Property Insurance Coverage Law Blog : Florida Insurance Lawyer & Attorney : Merlin Law Group Law Firm : Tampa, Houston, Coral Gables, Gulfport

One of the most basic requirements – other than proving an insurance policy was in place – is to show that the damage suffered is covered by the policy. Most courts agree that the burden is on the policyholder to prove a loss is within the scope of the insuring agreement. However, once that burden is met, the burden shifts to the insurer to show that an exclusion applies or that the policyholder failed to comply with a policy requirement.

Another basic requirement is that the damage or loss be physical in nature -- there must be some physical change to the insured property. While this may seem straightforward at first glance, interesting issues may arise.

Take, for example, Fujii v. State Farm Fire & Cas. Co., 71 Wash. App. 248 (1993). In this case, heavy rainfall caused a landslide near the Fujii’s home. The landslide caused continued instability of the slope on which the Fujii’s home was built, so they filed a claim under their homeowners insurance policy. State Farm denied coverage because no direct physical loss had occurred to the dwelling. Experts from both sides agreed that physical damage was imminent, but that no damage to the house, itself, had occurred.

The court stated,

It is undisputed that there was no discernable physical damage to the dwelling during the effective period of the policy….Under the plain terms of the policy, coverage was triggered by direct physical loss to the dwelling….Therefore, because the covered dwelling did not sustain a direct physical loss during the effective period of the policy, the trial court correctly granted summary judgment to State Farm.

Unfortunately, this put the Fujiis in a bad situation. They had just changed insurance carriers and due to the fortuity doctrine, which states that insurance companies should not be held liable for known losses, expected or intended losses, or losses that are certain to occur, they may not be able to recover from their current insurance provider as well.

The fortuity doctrine is the basis of many legal issues, and I will delve into it more next week. Stay tuned.

In times where “LOL” is almost the universal language for friendship, it is hard to imagine that coverage does not exist for business income losses if the property did not sustain “physical damage” as a result of a covered peril. I certainly envision the future of business interruption litigation to revolve around the definition of the terms “property” and “physical damage” as the world continues to turn paperless and e-commerce related losses become more frequent than fires and hurricanes.

An example of a real life “e-dispute” is found in American Guarantee & Liability Insurance Co. v. Ingram Micro, Inc., No. 99-185, 2000 WL 726789 (D. Ariz. April 18, 2000). Ingram, “a wholesale distributer of microcomputer products,” purchased an all-risk property policy from American to insure against business interruption losses. The policy insured against “[a]ll [r]isks of direct physical loss or damage from any cause.” Ingram's business operations depended solely on the functioning of a computer network used to conduct daily business. A power outage caused Ingram's computer to lose all programming information from the random access memory, and it took almost eight hours for Ingram to return to full operation due to a malfunctioning matrix switch. American argued that there was no physical damage because the matrix switch and the computer had not lost the ability to accept data. Ingram argued that the term “physical damage” includes loss of use and functionality.

The trial court ruled in favor of Ingram holding as follows:

At a time when computer technology dominates our professional as well as personal lives, the Court must side with Ingram's broader definition of “physical damage.” The Court finds that “physical damage” is not restricted to the physical destruction or harm of computer circuitry but includes loss of access, loss of use, and loss of functionality.

The court found support in the Federal Computer Fraud Statute, 18 U.S.C. 1033 where lawmakers around the country had determined that when a computer's data is unavailable, there is damage; when a computer's services are interrupted, there is damage; and when a computer's software or network is altered, there is damage.

Although Ingram has not been widely followed, at least one court has found support for recovery under standard “all risk” policies for business interruption claims that result from corruption or loss of electronic data. In Southeast Mental Health Center, Inc., v. Pacific Insurance Co., Ltd., 439 F.Supp.2d 831 (W.D. Tenn. 2006) the plaintiff's operations were interrupted after a storm and a power outage caused data loss to the pharmacy computer. Although the storm did not physically damage plaintiff's real property, plaintiff sought recovery for business income losses that resulted from its inability to fill customer prescriptions on the pharmacy computer. The court, noting that the Ingram court's reasoning was persuasive, held that “the corruption of the pharmacy computer constitutes ‘direct physical loss of or damage to property’ under the business interruption policy.”

