I see lots of chinks in what some think is the armor of this case. For one thing, NC courts apparently had not previously construed the term “direct physical loss”; many other states have established case law on that issue and require “actual”, “structural” or “tangible” damage. Secondly, Cincinnati’s policy language differs in material ways from other, standard CPP language. Thirdly, unlike other courts that have appropriately tried to construe the term as a whole, this court pulled and used “standard dictionary” definitions of each, separate word to support its conclusion that “direct physical loss” can mean the temporary loss of use or functionality of property — a conclusion that the majority of courts that have looked at that issue have rejected. See, e.g., Hillcrest Optical, Inc. v. Continental Cas. Co. (USDC, SDAL 10.21.20)(MTD Granted with prejudice)(“the Court notes, that the words ‘direct’ and ‘physical’ modify the word “loss” in the phrase ‘direct physical loss of property.’ Therefore, analysis of this phrase must account for both words as they apply to the type of loss of property Plaintiff must have suffered to trigger coverage”). Fourthly, this holding — that a governmental shutdown order can, in and of itself, can cause a “direct physical loss” within the meaning of a commercial property policy’s business income loss coverage — ignores and effectively strikes other, related policy terms such as the “time element” or “period of restoration” provisions, which imply that there is a measurable period of time by which the damage (partial loss) or loss (total loss, destruction or dispossession) can and will be repaired or replaced and the business operations restored (.e.g., “the time period required to rebuild, repair, or replace such part of the Building or Business Personal Property that has been damaged or destroyed as a direct result of an insured peril”). The period of restoration for a “direct physical loss” of business due to a shutdown order cannot be objectively measured because it is completely subject to the governmental authority that issued the order in the first place.
To quote the ruling:
“The use of the conjunction ‘or’ means — at the very least — that a reasonable insured could understand the terms ‘physical loss’ and ‘physical damage’ to have distinct and separate meanings.”
Even by putting aside ‘physical damage’ as the ruling suggests, and focusing on the ‘physical loss’ aspect, one still needs to find a loss that is physical in nature. Where is the physical loss? Is it the lack of access that was put in place by government order? If so, we have another exclusion in the ISO Causes Of Loss Special Form, as it relates to government loss: Causes of loss special form: B. Exclusions, 3. B: Acts or decisions, including the failure to act or decide, of any person, group, organization or governmental body.
Also, I did not read through the ruling, but based on the article alone, it seems based on the reasoning presented that a virus exclusion would not play a role, since the loss here seems to be the lack of access which resulted from the shutdown. This would not be directly related to virus damage. The decision is faulty nonetheless for many other reasons though. One of which would seem to be the above mentioned exclusion.
I understand the policy in question here may not have been the standard ISO form so would need to judged on its own merits.
I see lots of chinks in what some think is the armor of this case. For one thing, NC courts apparently had not previously construed the term “direct physical loss”; many other states have established case law on that issue and require “actual”, “structural” or “tangible” damage. Secondly, Cincinnati’s policy language differs in material ways from other, standard CPP language. Thirdly, unlike other courts that have appropriately tried to construe the term as a whole, this court pulled and used “standard dictionary” definitions of each, separate word to support its conclusion that “direct physical loss” can mean the temporary loss of use or functionality of property — a conclusion that the majority of courts that have looked at that issue have rejected. See, e.g., Hillcrest Optical, Inc. v. Continental Cas. Co. (USDC, SDAL 10.21.20)(MTD Granted with prejudice)(“the Court notes, that the words ‘direct’ and ‘physical’ modify the word “loss” in the phrase ‘direct physical loss of property.’ Therefore, analysis of this phrase must account for both words as they apply to the type of loss of property Plaintiff must have suffered to trigger coverage”). Fourthly, this holding — that a governmental shutdown order can, in and of itself, can cause a “direct physical loss” within the meaning of a commercial property policy’s business income loss coverage — ignores and effectively strikes other, related policy terms such as the “time element” or “period of restoration” provisions, which imply that there is a measurable period of time by which the damage (partial loss) or loss (total loss, destruction or dispossession) can and will be repaired or replaced and the business operations restored (.e.g., “the time period required to rebuild, repair, or replace such part of the Building or Business Personal Property that has been damaged or destroyed as a direct result of an insured peril”). The period of restoration for a “direct physical loss” of business due to a shutdown order cannot be objectively measured because it is completely subject to the governmental authority that issued the order in the first place.
To quote the ruling:
“The use of the conjunction ‘or’ means — at the very least — that a reasonable insured could understand the terms ‘physical loss’ and ‘physical damage’ to have distinct and separate meanings.”
Even by putting aside ‘physical damage’ as the ruling suggests, and focusing on the ‘physical loss’ aspect, one still needs to find a loss that is physical in nature. Where is the physical loss? Is it the lack of access that was put in place by government order? If so, we have another exclusion in the ISO Causes Of Loss Special Form, as it relates to government loss: Causes of loss special form: B. Exclusions, 3. B: Acts or decisions, including the failure to act or decide, of any person, group, organization or governmental body.
Also, I did not read through the ruling, but based on the article alone, it seems based on the reasoning presented that a virus exclusion would not play a role, since the loss here seems to be the lack of access which resulted from the shutdown. This would not be directly related to virus damage. The decision is faulty nonetheless for many other reasons though. One of which would seem to be the above mentioned exclusion.
I understand the policy in question here may not have been the standard ISO form so would need to judged on its own merits.