QUICK NOTE: PHYSICAL LOSS OR DAMAGE UNDER PROPERTY INSURANCE POLICY = ACTUAL, TANGIBLE ALTERATION TO PROPERTY
In one of Florida’s first appellate opinions dealing with business interruption losses and COVID-19, the appellate court found COVID-19 was not covered under the terms of the commercial property insurance policy to cover business interruption losses. In this case, a restaurant/bar suffered losses due to emergency measures imposed by Miami Dade due to COVID-19. Such emergency measures restricted the occupancy of restaurant/bars and undeniably resulted in business interruption. Occupancy and patrons are the lifeline of restaurant/bars. So why weren’t business interruption losses covered? Because there was no direct physical loss of or damage to the property at the restaurant/bar. The appellate court, affirming the trial court, explained direct physical loss of or damage to the property means there needs to be actual tangible alteration to property. COVID-19 did not cause actual tangible alteration to property which caused the restaurant/bar to suffer business interruption losses. Moreover, any COVID-19 particles that got on property could be cleaned. The analogy the appellate court provided, as cited here, is as follows: “The difference “between [the restaurant/bar’s] loss of use theory and something clearly covered—like a hurricane—is that property did not change. The world around it did. And for the property to be useable again, no repair or change can be made to the property—the world must change.”
As with any insurance coverage dispute, the terms of the policy matter, fairly or unfairly. When dealing with an insurance coverage dispute, make sure you work with counsel that best frame your coverage arguments. In this case, the insured’s counsel tried to maximize coverage with creative arguments. But in the end, the lack of actual tangible alteration to property to support direct physical loss or damage doomed its claim.