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Coverage Concerns Building collapse “Collapse” carries its own definition in terms of insurance By Roy C. McCormick
Homeowners policy coverage for loss resulting from collapse of a structure exists only when (1) the applicable policy form specifically includes the occurrence for which claim is made or (2) when the collapse is a direct result of a peril to which the policy applies. The recent collapse of ocean-view homes down hillsides in southern California comes to mind, as do new concerns regarding potential earthquakes. In addition, we often hear about roof collapse brought about by heavy accumulations of rain. Sinkholes dramatically swallow up portions of dwellings. These and other examples of “collapse” suggest a need for a good understanding of how property insurance provisions apply to the peril. Homeowners special forms, including those drafted by the Insurance Services Office and the American Association of Insurance Services, are especially helpful regarding the following occurrences: Landslide. The southern California house collapses resulted in substantial losses. These losses are not covered because they were generated by mudslide following prolonged heavy rain that flooded and soaked the ground. The exposure requires flood insurance. Earthquake. Four significant earthquakes took place in California during the course of one week last June. They served as a reminder of the potential for more earthquakes and the fact that the exposure is excluded in homeowners policies. When only about 14% of California insureds have earthquake insurance, it is important to discuss the subject and underscore the availability of earthquake coverage. This is true not only in California but anywhere else where known faults exist. Collapse after flood. There is no coverage in homeowners forms for collapse of a structure weakened by flooding, six days or so (for example) after floodwaters recede. Settling, cracking, shrinking, bulging or expansion. Homeowners forms clearly state that collapse does not include these occurrences. Property insurance covers sudden occurrences. Damage from long-term events is not a subject for insurance. The following causes of collapse are specifically and clearly covered under Section I of homeowners policies: • Any of the named perils insured against under Coverage C (unscheduled personal property). Loss from ensuing collapse damage to the structure and personal property would be covered. • Hidden insect or vermin damage. Termite infestation if it goes undetected until costly repairs and treatment are necessary. Coverage would apply if, for example, the insured had no knowledge of flooring infestation and air-conditioning equipment or a water heater fell through as a consequence. If the insured had known of the problem and ignored it, there would be no recovery. • Hidden decay, meaning decay that is not visible to or is otherwise not known by the insured. However, there is clearly no coverage as a result of collapse from observable deterioration, wear and tear. • Weight of contents, equipment, animals or people. For example, if an insured were to move a grand piano into an upper room of a restored Victorian era house and the floor collapsed, with major structural damage and loss involving the piano and other personal property, coverage would be applicable. • Weight of rain that collects on a roof. This type of occurrence most often involves a flat roof. Coverage for roof collapse extends to structural damage and loss to contents. (Construction of a sloping roof is a significant loss prevention choice.) • Use of defective material or methods in construction, remodeling or renovation if the collapse occurs during the course of the work. The potential for loss is especially substantial if a dwelling remains furnished during the course of the remodeling. Note that collapse must have occurred during the performance of the work. Coverage for the types of collapse described above is provided under Additional Coverages in ISO forms or Incidental Property forms in AAIS forms. The peril had previously been included in the Perils Insured Against section of policies. When revising policy forms, note the provisions pertinent to collapse, as modifications may be made with ongoing experience. To further the understanding of “collapse,” the HO 2000 edition of ISO’s special homeowners form clarifies its meaning. It is explained as an abrupt falling down of an entire building or part of a building. The collapse has to be severe enough to make the building or part of the building unusable for residential purposes. However, neither a building or a building part that is in danger of collapsing nor a part of a building which remains standing is considered to be in a state of collapse. A collapse condition does not exist just because the structure shows evidence of cracking, bulging, sagging, bending, leaning, settling, shrinking or expanding. The courts have generally provided sound claims handling guidelines for insurers by affirming that commonly understood meaning of “collapse” in loss situations. Collapse” is defined in popular dictionaries as an abrupt and complete falling. That is its commonly understood meaning. Keep in mind that there is collapse coverage only when the occurrence for which claim is made is specifically included or is a direct result of a peril to which the policy applies. This is helpful in making distinctions. Collapse of a dwelling a week after it was damaged by a tornado would be covered; collapse a week after being subjected to flood damage would not. * The author |
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