor did they have bracing erected, and the bulging wall collapsed in February of 2012, generating a second insurance claim.  The insurer denied liability for that loss as well after its expert concluded that a combination of “lack of anchorage of the stone wall to the wood framing and the weak/deteriorated mortar” caused the wall to fail.

Litigation ensured, and Phoenix moved for summary judgment, asserting: (1) the coverage was barred by an exclusion for loss occasioned by “wear and tear [and] deterioration;” (2) that the loss was not a collapse as defined; and (3) that the failure was non-fortuitous in nature.  Judge Lawrence F. Stengel granted the motion last month.

The court ruled against Phoenix with respect to the exclusion.  Experts had opined that inadequate anchorage was behind the bulging since 2003, and the fact that the loss could have been caused by the absence of anchors rather than by the deterioration of mortar meant that a jury could conclude that this was not a “wear and tear” event.

As Judge Stengel’s opinion explained, however, that was “a pyrrhic victory for the Frys.”  The additional coverage for collapse recited that such a loss was covered if caused by “[d]ecay that is hidden from view unless the presence of such decay is known to the insured prior to collapse or there are visible signs of water damage and the insured has not taken prompt action to prevent further damage,” and the court held that the Frys’ failure to repair or brace the wall meant that the policyholders had failed to meet their burden to raise a factual question sufficient to withstand summary judgment on the application of the collapse clause.

In addition, the Eastern District held that this was a non-fortuitous loss even though the Frys could not be certain that it would occur.  In the words of Judge Stengel’s opinion:

The summary judgment record shows that the Frys knew that there was a “possibility of complete failure of the veneer and the stone wall falling down from its own weight” as early as 2003. . .   While there is no evidence that they knew the exact cause of the 2011 loss and the 2012 collapse – that the wall contained no masonry anchors – until after the collapse occurred, it is undisputed that they knew that there was a problem involving wall anchors, to the point that there was little or no physical anchorage of the veneer wall to the wood-frame. . . .  Nonetheless, they failed to follow the recommendations of the experts to dismantle and rebuild the wall, and they failed to brace the wall until it could be repaired.  Accordingly, I conclude that no reasonable jury could determine on this record that the bulging and eventual collapse of the unrepaired and unbraced wall were fortuitous events because the undisputed record shows they were certain to occur.

In point of fact, of course, the undisputed record demonstrated nothing of the kind; none of the experts opined that the wall was certain to fall down if not repaired or braced.  The insureds’ failure to undertake any remedial measures was nonetheless deemed sufficient to render the loss non-fortuitous given their knowledge – over a seven-month period – that the structure was in precarious condition and that it could collapse at any time absent action on their part.