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DENC, LLC v. Philadelphia Indemnity Insurance Co.

United States District Court, M.D. North Carolina

October 15, 2019

DENC, LLC, Plaintiff,
v.
PHILADELPHIA INDEMNITY INSURANCE COMPANY, Defendant.

          MEMORANDUM OPINION AND ORDER

          CATHERINE C. EAGLES, DISTRICT JUDGE.

         On January 14, 2018, there was a party at an apartment complex owned by DENC, LLC, and leased to Elon University. During the party, the concrete-floored breezeway supported by wooden beams and connecting the second-floor apartments in one of the buildings suddenly shifted downward by roughly one foot; the concrete flooring cracked; debris and part of the breezeway fell; and over one hundred students quickly left the building. The applicable provisions in DENC's insurance contract with Philadelphia Indemnity Insurance Company cover this kind of collapse, and no exclusions apply. Summary judgment on the coverage and breach of contract issues will be granted in favor of DENC and against Philadelphia. The motions for summary judgment related to other claims will be resolved by separate order as time permits.

         BACKGROUND

         In 2013, DENC purchased The Crest at Elon, an apartment complex built in 2004. Philadelphia issued a commercial lines insurance policy to DENC for “direct physical loss” to The Crest, if the loss commenced during the relevant policy period. The policy at issue here covered November 25, 2017, to November 25, 2018. As an “all-risk” policy, it covers risks unless they are expressly excluded or limited by the policy itself. See Doc. 32-8 at 112 (“Covered Causes of Loss means Risks of Direct Physical Loss unless the ‘loss' is: 1. Excluded in Section B., Exclusions; or 2. Limited in Section C., Limitations; that follow.”); Doc. 34-16 at 11-12.

         Building 2020, the building at issue, has four apartments on each of three stories, with the overall capacity for forty-eight residents. Doc. 2 at ¶ 16; Doc. 14 at ¶ 16. In the early morning hours on January 14, 2018, a large number of students gathered on the second-floor breezeway of Building 2020 for a party. According to resident statements, party attendees “started jumping in the breezeway when a certain song had started playing, ” and “the floor abruptly collapsed underneath the students.” Doc. 34-6 at ¶ 10; see also Doc. 34-7 at ¶ 11.[1]

         Surveillance video, depicting two stairways on different sides of Building 2020, shows that from 1:12 to 1:16 a.m. on January 14, some 100 people left the building. Some walked quickly downstairs, but others walked at a normal speed, talking with other people or looking at their phones. A few students went back upstairs, but-at least until the 1:20 am cutoff of the video provided-the vast majority of students did not return to the second floor. The surveillance video does not show the second-floor breezeway itself. See Doc. 34-4 (notice of manual filing of video); Doc. 34-5.

         Another video, titled “Elon Student Video, ” shows a cell phone recording of a young man jumping on a crack in a concrete pathway, which Philadelphia states is Building 2020's second-floor breezeway after the January 14 event. See Doc. 37 (notice of manual filing of video); Doc. 36 at 7-8.[2] The video shows only that second-floor view; it does not show the exterior of or underneath the breezeway.

         Two student reporters viewed the breezeway the morning after the party. In their testimony, each characterized what happened to the building as a “collapse.” Doc. 34-6 at ¶¶ 7-10; Doc. 34-7 at ¶¶ 7, 9-10. They each observed that part of the breezeway had fallen to the ground, and the rest was hanging down at least one foot. Doc. 34-6 at ¶ 9; Doc. 34-7 at ¶¶ 9-10. They each saw a significant amount of debris on the ground below the second-floor breezeway, and a large hole in the ceiling of the first-floor breezeway. Doc. 34-6 at ¶ 9; Doc. 34-7 at ¶¶ 9-10. Philadelphia has not disputed these facts.[3]

         After the January 14 events, DENC immediately notified Philadelphia. Doc. 2 at ¶ 32; Doc. 14 at ¶ 32. Philadelphia retained an adjuster, William Nunn, who inspected the breezeway on January 16. See Docs. 32-6, 32-11. A few days later, Mr. Nunn wrote to Philadelphia that “[t]he sole and proximate cause of this loss is water damage occurring over an extended period of time causing the second floor breezeway to sag and the light weight concrete finished [sic] to crack.” Doc. 32-11 at 3. Although he noted that “an area of the 2nd floor breezeway was cracking and sagging, ” id., he did not further describe the extent of the damage.

