The federal district court denied the insurer's motion to dismiss claims for loss due to the imminent collapse of the insureds' basement walls. Belz v. Peerless Ins. Co., 2014 WL 4364914 (D. Conn. Sept. 2, 2014).
The insureds noticed cracks throughout their basement walls. It was discovered that the condition was the result of a chemical compound used in the concrete of certain basement walls in the late 1980s and early 1990s. The insureds contended that due to the cracking, the basement walls suffered a substantial impairment to their structural integrity making it only a matter of time until the walls collapsed.
The insureds notified their insurer, Peerless. An engineer hired by Peerless determined the walls' condition was caused by poor workmanship and defective materials. On this basis, Peerless denied coverage.
The insured sued and Peerless moved to dismiss the complaint. Peerless argued they had not breached the contract as alleged in Count I of the complaint. Under the policy's section entitled "Collapse, Peerless,
insure[s] for direct physical loss to covered property involving collapse of a building or any part of a building caused by . . . b. Hidden decay; . . . f. Use of defective material or methods in construction, remodeling or renovation if the collapse occurs during the course of the construction, remodeling or renovation.
An exclusion followed, stating that "loss to . . . [a] foundation [or] retaining wall . . . is not [covered] . . . unless the loss is a direct result of a building collapse."
The court found both the terms "foundation" and "retaining wall" were ambiguous. The insured argued that the term "foundation" could reasonably be understood to mean the footings which support the entire structure. Peerless submitted the dictionary meaning of "foundation" was "a stone or concrete structure that supports a building from underneath." Both interpretations were reasonable, making the term ambiguous.
Both parties also offered reasonable interpretations of "retaining wall." The insureds argued a retaining wall was usually not thought of as part of a building. Peerless contended that a retaining wall was a wall built to resist lateral pressure other than wind pressure. Given that both interpretations were reasonable, "retaining wall" was also an ambiguous term.
Accordingly, these terms were construed against Peerless. If the insureds' alleged facts were true, they constituted a breach of contract.
In Count Two, the insureds alleged Peerless breached the implied covenant of good faith and fair dealing. The insureds contended that Peerless denied coverage despite knowing that the cracks were the result of defective materials or poor workmanship, both of which clearly triggered coverage. [Curiously, the court did not address whether the alleged defective materials caused the collapse during construction or renovating, as stated by the coverage section of the policy.] The insureds further alleged that Peerless intentionally referred to irrelevant and misleading portions of the policy in its letter denying coverage, which ignored the section of the policy that clearly applied. These allegations were sufficient to survive a motion to dismiss.