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Commercial Property |
Bad Faith |
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Collapse |
Breach Of Contract |
Magwerks, a company that sold
manufactured camshafts, stored stock and equipment valued at $2 million in a
one-story, flat-roofed building. Monroe Guaranty (Monroe) issued a $1.25 million
insurance policy to Magwerks that covered the building and its personal
property. In the winter of 1997, heavy rains and some snow accumulated on the
roof of Magwerks's building and caused a section of the ceiling to crash to the
floor. Magwerks contacted Monroe to report the damage but stated it would
attempt to repair the problem itself. The company's employees covered the
resulting hole with plywood, used metal drums to catch leaking water, ran hoses
to divert water, and covered the equipment with tarps. However, more roof
panels eventually collapsed and caused damage to Magwerks's property.
At this point, Magwerks
filed a claim with Monroe. Monroe's adjuster conducted his own inspection and
then contacted an engineering firm. The firm ultimately determined that a
number of roof leaks had occurred over a long period of time and that
inadequate roof slope caused drain water to pond on the roof covering. Based on
these findings, the adjuster determined that policy provisions excluded
coverage for Magwerks's claim. It was Monroe's position that the loss was
excluded because of wear and tear to the roof, decay, deterioration, and
defective design. In addition, the damage did not satisfy the definition of a
"collapse" (a covered event under the policy) because the structural
integrity of the roof remained intact and functional. Monroe concluded that
Magwerks's losses were excluded.
Magwerks filed a complaint
for breach of contract and also charged Monroe with lack of good faith and fair
dealing. The trial court determined that Monroe had breached its contract
because the damage constituted a "collapse." In the end, Magwerks was
awarded $5.1 million, $4 million of which was damages for bad faith handling of
the claim.
Monroe appealed, claiming
that the trial court erroneously decided there was a building "collapse."
Because the policy did not define the term "collapse," the court
considered both traditional and modern views adopted by the insurance industry.
Monroe argued in favor of the traditional view, limited to an event that occurs
suddenly and results in complete disintegration. A more modern and broader view
defined collapse as substantial impairment of the structural integrity of the
building or any part of the building. The court adopted the broader definition
but concluded that that the lower court did not have sufficient evidence to
determine whether or not there was a collapse under this definition. The case
was reversed and remanded.
Monroe Guaranty Insurance
Company vs. Magwerks Corporation-No. 49A0208-CV-622-Court of Appeals of
Indiana--September 24, 2003--796 North Eastern Reporter 2d 326