I think engineers can demolish buildings. I believe that is what the manual says, the result is a huge conflagaration.
I had a building do that to me once during game where I had about three squads moving through it. This baffled me for the longest time. The only explanation I can think of is that I had an engineer squad lay area fire on the building before entering, but being so close they demolished it instead. You should have seen the squads fly out of the building. They didn't sustain any damage but I bet they wanted to damage the engineers.