Glaviano v. Allstate: All Risk Policy Includes Potential Coverage for Fungus Poria, Despite Exclusion for Dry Rot
October, 2002
In Glaviano v. Allstate Ins. Co., 2002 U.S. App. Lexis 9324 (9th Cir., No: 00-56754, May 13, 2002), the Ninth Circuit found potential coverage for property damage caused by the fungus Poria in an exception to an exclusion for collapse in an all risk policy. While the Court found the “dry rot” exclusion took Poria-caused damage out of the policy, the collapse exclusion contained an exception for “hidden decay” which allowed the Glavianos to raise a genuine issue of material fact as to whether the collapse of a portion of their home was the result of such “hidden decay.” As a result, the Ninth Circuit reversed the summary judgment awarded to Allstate by the federal court for the Central District of California, thereby allowing the Glavianos to get their issues before a jury or other fact finder.
Facts
Allstate issued a homeowner’s policy to the Glavianos. In late February 1998, they made a claim for property damage to the home. At one point the opinion describes the damage as “caused by the fungus Meruliporia incrassata.” Allstate described it as “settlement” or “deterioration.” Non-party witnesses testified the wood floor system had collapsed, and portions of the sub-floor and hardwood floor between the floor joists had fallen to the ground. Both parties’ experts conceded that the damage caused by Poria is commonly referred to as “dry rot.”
Analysis
The Court found that the term “dry rot” has no specialized meaning. Instead, it is one of a short list of other excluded conditions, such as rust and mold, with common lay meanings, and so, like them, is to be construed in its ordinary and popular sense. In a footnote, the Court commented that because Poria is fungus, rather than a liquid or a gas, the exclusion for “water” does not apply. Further, because Poria is not a “soil condition,” but a plant-like organism that may live in soil, the Court would not apply the “soil conditions” exclusion.
The district court relied upon the rule of insurance policy construction that if one exclusion in a policy excludes a loss, coverage cannot be created through an exception to another policy exclusion. However, the Ninth Circuit found this rule applicable only to third party CGL claims, and not to an all risk policy, where the presumption is that coverage exists in the insuring clause. Here, the Court announced it would interpret the policy by reading the collapse exclusion and its exceptions together with the dry rot exclusion within the context of the policy as a whole. The dry rot exclusion generally excludes coverage of damage caused by Poria, while the exception to the collapse exclusion, said the Court, provides coverage for certain collapses caused by hidden decay. The Court concluded that dry rot is a form of decay. In a key passage, the opinion states that the dry rot exclusion would exclude non-collapse damage caused by dry rot, while the hidden decay exception to the collapse exclusion provides coverage for collapses caused by dry rot. The Court found that at a minimum, the dry rot exclusion and the collapse exception together created an ambiguity that should be construed in favor of the insured.
Allstate’s arguments that the damage was mere settling and deterioration, as opposed to a collapse, met with no success. Likewise, the Court refused to adopt the insurer’s argument that there was no proof that the loss was sudden and accidental. The Court noted that the policy required only that the onset of the loss be sudden and accidental, but that the loss itself need not terminate quickly or have only a brief duration. The Court pointed to an inspection conducted by the insurer before issuing the policy which found no damage, dry rot, crumbling, collapsing, major cracking or leaking. From this, the Court, construing the evidence in a light most favorable to the Glavianos, concluded that there was a genuine issue of material fact as to whether there was hidden decay of the wood that caused the alleged collapse.
The Court found that Allstate acted reasonably in denying coverage for the Poria damage, and so upheld summary judgment for Allstate on the insured’s bad faith claim.
Learning Point:
The procedural posture of this case is important to its proper reading. The Ninth Circuit merely reversed the grant of summary judgment for Allstate. All that was needed to accomplish that result was to conclude, as it did, that there was sufficient evidence in the record to raise a genuine issue of material fact as to whether the collapse was caused by hidden decay. The Court did not hold that coverage existed as a matter of law. Still, the opinion (though unpublished) is problematic insofar as it indicates that even minimal evidence that a collapse was caused by hidden decay may suffice to defeat a carrier’s motion for summary judgment in California.
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