         By January 16, 2018, the building had been condemned. Doc. 34-8. Mr. Nunn retained a structural engineer, Steven Moore, to assess the breezeway. Doc. 32-12 at 1. Mr. Moore visited The Crest on January 31 and issued his report on February 8. Doc. 32-14 at 2, 4. He catalogued multiple ways in which water had seeped into the breezeway's wood framing and photographed the resulting biological growth and wood decay. Doc. 32-14 at 4-12. He did not describe the damage to the breezeway's exterior, such as the distance it had fallen down or any resulting debris on the ground, though he subsequently testified that “it's obvious, visual to see that . . . the area that dropped, [is] lower than it would have been left in a usable condition.” Doc. 34-10 at 14.

         In his report, Mr. Moore concluded that the building “has sustained significant long-term water intrusion which ultimately resulted in the wood framing (structural) member's inability to support the dead (slab) and live (occupant) loads.” Doc. 32-14 at 12. As the wood-frame “structural elements of the breezeway” had deteriorated, the concrete slab lacked the support it required-and once it became a “suspended” slab, it could no longer “carry weight.” Doc. 34-10 at 13. Mr. Moore attributed this water intrusion to the “[f]ailure to properly install a water management system on the walls, a properly integrated waterproof system for the walkway slab and framing configuration, and improper venting of the dryers.” Doc. 32-14 at 12. He opined, therefore, that “[t]he damage is not the result of a sudden, short-term event.” Id. He advised that no one should use the breezeway in its current condition. Id. at 13.

         DENC retained an engineer, Steven Allred, who did not issue a report but who testified that the breezeway was sagging because the concrete had broken. Doc. 32-17 at 11. The damaged second-floor breezeway was “supported by the remaining structure underneath it.” Id. at 12. Like Mr. Moore, he did not describe how far it had fallen down or how much of it was attached to the building. Mr. Allred also concluded that the damage to the breezeway's supporting wood trusses was due to moisture from the dryer vents, which vented “to an enclosed space” rather than outside the building. Id. at 13.

         Philadelphia eventually denied coverage for DENC's losses. This case followed.

         GENERAL LEGAL PRINCIPLES

         The parties agree that North Carolina law applies in interpreting the insurance contract between DENC and Philadelphia. DENC, as the insured, “has the initial burden of bringing itself within the insuring language of the policy.” John S. Clark Co., Inc. v. United Nat'l Ins. Co., 304 F.Supp.2d 758, 764 (M.D. N.C. 2004) (quoting Hobson Constr. Co., Inc. v. Great Am. Ins. Co., 71 N.C.App. 586, 590, 322 S.E.2d 632, 635 (1984)).[4] “[T]he burden then shifts to the insurer to prove that a policy exclusion excepts the particular injury from coverage.” Alliance Mut. Ins. Co. v. Dove, 214 N.C.App. 481, 483, 714 S.E.2d 782, 784 (2011). “Recovery will be allowed under a policy affording ‘all risks' coverage for all losses of a fortuitous (external) nature not resulting from misconduct or fraud, unless the policy contains a specific provision expressly excluding loss from coverage. The term ‘all risks' is not to be given a restrictive meaning.” Cleveland Const., Inc. v. Fireman's Fund Ins. Co., 819 F.Supp.2d 477, 481 (W.D. N.C. 2011) (quoting Avis v. Hartford Fire Ins. Co., 283 N.C. 142, 146, 195 S.E.2d 545, 547 (1973)).

