Crumbling Connecticut Concrete: What Does Collapse Mean?
By Laura Meyer Gregory
In November 2019, the Connecticut Supreme Court issued decisions in three cases addressing insurance coverage for foundations that were failing because of defective concrete:
Karas et al. v. Liberty Insurance Corporation, __ A.3d __, 2019 WL 5955947 (Conn. 2019);
Vera v. Liberty Mutual Fire Insurance Company, __ A.3d __, 2019 WL 5955936 (Conn. 2019); and
Jemiola v. Hartford Casualty Insurance Co., __ A.3d __, 2019 WL 5955904 (Conn. 2019).
These cases arose out of multiple claims for house foundations constructed with concrete that originated from J.J. Mottes Concrete Company (“Mottes”) in Connecticut between 1983 and 2015. The stone aggregate supplied by that quarry contained pyrrhotite, a rare mineral that causes concrete to slowly deteriorate if exposed to oxygen and water. As little as 0.3 percent of pyrrhotite can cause concrete foundations to crumble. The damage, which can take 10 to 30 years to appear, is irreversible; the only remedy is to replace the foundation.
The three decisions involved the following certified questions, in the context of whether there is coverage for failing house foundations under homeowners insurance policies:
- “substantial impairment of structural integrity” the applicable standard for “collapse” under the contract of insurance provision at issue?
- If the answer to question one is yes, then what constitutes “substantial impairment of structural integrity” for purposes of applying the “collapse” provision of the homeowners insurance policy at issue?
- Under Connecticut law, do the terms “foundation” and/or “retaining wall” in a homeowners insurance policy unambiguously include basement walls? If not, and if those terms are ambiguous, should extrinsic evidence as to the meaning of “foundation” and/or “retaining wall” be considered?
The court concluded first that the Beach standard applies to the plaintiffs’ policies; second, that the ‘‘substantial impairment of structural integrity’’ standard requires proof that the home is in imminent danger of falling down (that is, actual collapse); and, third, that the term “foundation” unambiguously encompasses the home’s basement walls. Beach v. Middlesex Mut. Assur. Co., 205 Conn. 246 1987 (finding the term “collapse” in an insurance policy ambiguous and thus provided coverage for any “substantial impairment of the structural integrity of a building”).The court further stated that it is an issue of fact for expert testimony to determine the “imminent damage of an actual collapse,” which would likely mean the property is “unsafe to occupy.” See Karas, 2019 WL 5955947, at *8. In Jemiola, the court concluded that a building that is still standing, even if it is in danger of falling down, has not suffered a collapse within the meaning of the policy, affirming the lower court decision. See Jemiola, 2019 WL 5955904, at *1.
The Karas court explained the relevant provisions of plaintiffs’ homeowners insurance policy as follows:
“SECTION I—PERILS INSURED AGAINST . . . We insure against risk of direct loss to property described in Coverages A and B only if that loss is a physical loss to property. We do not insure, however, for loss . . . [i]nvolving collapse, other than as provided in Additional Coverage 8 . . . .” Additional Coverage 8, in turn, provides in relevant part: “Collapse. We insure for direct physical loss to covered property involving collapse of a building or any part of a building caused only by one or more of the following: a. [Certain perils identified elsewhere in the policy, including fire, lightning, windstorm, hail, explosion, riot, civil commotion and volcanic eruption]; b. [h]idden decay; c. [h]idden insect or vermin damage; d. [w]eight of contents, equipment, animals or people; e. [w]eight of rain which collects on a roof; or f. [u]se of defective material or methods in construction, remodeling or renovation if the collapse occurs during the course of the construction, remodeling or renovation. . . . Collapse does not include settling, cracking, shrinking, bulging or expansion.”
Karas, 2019 WL 5955947, at *1–2 (emphasis supplied).
The Karas plaintiffs sought insurance coverage claiming that “the deterioration of the concrete within their basement walls constitutes hidden decay that has so substantially impaired the walls’ structural integrity that they are in a state of collapse as we defined that term in Beach.” Id. The Vera case also involved a foundation using Mottes concrete that was not showing any “imminent danger of collapse.” Additionally, the Jemiola case involved a foundation that maintained its “structural integrity” without being “substantially impaired” during the policy periods in question.
Let’s further examine each case.
Karas et al. v. Liberty Ins. Corp. and Vera v. Liberty Mut. Fire Ins. Co.
The issues raised and merits of the arguments in Karas and Vera are nearly identical, and the court’s examination of those issues and the conclusions reached are indeed the same.