Notably, Ingram and Southeast Mental were both broad forms with ambiguous electronic data exclusions. The insurance industry has since amended or endorsed these loopholes. Business owners and risk managers should therefore check their policies and consult their agents or attorneys to determine if their valuable data is covered.

In the post, Chip commented:

When considering a policy that covers "accidental physical risks of loss," I wonder what a "loss" would be if there were no "damage" that occurred with it. I cannot think of such a situation.

An avid reader commented:

A couple of scenarios come to mind where a loss has occurred but NO physical loss to the insured property has been sustained.

Referring to the ISO Homeowners program the coverage for Civil Authority comes to mind where ALE costs would be paid even if there is no physical damage to the insured property.

Another situation may be a municipal water source which is contaminated and a coffee shop/restaurant is shut down because of it. The water is not insured (at least not before it runs through the meter) yet there may be a Business Interruption claim as a result.

To which Chip responded:

Thanks for your comment. I think there is a "physical" damage or loss component to each.

The ISO business income form CP 00 30 04 02 promises to pay "for the actual loss of business income you sustain and necessary extra expense caused by action of civil authority that prohibits access to the described premises due to direct physical loss of or damage to property, other than at the described premises, caused by or resulting from any covered cause of loss." So, the form itself refers to "physical" damage or loss.

Under ISO homeowners forms for loss of use, those state that if "a civil authority prohibits you from use of the `residence premises' as a result of direct damage to neighboring premises by a Peril Insured Against, we cover the loss as provided in 1) additional living expense and 2) fair rental value above for no more than two weeks." Again, the "direct" damage is meant to be "physical" albeit to the neighbors policy.

This “loss or damage” debate is also highly litigated in business interruption claims. The opinion in Philadelphia Parking Authority v. Federal Ins. Co., 385 F.Supp.2d 280 (S.D.N.Y. 2005), is illustrative. In this case, a Pennsylvania state-created agency that operated a parking facilities at Philadelphia airport sued its property insurer for certain business losses sustained when the FAA grounded all civil aircrafts after the 9/11 terrorist attacks.

The parking authority presented a claim under its Business Income, Contingent Business Premises, and Civil Authority Provisions of the policy. The carrier denied business interruption coverage stating that no “direct physical loss or damage” had occurred “to the insured premises.” The carrier further denied coverage under the Civil Authority Provision stating that there was no direct nexus between the physical loss or damage (that occurred in DC, New York and Western Pennsylvania) and the closure of the airport and the parking facility in Philadelphia.

The parking authority argued that the claim was covered under its Business Income and Contingent Business claim, contending that the phrase “direct physical loss or damage” is ambiguous because it is unclear whether “direct physical” modifies “damage” as well as “loss” and that therefore the Court should construe the phrase in Plaintiff's favor and read the word “damage” to include economic damage. The court rejected this argument and held that:

[i]f Plaintiff's proffered interpretation of the language were correct, the Provisions' requirements would be unreasonable as applied to a business interruption claim based on purely economic damage. As discussed above, an insured making such a claim would need to show not only that the economic damage (to either the insured's covered property or a contingent business premises) resulted from a “covered cause of loss,” but also that the economic damage itself caused the interruption in the insured's business operations. It is difficult to imagine such a situation actually taking place. Moreover, it was clearly not the situation here.

However, if, as Defendant argues, “direct physical” modifies both loss and damage, the Provisions' requirements make sense: the interruption in business must be caused by some physical problem with the covered property (or the contingent business premises), which must be caused by a “covered cause of loss.” For example, if an insured business had to temporarily close its store because of structural damage caused by a fire, the Business Income and Extra Expense Provision would clearly cover the resulting losses. In that instance, the “direct physical loss or damage” would be the structural damage, and the “covered cause of loss” would be the fire. Thus, the Court will not adopt Plaintiff's “torturing the phrase” merely to create an ambiguity which does not exist when the contractual text is read in context and its words construed in their commonplace meanings.

