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First United Methodist Church v. American Employers’ Insurance Company

MER-L-4182-00 (N.J. Super. Law Div. 2003) (Unpublished)

INSURANCE; COLLAPSE—Where a municipal authority condemns an unsafe building because of the threat of imminent collapse, for insurance policy purposes it is deemed that the structurally impaired building has actually collapsed.

A church’s historic building was deteriorating, so it hired a contractor to perform an inspection. After the inspection, the contractor concluded that the building was in imminent danger of collapse. The next day, a building official condemned the building. Although the church’s insurance policy covered a collapse, the insurer denied coverage because the building had not actually fallen down. It also claimed the policy did not cover all collapses, arguing that there are two kinds of losses. The first would be from a load failure, which is the actual collapsing of the church. According to the insurer, this type of loss was covered by the policy. The second was a “performance loss,” which the insurance company claimed was not applicable to this particular building because a performance loss is simply when a structure is not performing like it should. Having concluded this was a case of performance loss, the insurance company decided that it would not be covered because no actual collapse had taken place.

The church claimed that the building had “collapsed” as a matter of law, since the municipal authority had condemned it. It pointed to prior New Jersey court decisions to the effect that if there is a substantial impairment of a structure of the building, such as to equate to imminent collapse, it would be a covered loss for insurance purposes. Here, an independent third-party, responsible for public safety, had condemned the building. Thus, the Court agreed with the church, holding that the structurally impaired building had “collapsed” as a matter of law.

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