Insurance company must pay water damage claim

TRB Investments owns an empty former bank building that itleased to Goodwill Industries. Before the tenant could move in, however, TRBhad to extensively renovate the building.

From June 29 to July 14, TRB’s electrical subcontractorperformed electrical work, and the heating, ventilation and air-conditioning(HVAC) subcontractor tested the units.

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On the morning of July 16, workers discovered a water heateror waterline on the third floor had burst, causing significant water damage.The burst occurred sometime between July 14 and July 16.

TRB filed a water damage claim with Fireman’s Fund InsuranceCo., which held a property insurance policy on the premises. But Fireman’s Funddenied coverage, arguing the 60-day vacancy clause in the policy applied.

Due to the higher risk of loss from vandalism, theft andwater damage for a vacant property, the insurer explained, most insurancepolicies contain similar coverage exclusions for vacant properties.

But TRB argued the policy also says, “Buildings underconstruction are not considered vacant,” so Fireman’s Fund should pay forthe water damage, and the 60-day vacancy exclusion should not apply. Theinsured refused to pay. TRB sued Fireman’s Fund.

If you were the judge would you rule a building undergoingrenovations meets the “under construction” test, so this policyprovides water damage coverage?

The judge said yes!

“We believe the proper inquiry for determining whethera building is under construction for purposes of defining an exception to thevacancy exclusion is whether the building project, however characterized,results in substantial continuing activities by persons associated with theproject at the premises during the relevant time period,” the judge began.

If the construction activity were only sporadic, thebuilding would be considered “vacant” and the 60-day policy vacancyexclusion would apply, he continued. However, if the presence of workers wasmore or less continuous during business hours prior to the loss, policycoverage exists, the judge ruled.

In other words, if there were substantial continuingactivities by workers involved in renovating the building prior to the waterdamage loss, the policy 60-day vacancy exclusion does not apply and policycoverage exists, the judge concluded.

Based on the 2006 California Supreme Court decision in TRBInvestments Inc. v. Fireman’s Fund Insurance Co., 50 Cal.Rptr.3d 597.

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Copyright 2007 Inman News

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