Filed Under:Agent Broker, Coverage Issues

Know these covered losses and exclusions after a collapse

Coverage Q&A

In this photo, workers remove debris from a fatal balcony collapse in 2015 at the Library Gardens apartment complex in Berkeley, California. (Associated Press file photo/Jeff Chiu)
In this photo, workers remove debris from a fatal balcony collapse in 2015 at the Library Gardens apartment complex in Berkeley, California. (Associated Press file photo/Jeff Chiu)

Question: The insured was using a hydraulic platform, which was permanently attached to part of a building. During the course of his business operations, the platform started making some noises and all of a sudden collapses, suffering major structural damage to its components. Our client has the benefit of a Commercial Package Policy with Causes of Loss Form, or Special Form — CP 10 30 (10-12). We submitted the claim under its D. Additional Coverage — Collapse Clause, and found that under this additional coverage there are no applicable exclusions to this loss. Is this a covered loss?

— Puerto Rico Subscriber

Answer: The facts as presented are that the platform is permanently attached and part of the building. However, the cause of the collapse is not revealed. From the description provided, it would appear that there could have been a mechanical breakdown of the hydraulic platform that resulted in the collapse. Under paragraph 2. Exclusions, d.(6) excludes loss from mechanical breakdown as follows; (6) Mechanical breakdown, including rupture or bursting caused by centrifugal force. But if mechanical breakdown results in elevator collision, we will pay for the loss or damage caused by that elevator collision.

If the collapse was from a covered cause of loss, and no exclusion applies, then there should be coverage. However, since the platform was making noises before it fell, it sounds like a mechanical issue. You have to determine what was the cause of loss to determine coverage.

Related: Homeowners' exclusion precluded 'collapse' coverage where home 'remained upright,' Illinois court holds

Question: The acoustical ceiling in our church kitchen collapsed. The building is insured on a CP 00 10 with CP 10 30 attached. As you know, the form includes coverage for "collapse" as an additional coverage. Collapse is defined as "an abrupt falling down or caving in of a building or any part of a building with the result that the building cannot be occupied for its intended purpose." That is what occurred here. Upon inspection, it appeared that the straps for the grid were nailed to the bottom of the ceiling joists rather than the top or side. The inspection said that “any vibration or earth movement or settlement could trigger a collapse,” but it was never proved that earth movement or settlement occurred.

The insurer has denied the loss, citing exclusion B.3.c. faulty or inadequate design, specifications, workmanship, … materials used in repair, construction, renovation or remodeling…"

We think the denial was incorrect and would like your opinion.

— North Carolina Subscriber

Answer: We believe the loss is covered. The insurer states there is no coverage for faulty or inadequate design, materials, etc.; however, the prefacing language to this exclusion states that any ensuing loss not otherwise excluded is covered. “Collapse,” an additional coverage, is thus a covered cause of loss. "Collapse" coverage applies to the use of defective material or methods if the collapse occurs during the course of construction, and also to a collapse occurring after the construction is complete. In this instance, the collapse coverage is triggered "in part by a cause of loss listed in 2.a. through 2.e.," adding "we will pay for the loss or damage even if use of defective material or methods, in construction… contributes to the collapse." "Decay that is hidden from view” is cause of loss in 2.b.

In the case of Stamm Theatres, Inc. v. Hartford Casualty Ins. Co., 93 Cal. App. 4th 531 (2001) the court found coverage when a theater ceiling collapsed, noting that the "dictionary definitions of 'decay' include a general sense of gradual deterioration in strength or soundness, and a more specific sense of rot or organic decomposition. This case presents the question whether a property insurance policy covering collapse of a building due to 'hidden decay' applies to the unexpected failure of wooden roof trusses, with no evidence of rot. We conclude that coverage cannot be ruled out merely because the trusses were not rotten. An insurer promising coverage for collapse due to ‘hidden decay’, without limiting the scope of the term to organic decay, is liable on claims for any collapse caused by a concealed process of gradual loss in the strength of building materials, unless other policy terms limit coverage."

And that is what happened here. There has been a gradual loss of strength, which was concealed, in the system. This is an accepted meaning of 'decay.' So, after a while, the ceiling support system lost its ability to support the weight of the ceiling, and the ceiling collapsed.

As to the report stating that earth movement or settlement could trigger a collapse, these are exclusions that the insurer must prove occurred in an open perils policy. It is not enough to state something could happen; the insurer must prove it did happen.

Related: Bill requiring insurance coverage for foundation collapse crumbles in Connecticut legislature

Question: Our insured bought a seasonal residence in Michigan. We insured it on an [IDL:HO 00 03 10 00.pdf^HO 00 03 10 00^HO 00 03 10 00]. Last winter brought some unusually heavy snows. During the course of the winter, the roof began to sag to the point where the residence became unsafe to live in. Some contents were damaged.

We turned the claim in to the insurer, who sent a roofer and an engineer. The engineer determined the home had not been built to code, and now the insurer is denying coverage, stating that the loss was collapse caused by the use of defective methods in construction... (and) there is no coverage. Michigan, by the way, interprets "collapse" as being “structurally impaired," rather than being reduced to a heap of rubble.

What are your thoughts?

— Ohio Subscriber

Answer: The additional coverage for "collapse" states that loss caused “only by one or more of the following: a. Perils insured against in coverage C - Personal Property... f. use of defective material or methods in construction...” The applicable coverage C peril is "weight of ice, snow or sleet which causes damage to property contained in a building."

Care must be taken to read the collapse provision in its entirety. The provision states that the collapse may be caused by "only one or more of the following," not that the collapse may be caused by only one of the perils listed in the provision. If the defective methods were the only cause of the roof's collapse, there would be no coverage. However, the weight of the snow acted as the catalyst, so there is coverage for this loss.

