Most property policies contain an exclusion that voids coverage if a structure is vacant before the loss, commonly for 30 or 60 days. The thought behind the exclusion is that vacant or unoccupied buildings face an increased risk of vandalism and theft as well as property damage due to neglect or disrepair.1

However, an exception to the vacancy exclusion exists when the building is “under construction.” Most policies explicitly state that buildings “under construction” are not considered vacant. What exactly does “under construction” mean? Does the term only encompass the erection of new structures or does it include renovations to existing structures?

Well, the California Supreme Court weighed in on this issue fairly recently. In TRB Investments, Inc. v. Fireman’s Fund Insurance Company,2 the Court reversed an appellate court’s judgment that limited the word “construction” to exclude renovation. While recognizing that courts in some states have held “construction” does not encompass repairs, renovations, and comparable work on an existing building and other courts have determined that “construction” includes renovations to an existing structure, the Court held “construction” contemplates all building endeavors.

We believe the proper inquiry for determining whether a building is “under
construction” for purposes if defining an exception to the vacancy exclusion is
whether the building project, however characterized, results in ‘substantial
continuing activities’ by persons associated with the project at the premises
during the relevant time period.

Here, the substantial and continuous presence of construction personnel at the premises is a critical factor. The Court suggested sporadic entry by workers may not be sufficient to establish “construction.”

The case shows that interpreting an insurance policy can be tricky, especially when terms are not defined. When there are questions as to coverage, it is a good idea to consult with an insurance professional.

1 Belgrade v. National American Ins. Co. (1962) 204 Cal. App. 2d 44, 47.
2 TRB Investments, Inc. v. Fireman’s Fund Insurance Co. (2006) 40 Cal. 4th 19.