Collapse, Hidden Decay, and the Earth Movement Exclusion
Ridgeline Retail owns a 1974 single-story building insured on a special form. The policy covers 'risk of direct physical loss' and adds coverage for 'collapse' caused by 'hidden decay.' It excludes earth movement, including 'settling, shrinking, and expansion of soil,' and faulty design. In March, the rear masonry wall bowed four inches and a 30-foot roof section fell. The insured's engineer found rotted timber piles under the slab and soil expansion from a broken irrigation line that had leaked for months. The city condemned the building. The insurer paid $85,000 to shore the structure but denied $620,000 for the wall and roof, citing earth movement and faulty design. The policy also states: 'We will pay for loss caused by a peril not excluded, even if an excluded peril contributed to the loss.' The insured argues the decay was hidden and that collapse is additional coverage. The parties dispute whether the wall 'collapsed' before the roof fell and whether the soil expansion or the decay was the efficient proximate cause.
1. Who bears the burden of proof on the collapse additional coverage, the exclusions, and the ensuing-loss clause, and in what order should a court analyze the claim?
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Burden sequence. The insured bears the initial burden to show accidental direct physical loss during the policy period. That is easily met by the wall and roof damage. The insurer then bears the burden to prove that an exclusion applies. If the insurer carries that burden, the insured must prove that an exception, additional coverage, or ensuing-loss provision restores coverage.
Collapse additional coverage. Because collapse is an additional grant, the insured must show the loss fits its terms, including that the decay was hidden. Hidden means not visible or known before the loss. The engineer's report supports the insured if the rot was concealed behind the slab and masonry. The insurer will argue that the insured should have discovered the leaking line.
Order of analysis. A court should first decide whether there was a collapse at all. If the wall bowed and the roof fell, that is either actual collapse or substantial impairment. Next, the court applies the earth movement exclusion. The insurer must show the soil expansion caused the loss. Then the court applies the ensuing-loss clause only if the excluded peril and the covered loss are analytically separate. The court should not merge these steps; the insured's additional coverage does not erase the exclusion automatically.
2. Apply the efficient proximate cause doctrine and the ensuing-loss clause to the $620,000. Should the court grant summary judgment for either party?
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Efficient proximate cause. The doctrine asks which cause set the other causes in motion. If the broken irrigation line caused soil expansion, which caused the wall to bow and the roof to fall, the excluded earth movement is the efficient proximate cause and the entire loss is excluded. If the hidden decay independently weakened the piles and the collapse followed as a separate event, the collapse may be covered despite the contributing earth movement.
Ensuing-loss clause. The clause restores coverage only for a new loss caused by a non-excluded peril, not for the excluded peril itself. The insured will argue that the roof fall was a separate ensuing loss after the wall failed. The insurer will argue that the wall bowing, the roof fall, and the soil movement were one continuous process, so there was no break in causation. Many courts accept that argument when the damage is part of a single progressive failure.
Likely outcome. Summary judgment is unlikely for either side. The parties dispute whether the wall collapsed before the roof fell, whether the decay was hidden, and whether the soil expansion or decay was dominant. Those are fact questions. A court could grant partial relief: the $85,000 already paid is consistent with temporary shoring, but the wall damage is close to the excluded earth movement. The roof damage has a stronger claim as an ensuing loss. The insured's best route is to separate the collapse from the soil movement; the insurer's best route is to show a single continuous chain.
3. If you represented the insurer, what factual and drafting points would you press?
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Factual points. Develop the engineer's timeline: when the irrigation line broke, how long it leaked, when the wall first bowed, and whether the roof fell at the same time or later. Show that the insured had notice of cracking or sticking doors before the loss, which undermines 'hidden' decay. Establish that the pile design was inadequate for the soil conditions. Use the $85,000 payment to show that the insurer responded promptly and that the disputed amount is the collapse damage, not emergency shoring. Obtain the city inspector's report and photographs.
Drafting points. The policy should define collapse, preferably requiring actual falling down or substantial impairment, and should state whether imminent collapse is covered. The hidden decay grant should state that it is subject to the earth movement exclusion and should not be treated as an independent override. The ensuing-loss clause should state that it does not restore coverage when the excluded peril and the resulting loss are part of one continuous process. The insurer should add an anti-concurrent-causation clause if enforceable in the jurisdiction. It should also consider a sublimit for collapse and a requirement that the insured provide an engineering report before coverage is triggered.
Caution. An anti-concurrent-causation clause can be controversial, and a court may still apply the efficient proximate cause doctrine. The insurer should not rely on drafting alone; claim handling should document causation early.