In this judgment, the facts are which are dealt with here the policy responded to “physical loss or damage”.  The term was not defined. 

The insurers argued that there was no damage until the physical change of the relevant cassettes had reached the point at which a cassette could not, without repair, perform its intended function. 

The insured argued that any physical alteration was harmful even if invisible and temporary. 

The court said that for damage to have occurred there must usually have been a change to a physical state.  An unwanted change of colour was in ordinary language a “physical change” for example.  Likewise, where there is physical contamination resulting in some alteration of the physical characteristics of the property concerned which renders it less valuable or less useful, there will be physical damage. 

The insured had to show that during the period of cover, “a tangible physical change” had occurred to the property insured irrespective of whether it was visible or not and which impaired the commercial value of the property in the sense of rendering it less valuable or of less utility that would have been the case if it had not sustained the damaged complained of. 

The policy provided for settlement on the basis of the full cost of repairing, reinstating or reinstating the property lost or damaged. 

In that regard the insurers argued that they were not liable to indemnify the cost of investigations save insofar as those investigations revealed physical damage that occurred during the period of insurance.  The insured argued that was wrong and they were entitled to recover all the costs of opening up of each of the cassettes in order to discover whether each had suffered physical damage irrespective of whether such opening up revealed any physical damage to the cassette being opened up and incurring the cost of cleaning the internal surface of the cassettes opened up irrespective of whether the dampness and mould, if any, that was present would constitute physical damage in the sense determined by the court. 

The court held that the insured was limited to recovery of the full cost of repairing, reinstating, replacing that part of the Property Insured which suffered physical damage during the period of insurance.

The judgment contains a useful discussion on case examples of physical damage including whether the deposit of silt on a third party’s land constituted “property damage”.