A property insurer had no express or implied obligation to reimburse an insured for emergency mitigation expenses in the absence of an otherwise covered loss. ( Grebow v. Mercury Insurance Company (2015) WL 6166610)
Facts
Arthur and Helen Grebow owned a house with an attached rear deck that extended over a patio. Because of evidence of water damage to the deck, the Grebows asked a general contractor and structural engineer to inspect the deck. The contractor and engineer discovered severe decay and corrosion in various steel beams, which, with steel poles, supported the deck and other parts of the house. The decay and corrosion previously had been hidden by the deck floor and patio ceiling.
Both the contractor and engineer concluded the beams and poles no longer could support the upper portion of the house, and that a large portion of the house was in danger of falling. The Grebows then arranged for installation of temporary shoring and arranged for completion of permanent repairs.
The Grebows submitted a claim for reimbursement to their insurer, Mercury Insurance Company (Mercury). The Mercury policy contained standard exclusions for corrosion, rust and deterioration. The policy also contained a standard provision that extended coverage for “collapse” caused by various risks, including “hidden decay.”
The policy defined “collapse” as the “sudden and complete breaking down or falling in or crumbling into pieces or into a heap of rubble or into a flattened mass.” The policy also stated that collapse did not include “a substantial impairment of the structural integrity of a structure or building, nor a condition of imminent danger of collapse of a structure or building.” In addition, the policy contained a mitigation condition that provided that, “[i]n case of a loss to which this insurance may apply, [an insured must] protect the property from further damage.”
Mercury denied coverage for the claim on the grounds that there had been no “collapse” within the meaning of the policy, and that the policy otherwise excluded the causes of damage (i.e., rust, corrosion and deterioration). Mercury also denied coverage for the costs of the temporary shoring and other mitigation measures the Grebows had undertaken to prevent further damage. The Grebows filed suit for breach of contract and bad faith, but the trial court granted summary judgment in favor of Mercury.
Holding
The Court of Appeal upheld the trial court’s finding that there was no “collapse” within the meaning of the policy, which covered only actual collapse, not imminent collapse. Because there was no coverage for the damage, there was no coverage for the cost of the emergency mitigation measures the insureds undertook to prevent an actual collapse from occurring.
Although the policy provided the insureds had a duty to mitigate in case of a “loss to which this insurance may apply,” the Court of Appeal held that this express duty to mitigate – and the insurer’s duty to reimburse for mitigation expenses – arises only after a covered loss occurs. The Court further found there was no implied-in-law requirement that Mercury reimburse the Grebows for such mitigation expenses.
Comment
In this case, the insureds apparently prevented an actual collapse from occurring because they arranged for installation of temporary shoring. However, the Court ruled that the insurer had neither an express nor implied obligation to reimburse the insureds for their mitigation expenses, since no covered loss (i.e., no actual collapse) had ever occurred. The Court noted that requiring an insurer to reimburse an insured for mitigation expenses in the absence of an otherwise covered loss would essentially convert a property policy into a maintenance contract.
The Court’s holding that no actual “collapse” occurred is consistent with various prior California appellate decisions regarding this issue. Very briefly, if a policy does not specifically require a “collapse” to be a “complete” or “actual” falling down, then an “imminent” (i.e., impending) collapse is sufficient to trigger coverage. ( Doheny West Homeowners’ Assn. v. American Guarantee & Liability Ins. Co. (1997) 60 Cal.App.4th 400.) However, if a policy does specifically require a “collapse” to be a “complete” or “actual” falling down, then an “imminent” collapse is not sufficient. ( Rosen v. State Farm General Ins. Co. (2003) 30 Cal.4th 1070; Jordan v. Allstate Ins. Co. (2004) 116 Cal.App.4th 1206.)