There has been a plethora of Covid-19 policy coverage litigation across the United States.  Absent non-damage extensions under business interruption policies the courts have had to consider whether amongst other things government restrictions on businesses including shutdown orders constituted interruption of business caused by loss to property insured.  That included whether those restrictions on businesses constituted accidental physical loss or accidental physical damage.

Many judgments, at least at the preliminary stage of hearing have denied cover holding that the shutdown orders do not constitute physical loss or damage and loss of use does not constitute physical loss.

In the first appellate court decision on the issue (Oral Surgeons P.C. v The Cincinnati Insurance Company, United States Court of Appeals for the Eighth Circuit No 20-30211) it was held that an Iowa dental clinic had no claim for losses due to government-imposed Covid-19 restrictions. The court held that those restrictions did not cause any direct “accidental physical loss, accidental physical damage”.  The policy provided an indemnity in respect of business interruption caused by direct loss to property and in turn defined loss as “accidental physical loss or accidental physical damage”.

The court held that there was not any physical alteration to the dental office. The policy did not provide coverage for partial loss of use of the offices without any physical loss or damage.  The court said that there must be said physicality to the loss or damage that is a physical alteration, physical contamination or physical construction.

The judgment contains a useful review of American judgments on what constitutes direct physical loss or damage and the view that impairment of function is not direct physical loss to insured property because to hold otherwise would render the word “physical” meaningless.

The insured did not allege any physical alteration of the property and alleged no facts to show that it had suspended activities due to direct “accidental physical loss” or accidental physical damage.

On the same facts and policy wording the position is no different in South African law.