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?
From my book “When Words Collide: Resolving Insurance Coverage and Claims Disputes”:
Intent
When reading an insurance contract, what is the intent of the parties, from a coverage standpoint, expressed by structure, syntax, semantics, and context of the policy language? In a general sense, that’s an easy question. The intent of most insurers is to cover what was actuarially contemplated by the premium charged. The intent of most insureds is to cover every event that results in financial loss. As expressed in the Dedication of this book by California Chief Justice Malcolm Lucas, “No one knows what evil lurks in the hearts of men…but it’s all insured.”
Needless to say, insureds are not happy when a claim is denied and insurers are not happy when they are compelled to pay for a claim not contemplated by the actuarial department and the drafters of the policy form. Insureds can minimize their grief by recognizing that insurance is not a commodity and that the adage “You get what you pay for” often holds true. You bought cheap, you got cheap. Insurers can reduce the likelihood of continuing interpretive misery by, as outlined in the last chapter, revising the policy language that resulted in unintended coverage.
The legal system takes a more pragmatic view of what is meant by “intent” of the parties when it comes to interpreting a contract, specifically an insurance contract. In determining coverage, or lack thereof, the judicial consensus, by word if not by action, is that the first goal is to identify the intent of the parties entering into the insurance contract. In doing so, most courts will try to determine the meaning of words and phrases within the four corners of the policy via a literal reading of the form language in its plain and ordinary meaning and within the context of the facts of the claim….
So, what is the intent of the ISO CP 00 30 business income form when it comes to coverage for viral surface contamination? The primary business income overage is triggered by “direct physical loss or damage” to property on the premises. Coverage applies during the “suspension of operations,” a term defined as [emphasis added]:
“Period of restoration” means the period of time that:
a. Begins:
(1) 72 hours after the time of direct physical loss or damage for Business Income Coverage; or
(2) Immediately after the time of direct physical loss or damage for Extra Expense Coverage;
caused by or resulting from any Covered Cause of Loss at the described premises; and
b. Ends on the earlier of:
(1) The date when the property at the described premises should be repaired, rebuilt or replaced with reasonable speed and similar quality; or
(2) The date when business is resumed at a new permanent location.
The consensus is that the viral contamination can usually be removed from the surface of property by simple disinfection. Even in the absence of that, the virus allegedly dies of its own accord within about 3 days. That sounds less like “direct physical damage” and more like an indirect loss involving simple temporary impairment of the use of the property.
The time period for coverage is based on when property should be “repaired, rebuilt or replaced.” Does simply cleaning temporarily impaired property surfaces constitute repair, rebuilding or replacement? Or does “direct physical damage” refer only to a permanent alteration of property that must be remedied by actual repair or replacement and not just a temporary impairment of the use of that property?
Based on the logic of this analysis, one could argue that this coverage was never intended to apply to “damage” that can be remedied by the use of Clorox wipes in a matter of hours in most businesses. In other words, the language in this definition refers to “direct physical damage” that requires an actual repair or replacement of the damaged property.
For a deeper dive into these issues:
- “Business Income Insurance…Does It Cover Coronavirus Shutdowns?”
- “Is a Viral Contamination ‘Physical Damage’?”
Additional articles on the insurance implications of the COVID-19 pandemic can be found on my blog at www.InsuranceCommentary.com.
Note: Any of my blog articles can be reprinted without express permission if properly attributed and the copyright notice included, as outlined on my blog Reprints page.
Bill Wilson
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Cleaning is precisely that cleaning. If the cleaning does not damage the property there bis no dimunition of value of the property and no loss has been sustained much less a covered loss.
Hello Bill. Loved the book and started following immediately after. Any thoughts on the comparison of smoke damage, which is just some particles that can be wiped clean, not much different than the virus. I do agree that the virus goes away on its own, and maybe that is the biggest difference, but wanted to see what your thoughts were on this issue. Thanks for the blogs.
Someone asked about this (and furnace “puff-backs” that are usually covered by property policies) on LinkedIn and I responded…I should have kept a copy. I think it depends on the circumstances of each case, the extent and permanency of the contamination and the degradation, if any, of the property. Furnace puff-backs that leave smoke and soot particles embedded in surfaces that have to be refinished, painted, etc. are different than something that allegedly can be wiped off with a Clorox wipe or, even if not cleaned, will not longer be a contaminant within a few days.
In most property policies, not all “smoke” perils are covered, e.g., smoke from agricultural smudging or industrial operations. You also have to consider any pollution exclusions and the specified perils that might be exceptions to the exclusions as to how smoke vs. viral contaminants fit or don’t fit. I don’t think you can make a blanket, generalized statement that “smoke” damage is or isn’t covered nor that the presence of a virus is or isn’t covered. That’s why, in most of the articles I’m writing on this, I reference specific insurance contract language.
As the California insurance commissioner stated recently, unfair claim settlement practices require an investigation of each claim and a blanket statement from an insurer in response to every claim that a policy doesn’t cover “viral contaminations” or “pandemics” doesn’t meet those standards.
The last point I’d make, and it’s something of a philosophical one, is that smoke and viral pandemics are two entirely different exposures. As we’ve seen, a viral pandemic can threaten the resources of an entire nation within a very short period of time and exhaust them over a longer period of time. I doubt that anyone can cite a smoke claim that impacts more than a very small geographical area. The insurance industry does not have the resources to insure exposures that can cause severe losses to virtually every exposure unit insured. Given that few governments have the resources, how can anyone reasonable presume that one segment of the private sector has the resources to compensate most commercial insureds collectively?
The CDC now says that COVID-19 does NOT spread easily from touching surfaces or objects.
“The virus does not spread easily in other ways.
“COVID-19 is a new disease and we are still learning about how it spreads. It may be possible for COVID-19 to spread in other ways, but these are not thought to be the main ways the virus spreads.
“From touching surfaces or objects. It may be possible that a person can get COVID-19 by touching a surface or object that has the virus on it and then touching their own mouth, nose, or possibly their eyes. This is not thought to be the main way the virus spreads, but we are still learning more about this virus.
“From animals to people. At this time, the risk of COVID-19 spreading from animals to people is considered to be low. Learn about COVID-19 and pets and other animals.
“From people to animals. It appears that the virus that causes COVID-19 can spread from people to animals in some situations. CDC is aware of a small number of pets worldwide, including cats and dogs, reported to be infected with the virus that causes COVID-19, mostly after close contact with people with COVID-19. Learn what you should do if you have pets.”
This may impact insurance claims alleging property damage.
https://www.cdc.gov/coronavirus/2019-ncov/prevent-getting-sick/how-covid-spreads.html