The court began by analyzing the applicability of the Beach substantial impairment standard to the collapse provision of the corresponding policy. It focused on whether a house that was still standing but “in imminent danger of falling over” because of cracks in the foundation “could be deemed to be in a state of collapse under a policy that excluded losses resulting from ‘settling, cracking, shrinkage, bulging or expansion’ of, among other things, pavement, foundations, walls and floors, ‘unless . . . collapse of a building . . . not otherwise excluded ensues,’ in which case the loss resulting from the collapse was covered.” Karas, 2019 WL 5955947, at *5 (citing Beach, 205 Conn. at 249–50).
While the language of the plaintiffs’ policy in the Karas case is somewhat different from that of the plaintiff’s policy in Beach, the Karas court found that the difference was not sufficient to remove the ambiguity identified in Beach pertaining to the term “collapse.” It went on to find that “although the collapse provision purports to exclude settling, cracking, shrinking, bulging and expansion from its purview, it does not express a clear intent to exclude coverage for a collapse that ensues from what initially began as unexceptional, run-of-the-mill settling, cracking, shrinking, bulging and expansion, but what later develops into a far more serious structural infirmity culminating in an actual or imminent collapse.” See Karas, 2019 WL 5955947, at *7.
The Karas court agreed “with the plaintiffs that the substantial impairment standard applies to the present case” because “the plaintiffs’ policy does not limit collapse coverage in words that unmistakably connote an actual collapse, whereby a building is reduced to a flattened form or rubble.” Id. at *11.
The Karas court adopted a temporal requirement to what constitutes a substantial impairment. Specifically, it held that an insured whose home has not actually collapsed must present evidence demonstrating that the home nevertheless is in imminent danger of such a collapse. It further stated that satisfaction of the substantial impairment standard depends “on the specific facts of the case and the strength and credibility of the expert testimony adduced by the insured and insurer.” Id.
The court took pains to explain their reasoning in deciding Beach, stating that the issue addressed “was whether a house that was still standing but ‘in imminent danger of falling over’ could nevertheless be deemed in a state of collapse.” Karas, 2019 WL 5955947, at *14. It further explained that, in deciding Beach, it had no reason to consider whether a building that was not in imminent danger of falling over could also be found to be in a state of collapse. The court further stated that, when it adopted the “substantial impairment” standard in Beach as an alternative to the “catastrophic event” standard, implicit in its holding was the requirement that a building be in imminent danger of falling down. Karas, 2019 WL 5955947, at *8.
The court also expounded on the “imminence requirement,” citing to and agreeing with the standard set in Queen Anne Park Homeowners Assn. v. State Farm Fire & Casualty Co., 352 P.3d 790 (Wash. 2015): “Considering the [p]olicy as a whole, [the court] conclude[s] that ‘substantial impairment of the structural integrity’ means the substantial impairment of the structural integrity of all or part of a building that renders all or part of the building unfit for its function or unsafe and, in this case, means more than mere settling, cracking, shrinkage, bulging, or expansion.” Id. at *10.
The Karas court determined that an imminence requirement does not render the collapse coverage illusory, as it merely gives effect to the reasonable expectation of the parties to the insurance contract. Karas, 2019 WL 5955947, at *18. In doing so, it specifically rejected the plaintiff’s argument that the substantial impairment standard was satisfied merely by evidence that a building will eventually fall down, even if it is in no present danger of doing so and likely can be safely occupied for years, if not decades.
While Beach noted the fact that the house had not yet caved in but ultimately would do so, the Karas court explained this was a statement of fact intended to merely underscore that an actual collapse was not necessary to trigger coverage under the standard adopted. It further highlighted the urgent nature of the problem encountered by the Beaches regarding their foundation, including the trial court’s determination that the house was in imminent danger of falling over. Karas, 2019 WL 5955947, at *11.
The Karas court concluded that the term “foundation” in the plaintiffs’ policies unambiguously included their basement walls. To reach this conclusion, it sought input from various building professionals, including the plaintiffs’ own experts, and interpreted the term “foundation” as a layperson would understand this term to be, and were persuaded that laypersons, with no special knowledge of building codes or home construction, would understand the concrete basement walls of a home to be part of its foundation. Karas, 2019 WL 5955947, at *12.
Further, in distinguishing the policy terms “foundation” and “footing,” the court looked to various dictionaries and found that, although footings are certainly part of a home’s foundation, they do not constitute the entire foundation, which also includes basement walls. This was confirmed by various government entities tasked with addressing Connecticut’s crumbling foundations problem, as well as by numerous general statutes and the court’s use of the term “foundation wall” when referring to the basement wall of a building in past cases. Id. at *13.
