Renovation and rehabilitation projects continue to flourish in Ohio, as owners and developers prefer in some instances to salvage older structures. This is a good thing. These original buildings tell a story about who we are, and as an industry, we should work hard to keep, improve, and/or re-purpose them. These older structures, however, come with an entirely new set of risks that simply don’t exist in new construction.
One obvious risk is collapse, sometimes of the entire building but more often just a portion of it. The project design team certainly takes structural collapse into consideration when planning a renovation project, but even despite the most appropriate precautions, things happen. Builder’s Risk Insurance (i.e., coverage for property damage during the course of construction) is often part of the project’s total insurance package, and is crucial after a collapse.
First of all, it is important to know that generally, builder’s risk insurance does NOT cover damage to pre-existing or adjacent structures during construction. So whichever party is responsible for obtaining the builder’s risk coverage needs to ensure that the policy includes the endorsement(s) and/or additional coverage for renovation and/or rehabilitation (and the construction contract is good place to clearly define this). This additional coverage will be more expensive, but without it many of the risks that a builder’s risk policy is intended to cover, like collapse, will not be covered during a renovation project.
But what is collapse? In one sense, it’s obvious. Collapse is when the building or a portion of the building falls down. What if the portion of the building does not fall all the way to the ground? What if it’s only fallen into itself, or fallen partially to the ground, or is starting to give way due to a structural failure? More often than not, this is the type of collapse that a project will see, and admittedly the answer is not always crystal clear.
The policy should define collapse, but even when it does, the definition does not necessarily capture all the possible shapes and sizes of a collapse. Ohio courts have defined collapse as the “falling down, falling together, or caving into an unorganized mass.” Olmstead v. Lumbermens Mut. Ins. Co. (1970). Policies will often require a collapse to involve an “abrupt” or “sudden” or “unexpected” (rather than gradual or prolonged) falling down or fall in of a structure. Meanwhile, policies often state that collapse does not include settling, cracking, shrinkage, bulging, or expansion, and a portion of a building that is “in danger of falling down” will not be considered a collapse.
So a part of a building’s structural failure, without more, likely won’t be considered a collapse. But if there’s an “abrupt” or “sudden” falling down or fall-in of part of a structure, that may be a collapse. It’s also worth noting that some courts find that it’s not necessary for a structure to fall down “in a heap” or to a “flattened form of rubble”. So if the policy itself does not define collapse in that matter, it’s likely that the “abrupt” falling in of a part of the building will be a collapse.
The point here is that insurance coverage for a collapse during the course of construction is neither a foregone conclusion, nor unachievable. To make the issue clearer, policy owners and stakeholders need to be involved in the insurance procurement process, and look at this issue up front. Depending on the carrier, there may not be much a policyholder can do about the ultimate definition of collapse. But then at least there is clarity for the project risks going forward.