On February 22, 2019, the First Circuit Court of Appeals (“First Circuit”) denied Church Mutual’s appeal claiming that the United States District Court in Springfield (“district court”) used an overly broad definition of the term “decay” in ruling an exclusion in the Church Mutual insurance policy issued to the Easthampton Congregational Church (“Church”) did not apply.
The suit arose after the Church’s Fellowship Hall ceiling collapsed one Sunday afternoon in April of 2016. By some miracle, the ceiling collapse occurred not long after 80-100 congregants had left the Fellowship Hall, and not a single person was injured in the incident. Someone certainly seems to have been watching over this congregation. Church Mutual denied coverage for the collapse and resulting damage based upon the policy excluding loss based on “decay.”
In upholding the district court’s decision in favor of the Church having coverage, the First Circuit’s reasoning slightly differed from the district court’s analysis. However, both courts found the determining factor was the failure of the policy to define the term “decay” in the exclusion Church Mutual relied upon in denying the Church any coverage.
The parties both have long respected positions in their respective communities
Church Mutual, was formed in Wisconsin in 1897 and is now a nationwide insurer that insures religious institutions. Claiming roots in American optimism and a progressive-minded pioneer spirit, the insurer’s initial mission was insuring congregations, pastors, and teachers against fire and lightning losses, when it started as a small-town insurance company. Over the years Church Mutual has grown and has moved into every one of the 50 states, still covering congregations though now offering much broader coverage. Church Mutual is rated “A” by AM Best.
The Easthampton Congregational Church (“the Church”), is a religious institution in Hampton County. In 1855, the Church as it stands today was built, after the original building burned down in January 1854. There was no insurance for the 1854 fire, but the Church’s original benefactor agreed to pay for reconstruction, which was almost complete the following August when it burned down again, and again the benefactor paid for it to be rebuilt in 1855. The story goes, the bricks of the Church are painted white because they were reused after the two fires. The benefactor learned about with the newfangled insurance industry after the Church was finally completed in 1855, and just in time. A seminary the same benefactor had paid for in Easthampton burned down in 1857 and was thankfully Church. Then, in 1862, a big gust of wind blew the spire of the Church over to pierce the ground beside the sanctuary, again, insurance helped the Church rebuild. The Fellowship Hall, where the 2016 ceiling collapse occurred, was also built in the mid-19th century.
Church Mutual’ policy for the Easthampton Congregational Church
Church Mutual issued a three-year policy of insurance to the Church for the policy period of June 6, 2014, to June 6, 2017. The policy included a Building and Personal Property Coverage Form, that provided indemnity to the Church “… for direct physical loss of or damage to Covered Property at the premises described in the Declarations Page caused by or resulting from any Covered Cause of Loss.” as well as other coverages. The Property Coverage limit of loss under the policy was $5,353,000.
The policy excluded coverages for defective construction or renovation after work was completed, but provided for additional collapse coverage for “(d)ecay that is hidden from view.”
Fellowship Hall ceiling collapses
On Sunday, April 24, 2016, not long after 80-100 congregants had left Fellowship Hall where they gather for refreshments after Sunday services, the whole ceiling fell two stories to the floor. Layers of ceiling tile, sheetrock, lathe and plaster, and insulation had been suspended only by old cut nails that finally gave way and came out of the ceiling joists, filling the 40×70 foot room with debris.
The hall was empty at the time of the collapse, and no construction or renovation was ongoing or had recently taken place, at the Church. The Church immediately filed a claim with Church Mutual.
Faulty construction vs. decay
A forensic investigation was conducted by a civil engineer, who was sent to the Church Fellowship Hall by Church Mutual, and the insurer claims that his report clearly shows faulty construction materials to be the sole cause of the collapse. The report found that subsequent layers of sheetrock and ceiling tile were attached to the lathe and plaster, and were not tied into the ceiling joists in any way, and a layer of insulation sat on top of the ceiling between the joists, adding weight to the load carried by cut nails. The expert opines that the cause of the ceiling collapse was the nails pulling out of the ceiling joists.
