(Article from Insurance Law Alert, October 2018)
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The Second Circuit ruled that a property insurer had no duty to cover losses arising in connection with the cracking of concrete walls in the policyholders’ residence. Kim v. State Farm Fire & Cas. Ins. Co., 2018 WL 4847195 (2d Cir. Oct. 5, 2018).
The homeowners sought coverage under their property policy for losses stemming from cracks in the concrete foundation of their home. Engineers who inspected the home opined that the cracks would lead to further damage and eventually result in collapse. State Farm denied coverage on several bases, including a provision that excludes coverage for damage “directly and immediately” caused by “settling, cracking, shrinking, bulging, or expansion of pavements, patios, foundation, walls, floors, roofs or ceilings.” In the ensuing litigation, a Connecticut district court ruled in State Farm’s favor. The Second Circuit affirmed.
The Second Circuit ruled that the provision applied because any collapse would be caused “directly and immediately” from the concrete cracks. The court rejected the homeowners’ assertion that the exclusion did not apply because a collapse would be gradual rather than immediate, noting that the exclusion expressly applies “regardless of whether the loss occurs suddenly or gradually.” The court also rejected the homeowners’ contention that the exclusion was ambiguous because it referred both to “immediate” and “gradually.” The court explained that in this context, the only reasonable interpretation of “immediate” is the absence of any other intervening cause.
The court also held that there was no coverage under an ensuing loss provision, which provides coverage “for any resulting loss from [the listed exclusions] unless the resulting loss is itself is a Loss Not Insured by this Section.” The court held that even assuming that a collapse was a resulting loss under the policy, it was excluded as a “Loss Not Insured by this Section” for the reasons set forth above.