131_C106

Collapse Coverage Did Not Apply To Replace All Stucco

Commercial Property	Partial Loss
Cause of Loss	Hidden Decay

Kristine Hennessy, d/b/a T E Hennessy Properties (Hennessy) owned a commercial building insured by Mutual of Enumclaw Insurance Company (Enumclaw). Until 2005, the exterior of the building consisted of a layer of stucco material known as marblecrete. In December 2003, Hennessy noticed a piece of stucco visibly separated from the building's underlying wall, hired a contractor to remove it, and filed a claim that Enumclaw denied. Hennessy then replaced the rest of the stucco and again filed a claim that was also denied.

Both parties tried to determine why the stucco separated from the underlying wall. They learned that the adhesive chemical grout that bonded the stucco to the wall had decayed due to hysteresis. This condition occurs when water absorbed into porous materials such as marblecrete is subjected to freeze-thaw cycles, resulting in the eventual decay of the bond between the two surfaces. Expert testimony observed that such action became visible after about thirty years, and it felt like this process had been occurring for about that length of time.

At trial, the dispute involved whether the stucco's visible separation from the underlying wall was within the plain meaning of the term "collapse." Enumclaw conceded that the stucco's visible separation from the underlying wall was a "collapse" and that its policy covered the costs to remove and repair the damaged portion of it.

However, it argued that it should not cover the costs of removing and replacing the remaining stucco because there was no evidence it was damaged because of the "collapse." The trial court disagreed, finding that the hidden decay of the adhesive grout through hysteresis caused a portion of the exterior stucco to visibly separate and collapse, damaging the building, and ruled that all of Hennessy's damages were covered.

Hennessy brought a breach of contract action and argued that she was entitled to recover her losses under the Enumclaw policy. The trial court found in her favor and awarded her $98,859.03 to remove the visibly separated stucco, replace a window damaged during the removal, remove the remaining stucco and design and install a new exterior. Enumclaw appealed, stating that the trial court erred in denying its motion for judgment as a matter of law.

After examining the policy language, the appellate court determined that the portion of stucco that came loose was a "collapse," the cost of removing and repairing it was covered, and that a complete falling down of the stucco was not required for a collapse to have occurred. However, removal and replacement of stucco that was not hanging loose was not caused by "collapse" within the meaning of the policy, even if it was reasonable to remove it along with the portion visibly hanging loose. Stucco that had not come so loose as to be visibly separated from the wall had not "collapsed."

The appellate court determined that the trial court correctly denied Enumclaw's motion for judgment as a matter of law on this basis. It remanded the case back to the trial court to enter a judgment of $2,469.68 in favor of Hennessy, affirmed its decision in part, and reversed it in part.

Court of Appeals of Oregon. Kristine Hennessy, d/b/a T E Hennessy Properties, Plaintiff-Respondent, v. Mutual of Enumclaw Insurance Company, Defendant-Appellant. 0510037; A133592. Argued and Submitted March 19, 2008. Decided April 29, 2009. 228 Or.App 186, 206 P.3d 1184