Direct Physical Loss or Damage

Most standard first-party property policies cover “direct physical loss or damage” such as Coverage Form CP 00 10 10 12 (“Building and Personal Property Coverage”).  The most common COVID-19-related questions we have received about this form are the following:  Is virus considered “contamination” of business property?  Does Massachusetts require a physical, demonstrable alteration of the property?  Does physical loss occur without tangible destruction of property?  How is contamination proved?  If there is coverage, what is the period of restoration?  How are business interruption claims monetized?  Should forensic accounts and economist be retained to determine the business income loss?

Civil Authority

An issue facing commercial insurers is whether Massachusetts’ March 24, 2020, COVID-19 Order No. 13, triggers Civil Authority Coverage, contained in standard Business Income coverage  Form CP 00 30 10 12. For instance,  most policies afford coverage where governmental authorities limit access to an insured location because of a direct physical loss or damage by a covered peril at another location, even if the insured property did not sustain a physical loss or damage.

Exclusions

As with any coverage analysis, policy exclusions are a key consideration.  Some of the exclusions that may be applicable to COVID-19 are:  Exclusion of Loss Due to Virus or Bacteria (CP 01 40 07 06); pollution exclusions (CP 10 30 09 17); epidemic and pandemic or communicable disease exclusions; contamination exclusions; and delay, loss of use or loss of market exclusions (CP 10 30 09 17). 

Massachusetts Legislative Response to COVID-19

On March 24, 2020, a bill entitled “An Act Concerning Business Interruption Insurance” (S.D. 2888) was introduced in the State Senate to address COVID-19’s impact on retail businesses, the second such bill introduced in a state legislature mitigate the unprecedented impact on small businesses from the pandemic.    On April 6, 2020, the Bill, which has more than 30 sponsors, was  referred to the committee on Rules of the two branches acting concurrently. The legislation, if enacted, would require commercial property policies with business interruption coverage to include COVID-19 coverage.  The bill includes a reimbursement fund.  We are tracking this and other related legislation closely which, if enacted, will likely draw Constitutional legal challenges based on the presumed, and retroactive, interference with private contractual relations.

Please contact our insurance coverage lawyers to zealously represent you in policyholder’s claims. Please call us at 617-777-4748 or email us at marie@cheungtruslowlaw.com.