Physical loss or damage
Under the all-risk insurance policies that plaintiffs purchased, the insurance company agreed to pay for direct “loss,” unless the policies excluded or limited the loss. The policies defined “loss” as “accidental [direct] physical loss or accidental [direct] physical damage.” The court noted that the insurance policies did not define direct “physical loss” and relied on the “plain and ordinary meaning of the phrase.” Based on the plain and ordinary meaning of “physical loss,” the court held that plaintiffs sufficiently pleaded that “COVID-19 particles attached to and damaged their property, which made their premises unsafe and unusable.”
The district court distinguished Social Life Magazine, Inc. v. Sentinel Ins. Co., Ltd., 1:20-CV-03311 (S.D. N.Y., May 14, 2020), and stated that “the present case is not about whether COVID-19 damages lungs, and the presence of COVID-19 on premises, as is alleged here, is not a benign condition.” The court also distinguished Gavrilides Mgmt. Co., LLC v. Michigan Ins. Co., Case No. 20-258-CB (Ingham County, Mich., July 1, 2020), finding that the Gavrilides court recognized that the complaint did not state “COVID-19 entered the [insured property] ... and in fact, states that it has never been present in either location.” According to plaintiffs’ complaint, the court stated that COVID-19 “is a physical substance” that “live[s] on” and is “active on inert physical surfaces,” and “COVID-19 allegedly attached to and deprived [p]laintiffs of their property,” resulting in direct physical loss.
In response to the insurance company’s arguments that the policies require a tangible, physical alteration, the court held that the insurance company conflated “loss” and “damage,” and both terms must be given meaning. The court relied on Mehl v. The Travelers Home & Marine Ins. Co., Case No. 16-CV-1325 (W.D. Mo., May 2, 2018), a case concerning insurance coverage for a home that was made uninhabitable by brown recluse spiders, to state that “physical loss” is not synonymous with physical damage. The court stated that other courts have similarly recognized that “even absent a physical alteration, a physical loss may occur when the property is uninhabitable or unusable for its intended purpose.”1