Insurance Coverage For Collapse: How Has It Changed and Why?



A Word About Builders Risk Insurance

Collapse is a major exposure for project owners and contractors engaged in construction projects. Buildings or structures in the course of construction are more susceptible to collapse loss than existing buildings or structures. Buildings undergoing construction are exposed to damage by wind, faulty workmanship, and design error, among other perils. The vast majority of builders risk policies provide coverage for collapse, but there are exceptions. Some forms exclude collapse outright, while others offer the approach taken today in standard property insurance; that is, to exclude it, and then add it back on a limited basis.

The coverage is available in builders risk forms, and agents and insureds should make every effort to obtain policies that provide the coverage on as broad a basis as possible. Note also that many builders risk policies contain a design error exclusion. However, many of these same policies provide collapse coverage as an ensuing loss. AAIS offers four levels of builders risk coverage. All four forms cover collapse, and three of the four cover collapse that results from a design error.

...actual collapse, that is, an abrupt caving in or falling down of the structure. However, it is important to mention that not all insurers have adopted the latest editions of property insurance forms that define (and, quite frankly, limit) coverage for collapse. These efforts to clarify policy language are aimed at limiting collapse coverage to the traditional view, which the drafters believe is the original intent of the policy. It is important, therefore, to be aware of the edition date of the policy form in effect when a claim occurs and to determine if the form in question is a more current edition that includes a definition of collapse. If collapse is not defined, that is, limited in the policy, and the state involved is one that adheres to the liberal view, coverage could very well apply, even in the absence of an actual collapse of the structure or a part of the structure.

“Buildings undergoing construction are exposed to damage by wind, faulty workmanship, and design error, among other perils.”