Insured Can’t Change a Crack Into a Collapse

Substantial Impairment of structural Integrity Is Not A Collapse

Insurance companies need to define essential terms to avoid litigation over the meaning of a key coverage issue. Because Mid-Century failed to define the word “collapse” in Tustin Field Gas & Food, Inc., v. Mid-Century Insurance Company, B268850,
Court of Appeal of the State of California Second Appellate District, (July 3, 2017) it was sued. It defeated the claim at trial only to have the insured appeal asking the California Court of Appeal to decide when a building or part of a building “collapsed” if that term is left undefined in an insurance policy?

The gas station owner in this case demanded that its insurance company pay for the repair of an underground storage tank when the fiberglass sheath of one of its underground gasoline storage tanks split after resting on a rock for 16 years.

On cross-motions for summary judgment and/or adjudication, the trial court ruled that this was not a collapse as a matter of law.


Tustin Field Gas & Food, Inc. (plaintiff) owns a gas station and minimart in Palm Springs, California. The station stores the gas dispensed by its pumps in two underground 15,000-gallon tanks. The tanks are located approximately 30 feet from the minimart, and are buried beneath a six or seven inch concrete slab and five or six feet of dirt. The tanks themselves are cylinders approximately 30 feet long and nine feet in diameter, and are double-walled: They have an inner wall made of steel, wrapped in a synthetic honeycomb, and then sheathed with an outer wall made of “fragile” fiberglass. The tanks are connected to the pumps through pipes carrying the fuel and are connected to the minimart with electrical conduit.

When these tanks were originally placed underground in 1997, the installer did not follow the tank manufacturer’s instructions to bury them in pea gravel or crushed rock. Instead, the installer just dug a hole, placed the tanks into that hole, and then covered them with “native soil” containing rocks, boulders, chunks of asphalt, rusted pipes, and other debris. The first tank, referred to as Underground Storage Tank-1 or “UST-1,” was set atop a boulder with a nine-inch diameter as well as atop pockets of air.

In September 2013, plaintiff conducted its annual test of UST-1’s integrity and learned that its fiberglass sheath was no longer intact. This was the first time either tank had failed a test in the 16 years since the tanks were installed. The tanks were excavated. The fiberglass sheath on the underside of UST-1 had a long, narrow crack that partially touched the nine-inch boulder, which had itself cracked in two. UST-1’s inner steel wall was still intact, and UST-1’s outer fiberglass sheath had not lost its cylindrical shape. There was no “imminent danger” that UST-1’s inner steel wall would be crushed inward. Plaintiff paid to have UST-1’s fiberglass sheath patched.


At the time of the testing, plaintiff had an insurance policy (the Policy) covering property damage with defendant Mid-Century Insurance Company (defendant). Plaintiff presented a claim for the cost of excavating and repairing UST-1.

The Coverage section of the Policy (Section A) provides that defendant “will pay for direct physical loss of or damage to Covered Property at the premises . . . caused by or resulting from any Covered Cause of Loss.”

In its Exclusions section the Policy provides that defendant “will not pay for loss or damage caused directly or indirectly by any of the following. . . . regardless of any other cause or event that contributes concurrently or in any sequence to the loss,” and goes on to specify, in pertinent part, “Collapse, except as provided in the Additional Coverage for Collapse”. The policy provided that this subsection also specifies that “Collapse does not include settling, cracking, shrinkage, bulging or expansion.”


In a letter, defendant denied plaintiff’s demand for coverage on the ground that “it does not appear that the efficient proximate cause [of that damage] is Collapse.”

The trial court concluded that there was no Covered Cause of Loss because there had been no “collapse.” Specifically, the trial court ruled that plaintiff had to show an “actual” collapse of UST-1. The trial court went on to conclude that there was no evidence of an actual collapse of UST-1 because “plaintiff ha[d] failed to submit evidence that UST-1 suffered a complete change in structure and lost its distinctive character as an [underground storage tank.]”

Plaintiff had shown, at most, that UST-1 was no longer usable under pertinent laws because its outer sheath had been breached, but the court ruled that a mere “impairment of [UST-1’s] structural integrity” did not constitute an “actual collapse.”

Because plaintiff was not entitled to benefits under the Policy, the court concluded that all three of plaintiff’s claims failed as a matter of law.

After the trial court issued its formal order granting summary judgment and entered judgment, plaintiff timely filed a notice of appeal.


Plaintiff argues that the trial court erred in granting summary judgment to defendant. All three of plaintiff’s claims: for breach of contract, bad faith denial of insurance, and declaratory relief, rest on the common element that plaintiff show it is entitled to coverage under the Policy. Breach is an element of a breach of contract action. Without coverage there can be no liability for bad faith on the part of the insurer.

Whether plaintiff is entitled to coverage under the Policy turns initially on two questions:

(1) What does the Policy mean by the term collapse?; and

(2) Has plaintiff raised a triable issue of fact as to whether the damage to UST-1 was caused by a collapse, once that term is defined?

The first question required the court to interpret the Policy. Although insurance contracts have special features, they are still contracts to which the ordinary rules of contractual interpretation apply. Those rules direct courts to ascertain the mutual intention of the parties at the time the contract is formed.

The second question requires the court to ascertain whether the evidence produced in the summary judgment proceeding would allow a reasonable trier of fact to find the underlying fact of collapse, once properly defined in favor of plaintiff under the applicable standard of proof.


Plaintiff’s entitlement to coverage under the Policy turns on whether plaintiff can show that (1) UST-1 suffered “direct physical loss or damage . . . caused by collapse”; and (2) that collapse was “caused by” (a) “[h]idden decay,” (b) the “[w]eight of people or personal property,” or (c) the “[u]se of defective material or methods in construction” “if the collapse occurs after construction” and was “caused in part” by either (a) or (b). This is plaintiff’s burden because Section A.3. of the Policy excludes any collapse from coverage, but Section A.5.d. countermands that exclusion to the extent of the exception outlined above. Consequently, the threshold question is what the Policy means by the term collapse.

Although the definition of collapse in insurance policies varies across the country, when a policy excludes from coverage “settling,” “cracking,” “shrinkage,” or “expansion,” the policy will not cover a collapse—whether actual or imminent—based solely on a substantial impairment of structural integrity”; to do otherwise would negate the exclusionary clause for settling and the like. Mere settling, cracking, shrinkage, bulging or expansion is not enough.

Because the Policy excludes “settling” and the like, a “substantial impairment of structural integrity” is not a “collapse” as a matter of law.

Plaintiff’s argument rests on the proposition that if a structure is not usable, it has collapsed. The Policy is not ambiguous and applies the fact that strict construction in favor of the insured does not mean strained construction.

Plaintiff further asserts that public policy favors a broader definition of collapse. If collapse is interpreted narrowly to require a more complete collapse of an underground storage tank, plaintiff reasons, insured parties like plaintiff would have little incentive to repair lesser damage to their tanks, which could result in interim damage to the environment. Putting aside for the moment that this argument overlooks the fact that state environmental authorities would likely step in to prevent this interim environmental damage (as they did here) the insured’s dispute is not “material” because no matter how it is resolved, the damage to UST-1 is the same and amounts at most to a “substantial impairment of [its] structural integrity” and is not, under the facts, a “collapse.”


Collapse requires – even when it is not defined – more than an impairment of structural integrity. It requires more than settling or cracking.



ZALMA-INS-CONSULT                      © 2017 – Barry Zalma

This article and all of the blog posts on this site digests and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant and expert witness specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 49 years in the insurance business.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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