An Arizona court ruling looks to redefine policy language dealing with the definition of “property damage” and how it relates to computer crashes.
David Golden, director of commercial lines for the Insurance Research division of the National Association of Independent Insurers (NAII), feels that the case, American Guarantee & Liability Insurance Co. v. Ingram Micro Inc., could set a “dangerous precedent for other courts to become unnecessarily involved in the contract relationship between the insurer and policyholder.”
The case involves Ingram Micro, a wholesale distributor of microcomputer products that lost electrical power and sustained serious computer outages and subsequently lost data.
Ingram made a claim under its property policy, but American Guarantee denied the claim because the policy language specified that coverage was only available for physical damage to property.
The Arizona district court ruled that Ingram was entitled to collect damages by broadening the interpretation of the policy term “physical damage,” applying it not only to the physical destruction or harm of computer circuitry, but including loss of access, use and functionality.
The court cited several criminal statutes in states other than Arizona in which computer crime is defined as the disruption or alteration of computer services.
In order for insurers to compete with one another to develop coverages that protect against e-commerce risks, accurate underwriting guidelines and price structures must first be established, according to NAII’s Golden. Instead, the court is trying to provide coverage where none was intended and no premium charge was made for such an additional exposure, he added.
The ruling could expand property coverage and increase business insurance premiums by attempting to rewrite policy language.
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