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

The language used in insurance policies is carefully crafted to ensure that there are no loopholes. As much as insurance companies do offer clients protection against risk, they are still aiming to make a profit. Thus, they are careful when it comes to choosing the language they use in their policies. Vague language in a policy means that they might have to pay for uncovered losses. For that reason, they make sure the policy they offer is air-tight. Despite this, a loss not expected by the insurance companies can still take place. When an unexpected loss occurs, the policy may not specify the coverage on it. When an unexpected loss occurs, insurance companies will try to take control of the situation. A good example of this is collapse coverage.

The Origins of Collapse Coverage

Collapse coverage was designed to cover peril under standard policies. However, the insurer’s policy offered coverage that went beyond what the insurance company intended. Collapse coverage first appeared in property insurance policies in the Mid 1950s. However, the court could not agree on the definition of collapse or the coverage offered. The policy was vague and did not specify what was included or excluded. This made it difficult for the court to reach a fair ruling.

Since it was not clear what the insurance companies covered when it came to collapse, two different clauses were developed. The first clause stated that a building was not covered by policy if it caved in, lost shape, or was reduced to flattened form. The second clause was much more liberal and stated that there could technically be a collapse even if the building did not completely fall. The court ruled that even if the building did not fall or tumble, as long as the building structure was impaired, it was covered in the policy.

Due to the decision made by the court, the insurance companies had to change their policies to include collapse coverage. However, the court also looked to limit the broad interpretation of collapse. They wanted collapse coverage to not apply to the building just settling or cracking. Due to the new ruling, the insurance companies found that they were paying for losses that they did not cover.

Updated Policies

Since insurance companies do not pay for what they don’t cover, they had to rewrite their policies. The collapse clause was removed from standard building insurance policies and was only provided as an extended coverage. Even so, the coverage was only offered as a result of the building collapsing specifically due to certain peril. Insurance companies made it clear that the collapse itself was not a peril but an outcome that various risks can cause. In turn, insurance companies provided collapse coverage only when the cause of the collapse was among those specifically stated in the policy.

Coverage for collapse has changed because the courts and the insurance companies do not agree on the specifies of the definition of collapse coverage or what it applies to. The court ruling has made insurance companies change their policies as they do not want to offer insurance coverage beyond what they intend to cover. As a result, you need to be careful when getting collapse insurance coverage. 

At Exodus Public Adjusters, we offer collapse insurance caused by multiple factors. Choosing the Exodus Public Adjusters will mean that you will get a clear policy. We do not hide behind confusing insurance language. We are clear on what we offer and will strive to ensure that you will be fully covered. Check out our website for more information.

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