Category: Commercial Property

A primary focus of many COVID-19 business income insurance articles is whether or not there has been any “direct physical damage.” For most policy forms, that may be important when it comes to business income coverage for damage ON the described premises, but it may be far less important when it comes to coverage for business income loss due to orders of civil authority. Here’s why.

There is a belief that business closure orders by civil authorities trigger Civil Authority coverage in business income insurance policies if they allege property damage of some kind. This is a misconception that is typical of generalizations about insurance contracts that come from the failure to actually read the policy language.

Is cleaning a surface contamination a “repair”? In other words, does “direct physical loss or damage” refer to permanent alteration of property that can only be remedied by repair or replacement and not to simple impairment of the use of that property?

If a COVID-19 lawsuit asserts that a virus “contamination” constitutes direct physical loss that triggers coverage in a business income policy, doesn’t the plaintiff also have to recognize that a pollution exclusion in the policy for “contaminants” removes coverage? How can something be a contaminant in one part of the policy, but not in another?

Today an article came to my attention from a group of policyholder attorneys who are accusing the industry of being blatantly misrepresentative in filing a virus exclusion endorsement 15 years ago and calling on the judiciary to not enforce the clear, plain and unambiguous policy form.

Many policyholder attorneys are hanging their hats on the premise that the mere existence of a virus on a surface constitutes direct physical property damage. But what really is “physical damage” to property? I believe it requires more than mere surface presence and that “physicality” and “permanence” are thresholds that must be met before coverage is triggered.

In an article I published on March 20, I made a case for little or, more likely, no coverage for business income losses due to the COVID-19 pandemic. However, let’s say hypothetically that I’m wrong or that a court ultimately decides that there IS coverage. What does that mean to business owners? Unfortunately, probably not much.