Coverage under homeowners policy for fungus damage ruled ambiguous
A woman bought a homeowners policy for her 70-year-old home. The policy did not cover "(1) a loss consisting of or caused by…rust or other corrosion, mold, wet or dry rot or (2) a "loss to (covered) property consisting of or caused by collapse." An exception to the collapse exclusion in the "additional coverage" section provided coverage for "a) the entire collapse of a covered building structure; b) the entire collapse of a part of a covered building structure; and c) direct physical loss to covered property caused by (a) or (b) above." This coverage was limited to a collapse that was "a sudden and accidental direct physical loss caused by one or more of the following: b) hidden decay of the building structure; (and) . . . f) defective methods or materials used in construction, repair, remodeling or renovation, but only if the collapse occurs in the course of such construction, repair, remodeling or renovation." The term "collapse" did not include "settling, cracking, shrinking, bulging or expansion."

After a window fell out of a living-room wall, the woman contacted a professional wood preservation firm. (The woman also noticed that the floorboards in a corner of the living room were giving way.) The firm found that the woman's home had been damaged by a fungus known as Poria (Meruliporia incrassata).

The woman submitted a claim to her carrier. It acknowledged the claim in a reservation of rights letter and retained its own experts to inspect the damage. They also determined that the damage was caused by infestation of the Poria fungus.