The court also discussed Bacewicz v. NGM Insurance Co., 2010 WL 3023882 (D. Conn. August 2, 2010), the first case in which a Connecticut court found the term “foundation” to be ambiguous. The Connecticut Supreme Court distinguished Bacewicz from the present matter, as Bacewicz relied on Turner v. State Farm Fire & Casualty Cos., 614 So. 2d 1029 (Ala. 1993), which did not analyze whether the term “foundation” is reasonably thought to exclude a home’s basement walls, but simply relied on the plaintiff’s subjective interpretation that it could be understood as only the footing beneath the basement walls. The court further highlighted the recent decisions throughout Connecticut that have relied on Bacewicz regarding the ambiguity of the term foundation, stating that the holding in each of these cases inherited the same analytical infirmities found in Bacewicz. Karas, 2019 WL 5955947, at *15.
The Karas court also interpreted the replacement value calculation provision of the policy, and found that an interpretation of this provision that would exclude a home’s basement walls from the definition of foundation runs afoul of the last antecedent rule, a principal of contract and statutory interpretation pursuant to which a limiting clause or phrase is read as modifying only the noun or phrase that immediately precedes it. The “replacement value calculation” provision at issue provided in relevant part: “To determine the amount of insurance required to equal [80 percent] of the full replacement cost of the building immediately before the loss, do not include the value of: (a) Excavations, foundations, piers or any supports which are below the undersurface of the lowest basement floor; . . .” As such, the phrase “below the undersurface of the lowest basement floor” in policies was held to modify only the phrase “any supports,” not the term “foundation.” Id. at *16.
For all the reasons above, the court concluded that the term “foundation” unambiguously includes a home’s basement walls.
The Karas court rejected the plaintiffs’ contention that the foundation exclusion should not be enforced because the policy expressly covers the “collapse of a building or any part of a building” and the foundation is part of a building. In rejecting this contention, the court observed that the “reason for or purpose of an exclusion clause in a policy is to eliminate from coverage specific losses … [that] except for the exclusion clause would remain under the coverage … [T]he word exclusion signifies … circumstances in which the insurance company will not assume liability for a specific risk or hazard that otherwise would be included within the general scope of the policy.” Id. at *27.
The Vera court affirmed the lower court, relying on the Karas decision issued the same day:
In Karas, we concluded “that, to meet the substantial impairment standard, an insured whose home has not actually collapsed must present evidence demonstrating that the home nevertheless is in imminent danger of such a collapse. Of course, whether this evidence satisfies the standard in any particular case necessarily will depend on the specific facts of the case and the strength and credibility of the expert testimony adduced by the insured and the insurer.”. . . We reach the same conclusion in the present case.
Vera, 2019 WL 5955936, at *3.
Jemiola v. Hartford Casualty Insurance Co.
The Jemiola case involved identical facts of a foundation constructed of Mottes concrete, which according to the plaintiff’s expert, “substantially impaired the walls’ structural integrity and will continue to do so until the walls no longer can support the weight of the house, at which point the house will collapse.” However, the expert “could offer no opinion as to when such a collapse might occur.” Jemiola , 2019 WL 5955904, at *3.
The Jemiola home was insured from 1986 to March 2005 with homeowners policies that “covered the collapse of the home resulting from one of several specified causes, but none of those policies defined the term ‘collapse.’” Id. at *1. Beginning in March 2005, the language of homeowners policies changed to the following:
. . . all of the homeowners’ policies . . . have defined the term [collapse] narrowly to mean “an abrupt falling down or caving in of a building or any part of a building with the result that the building or part of the building cannot be occupied for its current intended purpose.” Coverage for the home’s collapse under the policies issued since March, 2005, is further limited by the following three provisions: (1) “[a] building or any part of a building that is in danger of falling down or caving in is not considered to be in a state of collapse”; (2) “[a] part of a building that is standing is not considered to be in a state of collapse even if it has separated from another part of the building”; and (3) “[a] building or any part of a building that is standing is not considered to be in a state of collapse even if it shows evidence of cracking, bulging, sagging, bending, leaning, settling, shrinkage, or expansion.”
Id. at *1.
As an initial matter, the Jemiola court found that for the policies issued prior to March 2005 to apply, there must have been a substantial impairment of the structural integrity prior to 2006. The court went on to explain that expert testimony is required to establish the existence of a substantial impairment. The court analyzed the record, including Ms. Jemiola’s expert’s testimony, and found that the defendant, Hartford Casualty, met its burden of demonstrating the nonexistence of any material fact with respect to the earliest date by which the structural integrity of the basement walls was substantially impaired. Id. at *4.
The Jemiola court noted that the plaintiff first observed cracking in the basement concrete in 2006 but had no reason to believe that the basement walls were substantially impaired prior to that, as conveyed by her own expert witness. While the plaintiff raised other observations pertaining to the state of her home during that time frame, including cracks in her bedroom wall and nails popped out of kitchen walls, her expert never opined that those observations were connected to the cracks in the basement walls. Id. at *6.