Related: Did snow, ice or water cause the damage?

Question: Our insured has an HO-3. Our question concerns coverage for wet rot damage that has led to a sagging roof. The support beams have sustained water damage over a period of time, which has in turn resulted in the sagging roof. Do we owe for both the roof and the support beams?

— Florida Subscriber

Answer: For the collapse to be covered on an HO-3, the cause of the collapse must be one of those named under additional coverage 8. collapse. One of the causes is "hidden decay," which is the wet rot. However, "wet rot" damage is itself excluded, but an ensuing loss to covered property described in coverages A and B not excepted or excluded is covered. The ensuing loss — the roof's collapse — is therefore covered.

That said, your jurisdiction is one that defines "collapse" as structural impairment. The sagging roof would not be covered in a jurisdiction that held "collapse" to mean "reduced to a heap of rubble."

Related: Types of insurance policies and mold: An analysis of policy exclusions



Analysis brought to you by the experts at FC&S Online, the unquestioned authority on insurance coverage interpretation and analysis for the P&C industry. To find out more — or to have YOUR coverage question answered — visit www.nationalunderwriter.com/FCS.

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The Dome is an 180,000-square foot indoor sports facility in Anchorage, Alaska, where the roof collapsed earlier this year under the weight of accumulated snow. (AP Photo/Mark Thiessen)

The Dome is an 180,000-square foot indoor sports facility in Anchorage, Alaska, where the roof collapsed earlier this year under the weight of accumulated snow. (AP Photo/Mark Thiessen)

Question: My client is insured under the HO-3 program. Recently, his ceiling collapsed. The drywall was installed about 20 years ago using a product designed for this purpose. The company denied coverage, citing the latent defect exclusion. We think coverage is found under collapse. Can you help?

— Michigan Subscriber

Answer: It is our opinion that the loss described is covered. Your HO-3 insured suffered a loss in which his ceiling collapsed. The drywall was held up by tape intended for this purpose.

You state the insurer has denied the claim, citing the exclusion of latent defect. The policy's function is to serve as a source of protection against accidental loss, and the list of exclusions beginning with "wear and tear" reinforces this. The insurance is not intended to cover the marring, for example, that wood furniture is subject to over time.

However, collapse is covered under Additional Coverages. The policy states, "We insure for direct physical loss to covered property involving collapse of a building or any part of a building caused only by one or more of the following..." Hidden decay is listed as a cause.

The ceiling is a part of the building. "Decay" is defined in Webster's Collegiate Dictionary (10th ed.) as: "gradual decline in strength, soundness, or prosperity or in degree of excellence or perfection." The tape gradually declined in strength, or decayed, and the ceiling fell.

Black's Law Dictionary (fifth ed.) defines a latent defect as "a hidden or concealed defect." Since the tape served its purpose in holding the ceiling up, it was not defective. It simply decayed.

Related: Study: Chinese Drywall and Corrosion Linked

Question: Our insured has a homeowners policy with form HO-3. Recently, hydrostatic pressure caused a retaining wall to collapse. Part of the wall landed on the dwelling's air conditioning condenser, resulting in considerable damage to the unit. Can we make a case for coverage for the loss?

— Massachusetts Subscriber

Answer: Though the wall itself is not covered for loss by weight of water (exclusion 2.b.(2)) ensuing damage to the dwelling or other structures is covered — section I, Perils Insured Against, 3. "any ensuing loss to property described in coverages A and B not excluded or excepted." Since the condenser is part of the dwelling, and since there is no exclusion for this "ensuing" loss, the damage to the unit is covered.

The only coverage applicable to the wall itself is by way of damage from building collapse and that is not the case here.

Related: HVAC System Hail Damage: Repair or Replace?


Question: 
Our insured is building a new home and we're using a HO-3 as a form of builders risk coverage. Two weeks after the cement wall was poured for the foundation, the contractor pushed the wall down while in the course of backfilling against it. Item f. of the collapse agreement says that collapse that is caused by use of defective methods is covered if the collapse occurs during the course of construction. However, the collapse provision goes on to say that collapse of a foundation is not covered under this provision unless the loss is a direct result of the collapse of a building. If the homeowners form does not cover this loss, is there a form to protect the owner? Please advise.

— Ohio Subscriber

Answer: The agreement in subparagraph f. is inoperative because of the reason you cite: foundations are not covered for collapse because of the use of defective methods unless the foundation collapse is the direct result of the collapse of a building.

However, the first provision under the collapse agreement is agreement a., in which it is stipulated the collapse caused by any of the perils insured against in coverage C is insured. One of the coverage C perils is damage by vehicles. The wall was knocked over by a vehicle. This is the course we suggest you take in reporting the loss to the insurer.

Question: We are handling a collapse loss for a homeowners ([IDL:HO 00 02 05 01.pdf^HO 00 02 05 01^HO 00 02 05 01]) insured. The collapse was a result of hidden termite damage, so the loss is covered. But there is extensive additional damage to the sill plates and joists from the termites. If this were an [IDL:HO 00 03 05 01.pdf^HO 00 03 05 01^HO 00 03 05 01], we could exclude coverage, but there is no exclusion under the HO 00 02. Surely coverage cannot be broader under a named perils policy than an open perils policy, but this appears to be the case.

— Pennsylvania Subscriber

Answer: Although the named perils policy might appear to provide broader coverage, that is not the case. The open perils policy excludes what it does not mean to cover, and so lists “loss caused by... vermin, rodents, or insects” among the exclusions.  However, the named perils policy provides coverage for only those perils enumerated. There is coverage for collapse, but there is no coverage for the termite damage.

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