So far, this year has been one of the rainiest on record. California, Oregon, and Washington have had torrential downpours, and this June hardly a single day went by without rain. Homeowners have been inundating their insurance companies with claims for water damage to their houses, even though their homeowners policies contain flood exclusions. Can homeowners' attempts to avoid the consequences of the flood exclusion hold water? In Indiana Ins. Co. v. Liaskos, 1998 WL 331669 (Ill. App. 1st Dist. June 24, 1998), the Appellate Court of Illinois answered, "it depends."
The Facts
On June 28, 1993, Janet Liaskos, a Calumet City, Illinois homeowner, was awakened in the middle of the night by a loud exploding noise. Investigating, she discovered that the basement was flooded almost to the floor joists. The first floor interior walls and the exterior masonry were cracked, and a crater had formed in the ground outside the house. A structural engineer retained by Ms. Liaskos determined that abnormally high water pressure in the Calumet City sewer system had over stressed the plumbing, causing pipes to break. Water pressure from the broken pipes pushed up and cracked a basement floor slab, allowing water to gush into the basement. Ms. Liaskos lived away from home for a day because the electricity had to be turned off. Luckily for her, the home's structural integrity was not impaired. 1998 WL 331669 at *1-2.
The Indiana Insurance Company homeowners policy issued to Ms. Liaskos provided coverage for physical loss to the dwelling or structure. The policy contained this flood exclusion:
We do not insure for loss caused directly or indirectly by any of the following. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss.
a. flood, surface water, waves, tidal water, overflow of a body of water, or spray from any of these, whether or not driven by wind;
c. water below the surface of the ground, including water which exerts pressure on or seeps or leaks through a building, sidewalk, driveway, foundation, swimming pool or other structure. If such water causes the collapse of a building or any part of a building, we cover loss caused by the collapse. Collapse does not including [sic] settling, cracking, shrinking, bulging or expansion.
Holding that the flood exclusion precluded coverage, the trial court ruled that the collapse exception to the flood exclusion did not apply. The trial court found that although cracking and settling had caused some structural damage, there was no "collapse" because the house "had not lost its character," and because there was no evidence of "something going down." Id. at *2.
Two Competing Views
The homeowners policy did not define the term "collapse." On appeal, the Appellate Court of Illinois discussed two competing interpretations of that term. The older, and now minority, view is that the term "collapse" is unambiguous and means that "the entire building must lose its distinctive character as a building." The building must have become a "mere ruin," a "mass of rubbish." Rubenstein v. Fireman's Fund Ins. Co., 339 Ill. App. 404, 409-10, 90 N.E.2d 289, 291-92 (1950).
The newer, majority view is that the term "collapse" means any substantial impairment of the structural integrity of a building. In Beach v. Middlesex Mut. Assurance Co., 205 Conn. 246, 532 A.2d 1297 (1987), a flood caused a foundation wall of the insured's house to crack. That crack widened over the next few months, causing the wooden support beams on top of the foundation wall to spread apart. The foundation wall shifted and leaned over, so that it could no longer support the building. Despite this damage, the house remained standing and the insured continued living in it. The trial referee found, however, that "eventually the house would have fallen into the cellar." 205 Conn. at 249, 532 A.2d at 1299.
The insurer denied coverage on the ground that the collapse exception to the flood exclusion did not apply because the house had not suddenly and completely fallen in. The court rejected the insurer's position. The court held that the term "collapse" was ambiguous because Webster's Third New International Dictionary defines the word collapse as both a sudden, catastrophic breakdown and a loss of structural strength. The court consequently applied the rule of contra proferentum to rule that "collapse" means "any substantial impairment of the structural integrity of a building." 205 Conn. at 251-52, 532 A.2d at 1300. The court therefore found the insurer liable for coverage.
The Liaskos court noted that it preferred the majority view, and that it would hold that a collapse does not require that the building be destroyed or fall in or that the loss result from a sudden catastrophic occurrence. Instead, it would hold that "a collapse will be deemed to have occurred where a falling in is imminent or where there is any substantial impairment of the structural integrity of the building." (citations omitted.) 1998 WL 331669 at *7.
The court's stated preference for the majority view was only dictum because the court held that under either interpretation the damage to Ms. Liaskos's home did not constitute a collapse. There was no evidence that the structural integrity of the building had been substantially impaired. The crack in the basement foundation wall had not widened, the foundation wall did not move, and it continued to support the house. While the dwelling was uninhabitable for a day, the uninhabitability was due to the presence of water and lack of electricity, not to any unsoundness of the structure. Id. at 7-8.