The claim for physical damage to property in an insured place has become the raging debate in many of the Covid-19 business interruption disputes. I noted a Florida case 1 in a blog about "physical damage", which I wrote about in 2009 when I was working on claims about roof damage to Hurricane Ike: "Physical Direct Loss" Caselaw and TWIA's roof memo . Given that the decision Azalea, Ltd. against the American States Insurance Company now often quoted in brief contexts about companies being shut down, it seems appropriate to have a more in-depth discussion.
Facts are interesting because what actually initiated the physical injury was "an unknown substance."
[A] an unknown substance was dumped in the sewage treatment plant at the site serving the motorhome park. The local manager found that the liquid in the system had turned light yellow-green. The complainant immediately took the necessary measures to prevent the release of the unknown pollutant into the river.
The City of Jacksonville banned Azalea from using the sewage treatment plant until the unknown substance was determined to be non-hazardous and until the city approved the plant for operation. Consequently, the sewage treatment plant was shut down. Azalea had to provide temporary sewage treatment plants on site and hired engineers and test laboratories to determine the chemical composition of the unknown pollutants. The testing took about a week, during which time Azalea was unable to operate its sewage treatment plant and had to continue to arrange alternative measures. The chemical was finally determined to have a composition that could pass through the system after treatment. During the test period, the chemical residue from the dumped substance adhered to the interior and caused the destruction of a bacterial colony that was part of the sewage treatment process. Azalea had to completely empty the entire system, steam clean the entire interior of the sewage treatment plant with power steam and by emailing away this chemical residue.
This situation is somewhat, if not particularly, analogous to companies being forced to shut down Covid-1
The appellate's claim that there was no actual damage to the insured premises is not supported by the facts or the law. The only evidence presented shows that the bacterial colony is an integral part of the sewage treatment plant. The colony was specifically attached to and became part of the structure of the treatment plant. The plant could not function or exist unless this colony was replaced …
Hughes v. Potomac Ins. Co. 199 Cal.App.2d 239, 18 Cal.Rptr. 650 (Cal.Ct.App.1962) the coverage was found to be under an insurance that provides coverage for "all loss and damage" to the insured's home. In that case, it was argued that there was no damage to the structure where a landslide occurred and deprived of the underlying and lateral support that was crucial to the stability of the home. The court found that common sense required that the policy should not be interpreted as denying coverage for a home that was rendered completely useless. See also Western Fire Ins. Co. v. First Presbyterian Church 165 Colo. 34, 437 P.2d 52 (Colo.1968); Gatti v Hannover Ins. Co. 601 F.Supp. 210 (E.D.Pa.1985), confirmed, 774 F.2d 1151 (3d Cir. Pa.1985).
In the present case, the facts supporting the coverage are even more convincing. The residue from the dumped substance actually covered and adhered to the interior of the structure and caused destruction of the bacterial colony which was an integral part of the covered plant. Therefore, there was direct damage to the structure caused by the vandalism. In these circumstances, the trial court erred in denying coverage …
It is important that the decision approves the series of cases that found physical damage to structures where the underlying and lateral support was lost, even if there was no real cracking or degradation. occurred in the structure. The court even noted that "common sense" required that physical injuries be found in these circumstances.
Thoughts for the day
Science is a first-class piece of furniture for a man's upper chamber, if he has common sense on the ground floor. But if a man does not have plenty of good common sense, the more science he has, the worse for his patient.
—Oliver Wendell Holmes, Sr.
The rules of evidence are mainly based on experience, logic and common sense, less hampered by history than certain parts of material law.
—Oliver Wendell Holmes, Jr.
1 Azalea, Ltd. against American States Ins. Co. 656 So.2d 600 (1995).