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Insurance – Commercial Property – Business Interruption Loss – COVID-19 Shutdown 

In the parties’ commercial property insurance policy, coverage for a business interruption loss is triggered by “direct physical loss or damage.” The policy does not define this phrase, so we give the words of the phrase their ordinary meanings and conclude that neither a government order nor the presence of virus particles in the insured facilities constitutes “direct physical loss or damage.” Therefore, the policy does not provide coverage for the interruption of the plaintiff-insured’s business during the COVID-19 shutdown. 

The federal district court asked, “Does the presence of COVID-19 in or near [plaintiff’s] properties, and/or related governmental orders, which allegedly hinder or destroy the fitness, habitability or functionality of property, constitute ‘direct physical loss or damage’ or does ‘direct physical loss or damage’ require some permanent dispossession of the property or physical alteration to the property?” 

Our answer is, “No.” 

According to commonly used dictionaries, physical is defined as “(a) having material existence: perceptible especially through the senses and subject to the laws of nature; (b) of or relating to material things.” Loss means “destruction; ruin” and can also be “the disappearance or diminution of value, usually in an unexpected or relatively unpredictable way.” Another definition for loss is “deprivation, the failure to keep possession,” and a “decrease in amount, magnitude, value, or degree.” Finally, damage means “loss or harm resulting from injury to person, property, or reputation.” 

While the government order prohibiting indoor dining certainly affected plaintiff’s financial well-being, the order itself was not directly physical. Mere loss of access to a business is not the same as direct physical loss or damage. Although government orders affected business operations, these restrictions did not cause any direct physical loss or damage. 

“Loss” and “damage” should not be read as synonymous. Loss connotes destruction, meaning it is broader than the term damage. Stated differently, a property that has suffered physical loss has been damaged, but the converse is not necessarily true because a property can suffer damage without enduring destruction or loss. 

The overwhelming majority of the courts that have addressed the same issue have concluded the presence of COVID-19 does not constitute a physical loss of or damage to property because it does not alter the appearance, shape, color, structure, or other material dimension of the property. 

Moreover, other policy provisions bolster our contention that “direct physical loss or damage” contemplates a tangible or material component to loss or damage. The policy’s restoration period provision limits business interruption coverage during the period of restoration, or put differently, the time for the physical loss or damage to be “repaired, rebuilt, or replaced with reasonable speed and like kind and quality.” While plaintiff took steps to mitigate the spread, such as increasing cleaning or installing plexiglass, these acts are different than restoring damaged or lost property. In other words, plaintiff had nothing to “repair, replace, or rebuild[,]” thus further demonstrating that direct physical loss or damage requires something material and tangible. 

Because neither the presence of the coronavirus nor the government order prohibiting indoor dining constitutes “direct physical loss or damage,” the policy’s triggering language is not met. 

Sullivan Management, LLC v. Fireman’s Fund Insurance Co. (Lawyers Weekly No, 010-028-22, 8 pp.) (Kaye Hearn, J.) On certification from the U.S. District Court for the District of South Carolina (Mary Lewis, J.) Justin O’Toole Lucey, Anna McCann, Sohayla Townes and Amanda Nicole Funai for plaintiff; Larry Kristinik, Mattison Bogan, Blake Terence Williams, Brett Ingerman and Brett Solberg for defendants; Harmon Cooper, Murrell Smith, Jonathan Robinson, Shanon Peake, Amy Mason Saharia, Kaitlin, Mark Billion and Jason Kosek for amici curiae. S.C. S. Ct. 

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