In a case arising from Superstorm Sandy in north eastern USA, the plaintiff lawyers claimed a business interruption loss from its property insurance company because the electricity company’s decision to shut down certain electrical services to prevent damage meant they could not enter their building for days. The court found this did not amount to “direct physical loss or damage” for the purposes of a claim under the policy.
The lawyers sought to argue that the phrase meant “an initial satisfactory state that was changed by some external event into an unsatisfactory state”. The New York court, after examining the authorities, said that all the cases quoted had the feature of some compromise to the physical integrity of the premises.
There are cases involving odours, noxious fumes and water contamination where there is no tangible structural damage to the architecture of the premises. But “physical loss or damage does not require that the physical loss or damage be tangible, structural or even visible”. For instance, the invasion of noxious or toxic gases rendering the premises unusable or uninhabitable has been held to suffice. Even invisible fumes can represent a form of physical damage. So too can contamination of water in the building’s water supply.
These cases may or may not be correctly decided but at least physical change for the worse in the premises was found. Those characteristics were not present in the electricity company’s pre-emptive decision to shut off power to several utility service networks in order to safeguard its own system and equipment.
The wording “direct physical loss or damage” unambiguously requires some form of actual, physical damage to the insured premises that must trigger loss of business, income and extra expense coverage. The words “direct” and “physical” ordinarily connote actual, demonstrable harm to the premises in some form.