Facts

Plaintiff Patti and Terry Hoban, owners of the Valley Bowl bowling center, filed suit against Nova Casualty Co. in relation to Nova's handling of plaintiffs' insurance claim after two roof trusses supporting Valley Bowl's roof collapsed. Plaintiffs filed suit after defendant denied their first-party property insurance claim for a partial roof collapse. Plaintiffs' claim was predicated upon the fact that two roof trusses partially and simultaneously collapsed and the County of Madera ordered the closure of the bowling center for public safety reasons until the repairs were completed and approved by the County of Madera. Plaintiffs' policy provided a specified additional coverage to protect against the risk of collapse, including the collapse of part of a building. Defendant's structural engineer hired to investigate the incident determined one truss failed due to a hidden anomaly present in the wood and degradation of the wood due to natural cycling of temperature and humidity, while the other truss failed due to defective construction and degradation of the wood due to natural cycling of temperature and humidity. Defendants claimed that there could only be coverage for collapse if the entire building crumbled to the ground. Because plaintiffs' plaintiffs mitigated their damages by timely shoring the roof to prevent a complete collapse, defendant claimed that the additional collapse coverage did not apply. Defendants also denied plaintiffs' insurance claim under various exclusions found in the general policy, such as wear and tear, deterioration, and hidden decay.

PLAINTIFFS' CONTENTIONS: Plaintiffs contended that an abrupt collapse occurred for insurance purposes because part of the building fell down/caved in, and it could not be occupied for its intended purpose per the County of Madera's building inspector. Plaintiffs argued that their contract with defendant covered damages arising from a partial collapse, not only where a building had completely collapsed to the ground. Plaintiffs also contended that defendant failed to conduct a prompt, thorough, or objective investigation into the critical factual issue of whether any part of the bowling center fell down or caved in, and later ignored the evidence that unquestionably demonstrated that part of the bowling center collapsed. Plaintiffs further contended that defendant failed to objectively evaluate plaintiffs' claim because it admitted it was aware of no California case specifically addressing its policy language on collapse, but nonetheless ignored out of state authorities that were on point, instructive, and demonstrated why investigating the issue of partial collapse was imperative to the evaluation of the claim. Plaintiffs also argued that defendant's coverage position was arbitrary, unreasonable, and placed its interests ahead of Plaintiffs' by ignoring the occupancy requirement in the collapse coverage, ignoring that its policy specifically covers partial collapse, and adding a requirement to its policy that did not exist, that the entire building crumble to the ground. Plaintiffs contended that defendant's coverage analysis was also improperly based on cases that it knew dealt with collapse coverage provisions that were vastly different than the provision in defendant's policy. Plaintiffs further argued that defendant retained a lawyer to provide a coverage opinion after it had already made a coverage decision and communicated its decision to plaintiffs to improperly assert the advice of counsel defense to insulate itself from liability. Lastly, plaintiffs contended that defendant improperly relied upon exclusions that it knew were not applicable to claims involving the additional coverage for collapse simply to avoid its coverage obligations.

DEFENDANT'S CONTENTIONS: Defendants claimed no coverage for the incident because the building was still standing, and plaintiffs' claim of breach of the implied covenant of good faith and fair dealing failed as well.

Result

The court first cited general principles of insurance policy interpretation under California law, concluding that the language, abrupt collapse, was ambiguous and should be interpreted in favor of the plaintiffs. The court determined a layperson would reasonably interpret plaintiffs' policy to provide coverage for partial collapses of part of a building (i.e., partial collapse) that renders it unusable, even if the building has not fully crumbled to the ground. The court granted plaintiffs' motion for summary judgment as to their breach of contract claim on these grounds, and denied defendant's motion for summary judgment on this claim. The court also granted defendant's motion for summary judgment on the breach of implied covenant of good faith and fair dealing claim because the court determined defendant's decision to withhold payment was based on a genuine dispute over coverage.