The New Jersey Supreme Court recently unanimously held in Bardis v. Stinson, 2016 WL 1650509 (N.J. April 27, 2016) that the collapse of an insureds’ basement wall was not covered under a homeowner’s insurance policy as the policy did not afford coverage for collapses caused by “hidden construction defects.”
In Bardis, the insureds’ basement wall, which was built as part of an addition of their single-family home twenty years earlier, collapsed in December of 2009. The insured’s general liability and commercial dwelling policy provided limited coverage for “direct physical” losses, including collapse losses, stating “the collapse of a building or any structural part of a building that ensues” due to “[h]idden decay, unless such decay is known to an insured prior to the collapse.”
As the insureds’ expert, Michael Pierce, opined that a lateral bending failure due to excessive horizontal loads caused the collapse, and that the manner of construction in building the wall “certainly would not be the proper way of constructing a basement foundation wall system.” He further opined, “this foundation wall had hidden defects that would not have been immediately obvious to somebody doing an inspection inside the basement prior to the collapse.” As such, the insureds argued that loss was a “hidden decay” unknown to the insureds prior to the collapse. Both parties filed Motions for Summary Judgment in trial court, and the trial judge granted summary judgment to the insurer, holding that the insured failed to establish that the loss was caused by a hidden decay.
The Appellate Division in Bardis, relying heavily upon the reasonable expectations doctrine, reversed the trial court’s decision, concluding that the insureds “could have reasonably expected that their homeowner’s insurance policy would cover a gradual decline in strength of their basement wall, followed by its sudden collapse, after it stood for over twenty years.” Further, the Court found that the term “decay” is ambiguous and therefore could cover gradual declines in the strength of the wall. Accordingly, the Appellate Division held that a question of fact existed as to whether the wall collapsed over time as it weakened, constituting a collapse due to a hidden decay. The Honorable Paulette Sapp-Peterson, P.J.A.D. dissented, asserting that the trial court was correct in declaring that the term “decay” is not the same as the term “defect”, holding that “a ‘defect’ connotes imperfection from the outset, while ‘decay’ connotes a decline from a condition that was originally sound. One cannot force a square into a round hole.”
The Supreme Court did not issue its own opinion in reversing the Appellate Division’s decision, instead electing to rely upon the Honorable Paulette Sapp-Peterson, P.J.A.D.’s dissent. In doing so, the Supreme Court reinforced the importance of courts applying unambiguous policy language rather than relying on the reasonable expectations doctrine as a justification for adopting their own interpretations of unambiguous policy language.