Who Says Being A "Creep" Is An "Inherent Vice"? A Judge in New York

Recently, in ABI Asset Corp. v. Twin City Fire Ins. Co., No. 96 CIV. 2067 (S.D.N.Y. Nov. 18, 1997), the court granted the insurer's motion for summary judgment because the causes of the loss, which included creep, were specifically excluded by the terms of the all-risk policy at issue.

The plaintiffs owned an apartment building at 142 West 140th Street in New York. Twin City Fire Insurance Company issued an all-risk policy to ABI covering the apartment building. On March 21, 1995, the southeast corner of the apartment building collapsed. ABI filed a timely claim with Twin City. Twin City subsequently denied the claim on two grounds: that the loss was not caused by an external peril and that the loss resulted from "design defect, deterioration, latent defect, inherent vice, wear and tear, and gradual deterioration."

ABI instituted an action in the United States District Court for the Southern District of New York. Twin City filed a motion for summary judgment on the ground that the causes of ABI's loss were specifically excluded from coverage by the terms of the policy.

The Twin City policy contained two important clauses. The first was an exclusion contained in Section 5 (l) of the policy, which provided that there was no coverage for loss resulting from: (l) loss of use, delay, loss of market, bankruptcy foreclosure, deterioration, latent defect, inherent vice, moth, vermin, termites or other insects, wear, tear or gradual deterioration, rust, wet or dry rot, mold, smog, contamination.

The second important clause, also found in Section 5, was the anti-concurrent cause clause. In New York, the courts have interpreted similar clauses to mean that if a loss results from a multitude of contributing causes and the insurer can prove that one of those causes is specifically excluded by the policy, then there is no coverage.

ABI's engineering expert examined the damage and determined that the loss resulted from creep that caused the wall and foundation system to buckle, which in turn caused the building to collapse. He defined creep as "time-dependent deformation due to a sustained load." He further explained that in cementicious materials such as mortar and concrete, creep is inherent and predictable. Twin City denied ABI's claim on the basis of the expert's report, claiming that creep was encompassed within the inherent vice exclusion.

In deciding the motion, the court had to determine the proper definition of inherent vice. The court noted that other courts have interpreted "inherent vice" as "a natural defect in a material which causes a failure to occur." In Standard Structural Steel v. Bethlehem Steel Corp., 597 F.Supp. 164, 197 (D.Conn. 1984), the court defined inherent vice as "an exclusion which applies to losses from natural decay, ordinary wear and tear and inevitable depreciation." Relying on this definition of inherent vice and the report by ABI's expert defining creep, the court found that ABI's loss was excluded by the specific terms of the policy, and granted Twin City's motion for summary judgment.

ABI relied on Essex House v. St. Paul Fire & Marine Ins. Co., 404 F.Supp. 978 (S.D. Ohio 1975), for the proposition that creep is not an inherent vice. In Essex House, the insured's building was damaged when bricks began to pull away from the building. An expert determined that creep was one of some eleven contributing causes of the loss. The court found that the primary causes of the brick failure were negligent workmanship and faulty design, and ruled that there was coverage under the policy. Unlike the Twin City's policy, however, the policy in Essex House did not contain an anti-concurrent cause clause and did not exclude coverage for negligent workmanship and faulty design. The ABI court therefore found that Essex House was inapplicable.

As a result of the decision in ABI, it should be clear to both insureds and insurers that creep is an inherent defect, at least in New York. Of equal significance, a concurrent cause clause in an insurance policy is valid and will be implemented whenever one of the contributing causes of a loss is excluded.