COVID-19 AND BUSINESS-INCOME INSURANCE: THE HISTORY OF "PHYSICAL LOSS" AND WHAT INSURERS INTENDED IT TO MEAN

.701 INTRODUCTION In thousands of cases filed throughout the United States, policyholders are seeking Business Income coverage for losses arising from the presence of SARS-CoV-2, the COVID-19 pandemic, or consequent orders of civil authority.1 Typically, the Business Income clause is triggered by some variation of "direct physical loss of or damage to" the policyholder's property. In the first three, courts accept that there is a difference between "loss of" and "damage to" property, but reach different conclusions about what "loss of" property means: 1) Some courts have correctly found that "loss" and "damage" are distinct terms, separated by the disjunctive "or," and, as such, they must be given different meanings, and have further found that "loss" means (or can mean) the inability to use property for its intended purpose.2 2) Other courts have found that "loss" can mean the inability to use property, but as used in property insurance policies, "loss" is limited to situations in which the policyholder suffers "permanent dispossession" of property.3 3) Other courts have found that "loss" means total destruction of property, as compared to "damage," which means partial destruction of property.4 The last two categories ignore any difference between "loss" and "damage": 4) A number of courts have recognized that "loss" and "damage," in the abstract, have different meanings, but found that, because they are preceded by "direct" and "physical," the phrase "direct, physical loss of or damage to" must be given a unitary meaning, typically requiring physical "alteration" of property.5 5) Other courts have simply disregarded any possible difference between the terms "loss" and "damage," often on the ground that phrases like "direct physical loss of or damage to property" have already been judicially construed to require some sort of "physical alteration" of property (most commonly, "distinct, demonstrable, physical alteration" of property).6 The only courts reaching the right result are those in category 1. For courts-and particularly state courts-seeking to accurately interpret insurance policies, a close look at history and insurance-industry intent is critical. [...]the mid-1980s, most policies employed a standard-form trigger for Business Income that required "damage" or "destruction" of property. "12 The Per Diem Use & Occupancy form, which was the first such form used in the United States, provided coverage triggered by "damage to or destruction of . . . pr