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Vermont Supreme Court Construes Broad Language in CGL Policy To Mean A Risk of Imminent Collapse

Blogs, Insurance Coverage

Equinox on the Battenkill Mgmt. Ass’n, Inc. v. Philadelphia Indem. Ins. Co., Inc., 2015 VT 98 (2015). The Vermont Supreme Court construed the language in a CGL policy providing coverage for “’loss’ caused by or resulting from risks of direct physical ‘loss’ involving collapse” to be broader than language merely covering “collapse,” and concluded that coverage would be afforded if there were a risk of imminent collapse. The Equinox on Battenkill Management Association, Inc. (“Equinox”) sought coverage for damage to cantilevered balconies it discovered while conducting a deck-replacement program. The CGL policy issued by Philadelphia Indemnity Insurance Company, Inc. (“Philadelphia”) contained a defective workmanship exclusion, but also had an endorsement entitled “Additional Coverage – Collapse” that provided coverage for “‘loss’ caused by or resulting from risks of direct physical ‘loss’ involving collapse of ‘buildings’ or any part of ‘buildings’ caused only by of or more of the following:… “hidden decay.” (Emphasis added.) Equinox contended that the loss arose from hidden decay. Philadelphia denied coverage on the grounds that the loss was caused by defective-workmanship and other excluded causes of loss, and further that the damage in question did not constitute “collapse” as that term was previously defined by the Vermont Supreme Court in Gage v. Union Mutual Fire Insurance Company, 122 Vt. 264 (1961). The trial court agreed that the damage in question did not fall within the Gage definition of “collapse” and granted summary judgment in favor of Philadelphia solely on that ground. The Supreme Court reversed and remanded, holding that the Gage definition did not control because the language in the Equinox policy was significantly broader.

The Gage policy covered “all direct loss to the property by collapse,” which the Supreme Court had construed to require damage such as a “falling in, … of loss of shape, … or reduction to flattened form or rubble of the building or any part thereof.” In contrast, the Supreme Court held that the language in Equinox, which provided coverage for the “risks of direct physical ‘loss’ involving collapse,” would apply even if the balconies had not detached and completely fallen away from the buildings. It was sufficient that there be a risk of imminent collapse. Finding that there were unresolved factual disputes concerning the cause, nature, and extent of the damage, the Supreme Court remanded to the trial court for further determinations necessary to establish coverage.