Even Though Indiana Has No Cases Interpreting "Collapse," Indiana Supreme Court Affirms Punitive Damage Award Against an Insurer that Applies the Wrong Definition
September, 2005
In Monroe Guaranty Ins. Co. v. Magwerks Corp., 829 N.E.2d 968 (2005), a case with which all insurers doing business in Indiana should be familiar, the Indiana Supreme Court rendered Indiana’s first decision on the meaning of collapse. The Court determined, in accord with the majority of jurisdictions around the country, that “collapse” in a property insurance policy means a substantial impairment of the structural integrity of a building or any part of a building. While acknowledging that the meaning of collapse within Indiana was a matter of first impression, the Court then affirmed a punitive damage award against an insurer that had applied a more restrictive definition to reject the claim.
To justify what appears to be an almost inexplicable result, the Court focused upon notations in the claim file that certain items had collapsed, as proof positive that a “collapse” within the meaning of a property policy had occurred. Accordingly, the Court characterized the insurer’s denial of coverage based upon the insurer’s understanding of the word “collapse” as nothing but a “manufactured excuse” to deny the claim.
The opinion concludes that “a good faith dispute concerning insurance coverage does not automatically preclude a punitive damages claim for bad faith when coverage is denied.” This seems to be a major departure from previous Indiana precedent, and may ultimately signal a willingness on Indiana’s part to consider bad faith in the absence of coverage. •
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