Zimmer, Duncan & Cole

Before the Walls Come Tumbling Down

Most of us (including the attorney writing this column) never read our insurance policies. For starters, the small print and the sheer volume of the verbiage make it an uninviting task. It also seems like those policies contain a lot of double negatives, which tends to make it not hard to stay not oriented when deciphering them. (It took me five minutes to craft that double negative, by which I mean "it's easy to get lost".)

To complicate matters, few of the policy provisos have much significance to us when we read them in a vacuum. It's difficult to interpret them without a specific circumstance fresh in our minds. Moreover, since the use of language is not a perfect science, our interpretation may not be what was intended by the insurer.

Our courts understand all of these problems. They know that we don't read our insurance policies. They also know we don't have any input into drafting them. And they know that the policies are written by a team of lawyers who are paid to be clever and vague.

As a result, our courts have adopted special rules about how they "read" insurance policies when there is a question about coverage.

One rule is to interpret policy exclusions as narrowly as possible. Another is called the rule of liberal construction. If an insurance policy's provisions are ambiguous (if they can be interpreted in more than one way), the court uses an interpretation that favors the insured, not the insurance company. This rule discourages clever drafting and encourages clearer policies.

But in the same way that it's impossible for us read a policy while imagining every risk we might face, it's just as difficult for the insurer to write that policy. So ambiguities always pop up.

That's what we find in our state Supreme Court's opinion for this week, Zoo Properties, LLP v. Midwest Family Mutual Insurance (2011 S.D. 11).

Zoo Properties is the owner of "The Zoo Bar," which was located near Northern State's campus in Aberdeen.

In 2009, the bar owners noticed cracking and sagging in their ceiling. They filed a claim with their property insurer and then investigated the cracking and sagging. They learned from an engineer that although the building hadn't collapsed yet, that's what was almost certain to happen soon.

Midwest Family denied the claim because the policy language covered a building "collapse" but excluded "cracking". Specifically, the insurance provision said this: "We will pay for loss or damage caused by or resulting from risks of direct physical loss involving collapse of a building or any part of a building....Collapse does not include settling, cracking, shrinkage, bulging or expansion."

The trial court agreed with Midwest Family Insurance's interpretation, and The Zoo Bar appealed that decision.

Our Court explained that much litigation has unfolded in other states about the ambiguous term "collapse". There are three schools of thought as to what that term means in an insurance policy. 

Some courts follow a very literal interpretation, and find there is a collapse only when the building actually falls down. Other courts are at the other end of the spectrum, and find collapse to mean a "substantial impairment" to the structure, even if it is still standing.

The third view is somewhere in between. This last group of courts permits an insurance claim when an existing building is faced with an imminent or impending collapse. In other words, the owner can file a claim before the building collapses, as long as an engineer agrees that a collapse is coming soon.

The Court noted that this view doesn't require a strained reading of the policy language. It also takes away the incentive for policyholders to take the risk of waiting for their buildings to actually collapse.

The Court adopted this sensible, middle-of-the-road interpretation, which means that The Zoo Bar's claim will be permitted. And, like many results, this decision is a compromise somewhere in the middle.

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You can find this opinion and others on the state Supreme Court website, at www.sdjudicial.com.

Have a question about the law? In this column, I explain recent court cases and answer your legal questions in plain English. Send an email to dan@zdclaw.com or a letter to "Less Legalese, Please," 5000 S. Broadband Lane, Suite 107, Sioux Falls, SD 57108. I will try to answer as many as I can with as little "legal-ese" as possible.

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Daniel K. Brendtro is a trial attorney from Sioux Falls. His firm, Zimmer, Duncan & Cole, LLP, has represented clients statewide since 1948 on all types of cases, including injuries, accidents, criminal defense, and business lawsuits.