Mary Ann Jordan bought a 70-year old home in Santa Monica, and insured it under a homeowners policy purchased from Allstate. The policy contained language excluding coverage for damage caused by “. . . rust or other corrosion, mold, [or] wet or dry rot” and excluding damage caused by "collapse". The exclusion for "collapse," however, was subject to an exception: in a separate section of the policy entitled "additional coverage," the insurer agreed that certain collapses would be covered, if it was
“a sudden and accidental direct physical loss caused by one or more of the following: [¶] . . . [¶] b) hidden decay of the building structure; [¶] [and] . . . f) defective methods or materials used in construction, repair, remodeling or renovation, but only if the collapse occurs in the course of such construction, repair, remodeling or renovation.”
Jordan was advised that her home was sustaining damage as the result of a water-borne fungus called Meruliporia Incrassata (Poria), which was causing flooring to give way and a window to fall out of the wall of the home. She presented a claim to Allstate, but the insurer rejected it on the ground that the Poria fungus constituted a form of excluded "wet or dry rot." Jordan filed suit against Allstate. The trial court concluded that Allstate was correct and granted summary judgment in the insurer's favor.
The Court of Appeal has reversed and returned the case for further proceedings and possible trial. The court initially agreed with Allstate's contention that the usual and ordinary meaning of "dry rot" would encompass decay of the kind caused by the Poria fungus. However, the court also concludes that the coverage otherwise excluded may be given back by the "additional coverage" for collapses caused by "hidden decay." The court notes the existence of a contradiction between the exclusion of dry rot and the extension of coverage for damage cause by decay:
[W]e might reconcile this contradiction in one of two ways. First, we could conclude that a collapse due to “hidden decay” would be covered, but not if such decay was caused by “wet or dry rot”; or, second, we could conclude that coverage for a collapse due to “hidden decay” was provided, but non-collapse damage caused by “wet or dry rot” was excluded. Each of these constructions of the policy language is reasonable. The first is consistent with Allstate’s contention that the exclusion for “wet or dry rot” precludes coverage irrespective of whether there is a basis for coverage under the exception to the collapse exclusion. On the other hand, the second interpretation is advanced by Jordan and supports her claim for coverage under the collapse provisions of the “additional coverage” section of the policy. Thus, when read in the context of the entire policy, particularly the provision granting coverage for a collapse caused by “hidden decay,” the effect and application of the exclusion for a loss caused by wet or dry rot is not at all clear.
Finding that the interpretation proposed by Jordan was more consistent with the "objectively reasonable expectations" of the insured, the court resolves the contradiction in her favor. The court finds, however, that there is a factual question whether a true "collapse" has occurred in Jordan's case. For purposes of resolving that issue, it has ordered the case returned to the trial court for further proceedings.
The decision in Jordan v. Allstate Insurance Company (March 1, 2004), Case No. B164112, can be found at these links in PDF and Word formats.
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