The operator reported that the flight instructor was working with a student on hovering the helicopter. The operator reported that the instructor used a method which transferred one control at a time to the student to familiarize the student with the use of that control and to not overwhelm the student by transferring all controls at once. The instructor first transferred pedal control, while maintaining cyclic and collective controls, with good success. He then did the same with the student commanding collective only, and then with cyclic only, while the instructor retained control of the other two controls. Ultimately the student was given control of cyclic and collective, and shortly thereafter the helicopter began to drift to the left. The instructor attempted to make a control input to correct the drift, but the helicopter rolled to the left and the rotor system of the helicopter impacted the ground, followed by the helicopter fuselage coming to rest on its left side. The helicopter received substantial damage to its fuselage and rotor system. The operator reported that there were no mechanical malfunctions or failures of the helicopter prior to the accident that would have precluded normal operations.