         The interpretation of language in an insurance policy is a question of law for the courts. Guyther v. Nationwide Mut. Fire Ins. Co., 109 N.C.App. 506, 512, 428 S.E.2d 238, 241 (1993). Courts construe any ambiguities in insurance contract provisions against the insurer. Markham v. Nationwide Mut. Fire Ins. Co., 125 N.C.App. 443, 454, 481 S.E.2d 349, 356 (1997); see also Guyther, 109 N.C.App. at 512, 428 S.E.2d at 241. Indeed, the fact that the parties cannot agree on the meaning of a particular term in a policy “is some evidence that a term is ambiguous, ” and so “is the fact that courts in various jurisdictions have a difference of opinion regarding what definition to give a policy term.” Id. Moreover, “as our courts are not favorably disposed toward provisions limiting the scope of coverage, exclusions are to be strictly construed to provide the coverage which would otherwise be afforded by the policy.” Markham, 125 N.C.App. at 454, 481 S.E.2d at 356.

         THE POLICY LANGUAGE

         It is undisputed that the loss here is excluded by several exclusions in the policy.[5]That is not the end of the question, however, as the policy contains an endorsement entitled “Collapse - Exclusion and Additional Coverage Re-stated.” Doc. 32-8 at 181- 83. That provision both provides coverage in certain circumstances and excludes coverage in others, in a confusing morass of definitions, exclusions, and exceptions.

         Like many insurance policies, the policy here includes provisions that are elsewhere deleted and modified. While there is language about “collapse” in the body of the policy, it is later deleted in favor of the Collapse Endorsement at issue here.[6]

         The Collapse Endorsement begins with exclusions of coverage for “collapse, including an abrupt falling down or caving in.”[7] Doc. 32-8 at 181 at § I(B)(2)(i)(1). Later on the same page, however, it says that “if collapse results in a Covered Cause of Loss, we will pay for the loss, ” and specifically provides that the exclusion “does not apply to collapse caused by weight of people or personal property, ” Doc. 32-8 at 181 at § I(B)(2)(i)(b)(iv), and that the exclusion does not apply “to the extent that coverage is provided under the Additional Coverage - Collapse.” Doc. 32-8 at 181 at § I(B)(2)(i)(a). The referenced “Additional Coverage - Collapse” language follows, and it provides coverage “only” for “an abrupt collapse, ” defined as “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 intended purpose.” § II(D)(1).

         Having excluded coverage for “abrupt” “collapse” in § I(B)(2)(i)(1), and then given back coverage for “abrupt collapse” in § II(D)(1), the Additional Coverage section of the Collapse Endorsement again takes it away in some situations or limits it in others. § II(D)(2), II(D)(3). In § II(D)(2), the Collapse Endorsement provides coverage for loss “caused by abrupt collapse of a ‘building' or any part of a ‘building' if such collapse is caused only by one or more of the following, ” including:

a. “Building” decay that is hidden from view, unless the presence of such decay is known to an insured prior to collapse;
. . .
d. Use of defective material or methods in construction, remodeling or renovation if the abrupt collapse occurs after the construction, remodeling or renovation is complete, but only if the collapse is caused in part by:
(1) A cause of loss listed in 2.a.; . . . or
(4) Weight of people or personal property.

         Section II(D)(2). Neither “cause” nor “caused by” is defined in the Definitions section of the policy, Doc. 32-8 at 35 at § IV; see also Id. at 112-22, and neither party has directed the Court's attention to any other place in the 183-page policy where the word “caused” or the phrase “caused by” are defined.

         Under § II(D)(3), Philadelphia further restricts covered losses, stating that the Additional Coverage - Collapse “does not apply to”:

a. A “building” or any part of a “building” that is in danger of falling down or caving in;
b. A part of a “building” that is standing, even if it has separated from another part of the “building”; or
c. A “building” that is standing or any part of a “building” that is standing, even if it shows evidence of cracking, bulging, sagging, bending, ...

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