The report also states,
The smooth nail’s connection is subject to significant loss of strength over time due to weakening of the material’s grip on the fasteners, resulting in withdrawal. The weakening of the connection is caused by cyclical volumetric changes induce[d] by normal temperature and moisture changes in the building materials.”
The Church contends that this collapse was due to unseen decay, and this portion of the forensic report supports that.
Noting that the policy failed to define “decay,” the district-court magistrate judge reasoned that defining “decay” as ‘gradual deterioration or decline in strength or soundness’ was more applicable in this case than ‘organic decomposition’ or ‘rot.’ And, in the district court, the question was not one of fact, rather an interpretation of the policy, after the Church and Church Mutual cross-moved for summary judgment.
The magistrate judge cited the portion of the forensic report that notes the smooth nails lost their grip over time, due to constant cyclical pressure and temperature changes, as evidence that there was a gradual deterioration or decline in strength or soundness. She also found that the Church could have had no knowledge of this decay and that the exclusion in the policy from collapses after construction or renovation was irrelevant due to decay causing the collapse.
The district court enters summary judgment for the Church
On September 11, 2018, the district court entered summary judgment for the Church in the agreed upon amount of $118,085.82 and denied Church Mutual’s summary judgment motion. l. Church Mutual filed its notice of appeal, the next day, on September 12, 2018.
Church Mutual’s argued the district court used an overbroad definition of “decay”
Church Mutual argued in its appeal that the policy did not cover a collapse was unprotected by their policy, that the magistrate judge incorrectly applied an overly broad definition of “decay,” and that upholding the district court’s summary judgment for the plaintiff would set an unreasonable precedent. Church Mutual argued that, if followed, the district court’s ruling, would make the exclusion as collapse would qualify as being caused by decay. However, the First Circuit firmly rejected this argument noting the Church Mutual was seeking relief from “a self-inflicted problem” since Church Mutual “which wrote the Policy, could simply have defined “decay” narrowly or limited the coverage period.”
First Circuit affirms, although with slightly different reasoning
In the First Circuit’s decision, they noted that the parties agreed that Massachusetts law applied to the interpretation of the insurance contract. Under Massachusetts law, the general rules of contract interpretation apply to resolve a dispute over the meaning of an insurance policy. First, the Church bears the burden of proving that the insuring agreement of the policy covers the claim in question. If the insurer attempts to argue there is no coverage because of an exclusion, the insurer has the burden of proving the exclusion does apply. If the insurer successfully proves the application of an exclusion, then the insured must prove an exception to the exclusion to have any coverage.
In this case, the First Circuit agreed with the district court that the exclusion was ambiguous as to the meaning of “decay.” Church Mutual did not define “decay” in its policy. The district court found the dictionary meaning of “decay” to refer to both organic decomposition and a broader meaning of the word encompassing the losing of strength or structural integrity.
The district court had found several definitions of “decay,” in Merriam-Webster Dictionary and the Oxford English Dictionary but found only one meaning applicable.
The First Circuit instead found that multiple definitions might be applicable. However, since a reasonable person could define “decay” using either “rot” or “progressive decline” as a meaning, the appellate judges found the word “decay” as used in the policy ambiguous.
The First Circuit then cited Massachusetts case law decisions holding that, in a contract, when “a term is ‘susceptible of more than one meaning and reasonably intelligent persons would differ as to which meaning is the proper one,’ the term is ambiguous.”
Based on the finding of an ambiguity, the First Circuit applied the Massachusetts rule of insurance contract construction that where, as here, Church Mutual drafted the contract the court will construe any ambiguity against the insurer and in favor of the insured.
The decision for the Church in the First Circuit
The First Circuit affirmed the district court’s decision in favor of the Church and awarded it the cost of the appeal.