As such, the court affirmed the trial court determination that the plaintiff failed to provide a factual basis for her claim that the structural integrity of her basement walls suffered from a substantial impairment prior to 2006. And, without a definition of collapse, no coverage existed under her pre-2005 policies. Id. at *8.
The court next addressed the plaintiff’s argument that the collapse language in her post-2005 policies did not unambiguously exclude coverage for deterioration of her basement walls.
The court held that the plaintiff’s claims were barred by the collapse policy language, as her home had not suffered “an abrupt falling down or caving in of a building or any part of a building” such that “it cannot be occupied for its intended purpose.” Conversely, it found that the plaintiff’s home was still standing, that she continued to live in the home, and that her own expert opined that the plaintiff could still live in her home safely for the foreseeable future, continuing to use the basement as she always had. Id. at *5.
The court also agreed with the trial court that even if the plaintiff’s home was in imminent danger of falling down, her claim would still be barred under the policy, which clarifies how to determine if collapse has not occurred: when the building “shows evidence of cracking, bulging, sagging, bending, leaning, [settling], shrinkage or expansion” but is still “standing” Id. at *5. The court, citing a plethora of other courts that have addressed this issue, concluded that the collapse provision of the policy unambiguously excludes coverage under the circumstances presented. Id. at *6.
The Jemiola court went on to explain that “there is no plausible construction of the phrase ‘abrupt falling down or caving in . . . with the result that the building . . . cannot be occupied for its current intended purpose’ that reasonably encompasses a home, such as the plaintiff’s, that is still standing and capable of being safely lived in for many years—if not decades—to come.” Id. at *7. It concluded by noting that even if the definition of the term “collapse” in the post-2005 policy was ambiguous and the Beach substantial impairment standard applied, the Karas decision concluded that a “substantial impairment” of the structural integrity of a building means that the building is in imminent danger of falling down and is therefore unsafe to occupy. The court found that it was undisputed that Ms. Jemiola’s home was in no such danger. Id. at *8.
Connecticut’s Next Steps
After numerous homeowners reported being affected by the defective concrete, the state of Connecticut took steps to address the problem:
- On October 6, 2015, the insurance commissioner issued a notice to all insurers writing homeowners coverage directing them not to cancel or refuse to renew an affected homeowner’s insurance coverage because of a foundation found to be crumbling or otherwise deteriorating.
- Connecticut allocated $5 million for foundation testing reimbursement in its 2017 state budget for homes built between 1983 and 2015 and located within a 20-mile radius of J.J. Mottes Concrete Company in Stafford Springs, Connecticut.
- Connecticut passed a law requiring municipalities to reassess residential properties with foundation issues at the owner’s request.
- Connecticut established an omnibus foundation replacement and reimbursement program through the legislature to assist owners of residential buildings with concrete foundations damaged by the presence of pyrrhotite, using a not-for-profit captive insurance company and the Crumbling Foundations Assistance Fund. The captive is prohibited from spending more than 10 percent of the money allocated on administrative costs.
Further, “[a]s of September 2019, the [Connecticut] Captive has identified 1,112 cases in Connecticut, with a potential liability of $121,541,521. Paid liability at that point totaled $13,084,661.” See Final Report of the Special Commission to Study the Financial and Economic Impacts of Crumbling Concrete Foundations due to the Presence of Pyrrhotite, The General Court, Commonwealth of Massachusetts (Dec. 31, 2019). at 13–14 (J.J. Mottes concrete was also used in foundations in Massachusetts, but Massachusetts did not have same legal precedent on “collapse” as Connecticut and therefore did not generate litigation).
Ultimately, despite an extremely difficult situation for thousands of Connecticut homeowners, the Connecticut Supreme Court determined and applied the terms of the homeowners insurance contracts as written. As a result of these decisions, as well as the cement company’s inability to pay any judgments, the state of Connecticut stepped up and has paid homeowners over $13 million for foundation replacements.
Laura Meyer Gregory is a partner of Sloane & Walsh LLP in Boston. A member of the firm’s insurance group, her practice concentrates on the representation of insurers and insureds in insurance coverage and bad faith matters, before state and federal trial and appellate courts. Additionally, she provides coverage opinions, advice and analysis to clients on coverage and bad faith issues, as well as preparing and responding to demands made pursuant to M.G.L. c. 93A. Ms. Gregory also handles cases involving bad faith and unfair claims handling claims, both within and without the context of coverage, and has litigated an insurance fraud claim successfully through trial. Ms. Gregory has specialized in insurance coverage and bad faith matters for more than 20 years and received the Chartered Property & Casualty Underwriter (CPCU) insurance industry designation in 1999.