S.D. SC tells insurer to pay for sagging ceiling

Jessica M. Karmasek Apr. 1, 2011, 11:00am


PIERRE, S.D. (Legal Newsline) - The South Dakota Supreme last week ruled that an insurance provider must cover a business' claim for expenses to fix a sagging ceiling.

The Court, in its eight-page opinion filed March 23, reversed the decision of a circuit court, which granted summary judgment for Midwest Family Mutual. The lower court had determined that the policy did not provide coverage for Zoo Properties, LLP, and Aberdeen Zoo's sagging ceiling.

In March 2009, Zoo Properties discovered that the ceiling joists between the first and second floors of its building were cracked. It then submitted a claim to Midwest under its business owner's policy to pay for the repair costs. Both parties hired engineers to survey the damage.

The engineers found that the joists were cracked but that the second floor had not collapsed to the ground. One engineer said in his report that a collapse was "inevitable" and that the building would be unsafe if it wasn't repaired.

Midwest denied Zoo Properties' claim on the basis that the policy was "unambiguous" and only covered total collapse of the building. According to the policy, a "collapse" did not include settling, cracking, shrinkage, bulging or expansion.

The circuit court agreed with Midwest, saying the policy did not cover the cracking joists.

On appeal, Zoo Properties argued the circuit court's interpretation was incorrect. They argued the provision should have been construed to cover the cracking joists because they would have eventually caused the ceiling to collapse.

Justice Judith K. Meierhenry, who announced just last week that she is retiring in June, authored the state Supreme Court's opinion.

In it, the Court determined that the policy language at issue -- "(w)e will pay for loss or damage caused by or resulting from risks of direct physical loss involving collapse of a building" -- is ambiguous.

Pointing to a South Carolina Supreme Court decision, the justices noted that insurance contracts using the same "collapse" provision are capable of at least three different constructions.

In its decision, the Court adopted the more moderate approach for interpreting the term "collapse." That is, "collapse" includes not only the actual collapse but also imminent collapse.

"This approach is the reasonable middle ground between the second approach, advanced by Zoo Properties, and the third approach, advanced by Midwest Family Mutual," the Court wrote.

"Furthermore, the first approach's construction of collapse provides coverage for imminent collapse, which eliminates the incentive for policyholders to risk injury to others while waiting for actual collapse."

From Legal Newsline: Reach Jessica Karmasek by e-mail at jessica@legalnewsline.com.

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