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Business Income and the Supposed Ambiguity of “…Direct Physical Loss of or Damage To…”

Author: Chris Boggs

A primary focus of courts trying COVID-related cases was adjudicating whether the phrase, “direct physical loss of or damage to" property at the premises unambiguously excludes the presence or presumed presence of a virus in the absence of a virus exclusion. Essentially, is “…physical loss of…" ambiguous because of the phrase “…or damage to…."?

Plaintiff attorneys contended that losing the use of a building qualified as “physical loss of" the building because the insured has lost the use of the building. This would be true and very hard to argue if not for three key points:

  1. The policy states, “…direct physical loss of…" not just “…physical loss of…" the property;  
  2. The policy specifically excludes loss of use as the sole cause of loss. Exclusion B.2.b. in ISO's Causes of Loss – Special Form (CP 10 30) specifically excludes loss of use; and
  3. Exclusion B.3.b. in the CP 10 30 specifically excludes the acts or decisions of a governmental body.

Business income is not “stand alone" coverage. ISO's commercial property policy is combined with a cause of loss form (Basic, Broad or Special) and either of the available business income forms (CP 00 30 or CP 00 32). When packaged, the business income forms purposely and unambiguously require direct damage to property by a covered cause of loss before the business income coverage is triggered. In the absence of direct damage, there is no business income coverage.

Why the “Or"

Plaintiff attorneys argued that ambiguity was created by the “or" in the phrase “…direct physical loss of OR damage to property."  Their reasoning, if these phrases do not carry different meanings or have a different intent, they are redundant thus ambiguous.

Surprisingly, the attorneys are right. Each phrase DOES have a different meaning and intent. These two phrases indicate different “degrees" of destruction.

  • “…direct physical loss of…": The building has suffered a degree of direct damage such that it is unusable.
  • “…direct…damage to…": The building has been damaged, but part of it is still usable.

Both phrases are required to assure that business income coverage is triggered following a direct property loss. If only one phrase was used, it might be argued that the lack of the missing phrase precluded coverage for that “degree" of damage.


Regardless the plaintiff attorney's contention in these cases, the requirement of DIRECT physical damage to the building is unambiguous. The property package including business income taken in its entirety (as is required for contract interpretation) requires direct damage and excludes the indirect damage solely from loss of use or governmental action.

ISO's policy language is unambiguous. Closure by a governmental order is, first, NOT covered be the policy language and is, in fact, specifically excluded by the policy language. Courts have decided this is the clear, unambiguous meaning of the phrase in nearly every COVID decision.

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Last updated: May 5, 2021

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