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The problematic understanding of "Risks of direct physical loss" | Real estate insurance coverage law blog



Don Malecki was an insurance guru. He wrote many dissertations on insurance coverage. He was respected and a highly sought after insurance expert. Malecki wrote an article in an insurance agent publication, Rough Notes entitled, Troubled Terminology: "Risks of Direct Physical Loss" Formulation is currently widely read by courts . 1 He noted that most policyholders do not understand the basic meaning of "risks of direct physical loss":

Ask a veteran producer about "risks of direct physical loss" – as the term occurs in commercial and personal property policy —And the answer will be very different from how an insurance buyer responds.

The reason is that through experience and studies, producers have learned that this phrase is an outgrowth of the cumbersome terminology that has to do with & # 39; everything ̵

1; risk coverage. Insurance buyers, on the other hand, generally have no idea what that phrase means until a dispute arises with an insurer. At that time, there is a significant learning curve.

Most policyholders do not read their insurance policies. Even if they did, most people would not understand the contract because they lack adequate insurance training. Modern politics is difficult to understand. Policyholders should be able to trust that licensed insurance agents provide the right coverage and consideration when purchasing.

The article is important for the controversy over Covid coverage because one of the most enlightened coverage experts said this in its summary:

Given cases like these, where courts consider "risks of direct physical loss or damage" or " risks of physical loss or injury "does not require the existence of any actual physical injury but simply the threat of injury, it may soon be the driving force behind some subtle policy changes.

Instead of referring to "risks of direct physical loss", it may be better for insurers to change their insurance policies to establish that this coverage applies to direct physical loss or damage to protected property from a covered cause (or all covered causes) , not below excluded or restricted. (Some insurers have already taken similar precautions, and some even go so far as to avoid referring to "physical loss or damage" due to its ambiguity.)

Otherwise, given the interpretation of these terms by the courts In cases discussed here, the momentum for finding cover in the absence of direct physical loss or injury may increase. These changes should be of interest to producers. Insurance buyers, on the other hand, are unlikely to care about how the wording of the insurance changes until it directly affects them. covered, should give a clear exclusion of the same if they intend to exclude coverage.

Thought For The Day

I look for ambiguity when I write because life is ambiguous.
—Keith Richards
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1 Don Malecki, Troubled Terminology: “Risks of Direct Physical Loss” WORDING Words Read Read Broadly by Courts Rough Notes magazine, June 2008. (Available at https://roughnotes.com/rnmagazine/search/commercial_lines/08_06p100.htm)


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