Insurance coverage for coronavirus claims: ‘Loss of use’ does not require physical injury in liability policies

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PUBLISHED ON: April 10, 2020

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In our strange new world, leaders of shuttered businesses are sitting in their kitchens, reading insurance policies with sudden interest. Insurance company executives are doing the same. Several COVID-19 coverage lawsuits have already been filed, and many more are expected to follow.

One of the first battlegrounds will be whether the shutdowns arise from “physical injury” — often required in property and liability policies to trigger coverage.

But in some cases, the answer to this question will not matter. Drafting history shows that liability policies provide coverage for loss of use, even without physical injury to property, in certain circumstances. Businesses should keep this fact in mind.1

THE 1966 CGL POLICY

CGL insurance policies — originally “comprehensive general liability” and later “commercial general liability” — are the backbone of most insurance programs. They provide defense and indemnification against claims by third parties.

When these policies were created in 1966, the standard-form definition of “property damage” was simply “injury to or destruction of tangible property.” There was no reference to loss of use. The drafting history, however, shows that loss of use was intended to be included. The only reason the definition does not so state is that the drafters thought its inclusion of loss of use was clearly implied.

An early draft of this definition made physical injury a requirement of property damage.

In 1961, the Joint Forms Committee to the Rating Committees of the National and Mutual Bureaus, which was a committee of policy drafters, proposed defining property damage as “physical injury to or destruction of tangible property.”2 

The Joint Forms Committee abandoned this proposal precisely incorporate loss of use…….