What do “Physical Damage to Property” Emergency Orders Mean?

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In an interview on May 4, a reporter asked me “do I think politicians are purposely including language to try and support COVID-19 property claims for businesses?” 

I paused. 

“Yes,” I said, “I do think this language is being inserted purposely.”

This post will detail my proof. 

There are three types of Emergency Orders that I have identified as potentially problematic for insurers defending against business interruption claims stemming from COVID-19 (for details, please see our Emergency Order Interactive Map Page). The first type is what I call “Physical Damage to Property” Emergency Orders; with these instances, I believe language has been inserted purposely into Emgergency Orders to try and support property claims. In the Physical Damage to Property Orders, the drafter specifically states that the COVID-19 virus is creating physical damage to property. 

We’ve already covered the New Orleans Emergency Order, which states “COVID-19 may be . . . causing property loss and damage in certain circumstances….” A New Orleans attorney at the forefront of restaurant business interruption claims has stated that his “hope” is that this Emergency Order language “can confirm the obligations of the insurance companies. And this could affect not just businesses in Louisiana. This can affect businesses across America.”

In Napa County, California, an Emergency Order was issued to shut down business; the Order states it was issued “based on evidence of … the physical damage to property caused by the virus.” I am not omitting any additional language in the Order that describes evidence of “damage to property.” Not surprisingly, this Order language was referenced by an attorney in a separate restaurant lawsuit

Finally, the Key West, Florida Emergency Order shutting down business operations states the following: “(T)here is reason to believe that COVID-19 is spread amongst the population…thereby spreading from surface to person and causing property loss and damage in certain circumstances….” 

This is where the story gets interesting. 

According to Keys Weekly, a local attorney is responsible for including this specific language: 

“Key West City Attorney Shawn Smith included specific language in the city’s emergency declaration that could help business owners with these types of coverage recoup some revenue.”

The attorney admits as much in the same article (emphasis added):

“Both types of coverage — and people can have one, both or neither — but they both require physical damage to the property, which is why it was so important for the city to include specific language in its emergency declaration stating that the virus causes physical property damage. That can only help business owners with these types of coverage. Of course, it’s always a fight when dealing with insurance companies, but I’m glad Commissioner Clayton Lopez was at the meeting when I mentioned this needed language and brought it back to City Attorney Shawn Smith for inclusion in the city directive.

What does it all mean? 

Do Physical Damage to Property Orders matter? Bill Wilson, author at Property & Casualty Insurance Commentary, systematically evaluates insurance policy language in light of these orders and argues “the basis for the language was a generalization of coverage and not what the cited policy language actually says.”

I don’t necessarily disagree with Bill, but I think there is a larger point to be made: stating something does not make it true. 

This statement by itself — a virus causes physical damage or loss to property — is conclusory and unsupported on its own. 

When I discussed this with the RiskGenius Director of Policy Analysis, Cheri Versluis, she made the point that the policy language — “direct physical loss or damage” — is part of the insuring agreement, and the insured has the burden of proving it has met the terms of the insuring agreement. Consequently, the insured will be required to demonstrate physical loss or damage to either its premises or premises within a certain distance of its premises. Inclusion of language in an Emergency Order is not proof/evidence of damage. If, however, there is evidence the orders were issued based on scientific evidence the Virus attached to surfaces, and thus, businesses had to be shut down, the insured might meet its burden. Only time, evidence, and litigation will tell.

Let’s just call this what it is — attorneys saw an opportunity to try and bolster COVID-19 lawsuits against insurers by inserting language into Emergency Orders during the inception of a pandemic. 

As demonstrated by early cases and statements, attorneys will use this language in lawsuits. I’m not sure they will get much traction, though, with this particular argument. 

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