The court held that while the phrase “direct physical loss” is not defined in the policies, the plain and literal meaning of the words requires that there must actual, physical damage to the property for it to qualify for a claim.

No case was therefore made that the virus caused actual damage to the property.

The contract language was not ambiguous.  The executive orders of government did not cause a “direct physical loss” to the plaintiff’s restaurants.  There was no change to the restaurants resulting from an external event that transformed the properties from a satisfactory condition to an unsatisfactory condition.

The policies also contained virus provisions making it clear that losses covered by the pandemic were not covered. The exclusion related to losses or damage caused by “any virus, bacterium or other microorganisms that induces or is capable of inducing physical distress, illness or disease.”

The court said that the losses were caused, at least indirectly, by the virus and so also fell under the exceptions to the policies even if the loss was covered, the virus exclusion would bar the claims.

The court said that the virus exclusion did not render the policies illusory.  Excluding one potential cause of loss does not render cover illusory when other potential covered causes still exist.  The virus exclusions were unambiguous and barred claims based on Covid-19 related losses.

First published by: Financial Institutions Legal Snapshot