When an organization that had purchased an apartment complex five years previously received a hazardous substance survey showing that asbestos was used throughout the buildings for insulation, it obtained a new appraisal. The appraisal report stated that the presence of asbestos diminished the value of the property by almost $2 million. Legal action, including motions for summary judgment by insurer and insured, followed denial by the insurer of the insured's claim under its property insurance for the property's diminished value.

The insurer argued, in principal part, that there was no coverage under the policy because: "(1) The installation of and presence of asbestos in the complex was not the result of a fortuitous event or external cause; (2) the mere presence of the asbestos did not constitute loss or destruction to insured property; (3) no loss or negligent installation occurred during the time the policy was in effect...."

The insured stressed that the subject insurance policy was what it termed a comprehensive "all-risk" policy that provided coverage unless the cause of loss was specifically excluded. With regard to its claim for the property's diminished value, the insured contended that "such cause of loss has not been specifically excluded in the insurance policy."

The insured appealed from a trial court grant of the insurer's motion for summary judgment and denial of its own.

The appeal court held that "....the diminution in value of (the subject property) due to the presence of asbestos installed during construction was not a covered loss within the policy's insuring clause." It cited precedent, with respect to comparable policy language, holding diminution of market value to be a measure of loss caused by something else rather than a cause of loss.

Noting that the subject policy covered the insured's real property against "direct loss or damage from cause of loss" except as specifically excluded, the court said that such event did not occur during the effective dates of the policy.

The judgment of the trial court was affirmed in favor of the insurer and against the insured.

(LEAFLAND GROUP-II, MONTGOMERY TOWERS LTD PARTNERSHIP, Counterclaimant-Plaintiff-Appellant v. INSURANCE COMPANY OF NORTH AMERICA, Counterclaimant-Defendant-Appellee. New Mexico Supreme Court. No. 20,400. September 21, 1994. CCH 1994 Fire and Casualty Cases, Paragraph 4978.)