With respect to the Civil Authority provision, the parking authority argued that the FAA’s order grounding civil aircrafts “effectively prevented ingress and egress of passengers into terminal areas of the airport and the parking facilities” and, as a result, there was a severe reduction in business. In this case, the court held that:

The plain language of the [FAA order] did not “prohibit[ ] access to” Plaintiff's garages as the policy requires. The NOTAM was issued to the attention of “all aircraft operators,” and deals only with the grounding of airplanes. While this unprecedented order may have temporarily obviated the need for Plaintiff's parking services, it did not prohibit access to Plaintiff's garages and therefore cannot be used to invoke coverage under Plaintiff's policy.

Since the [FAA order] did not prohibit access to Plaintiff's garages, it is unnecessary for the Court to decide whether the FAA issued the NOTAM “because of” the damage caused by the plane crashes in New York, Washington D.C., and Pennsylvania or, as Defendant argues, only to prevent additional terrorist attacks.

The question whether coverage is triggered by the mere existence of a “loss” without a finding of “damage” is one of the most debated causation dilemmas in property insurance coverage litigation. Philosophically, the “loss or damage” debate could be as difficult as the “chicken and egg” conundrum, but the mystery certainly keeps matters interesting.

In "What Does "Physical Damage" Mean When It Doesn't Work? “Physical Damage" as Loss of Function, Value, or Use in Liability and First Party Coverage," authors Sherilyn Pastor and Jerry Sattin wrote an article that is a must read for coverage attorneys and all first party property adjusters. The article's genesis was the recent New Jersey decision, Wakefern Food Corporation v. Liberty Mutual Fire Insurance Company, 968 A. 2d 724 (N.J. Sup. Ct. App. 2009). 

Just to show that New Jersey Appellate Courts may follow the "reasonable expectations" doctrine, the Wakefern court concluded that the:

...undefined term 'physical damage' was ambiguous and that the trial court construed the term too narrowly, in a manner favoring the insurer and inconsistent with the reasonable expectations of the insured.

The article lists a number of unique cases where "physical damage" was found to include loss of use, function or value. Indeed, while I suggest these case decisions are unique, the authors noted:

...courts frequently have been confronted with cases in which the concept of "physical damage" is less clear. Is a house perched on a cliff after a landslide removes the supporting earth "physically damaged" if the house is otherwise intact and unscarred? Is juice "physically damaged" when its bottle's expiration date has passed even though there is no proof that the beverage has otherwise spoiled? Is computer equipment "physically damaged" when its software is lost after a power failure even though the computer otherwise functions? Is an electrical system "physically damaged" during a power outage if circuit breakers trip to protect the electrical equipment from "physical damage?"

Their conclusion following the legal analysis is significant and suggests that an insured's losses may include much more than visible damage:

'Physical Damage' plays a central role in coverage determinations...as an element of 'direct physical damage' in first party coverage....While 'physical damage' may be obvious where visible-as with a dented fender or a burned building-it is often less obvious where the involved property is visibly unmarred but nevertheless has lost its value or ability to function. Typically, as in Wakefern, the damaged property is physically incapable of working-either because it lacks power or because it is physically contaminated by fumes, asbestos, or other substances. But in other cases, such as where a product has lost some or all of its value due to government regulations, expiration dates, or otherwise, it too may be deemed physically damaged because of the change in perception of the product.

In short, 'physical damage' is not an inflexible concept connoting only visible damage and material destruction. In the appropriate circumstances, it also is a flexible concept and may be equated with loss of use, function or value. Policyholders and insurers therefore should regard the term broadly and flexibly as commonsense and the law of various jurisdictions require.

This article will undoubtedly raise a number of questions because the reported cases affording these recoveries are limited. Yet, the article suggests the granting of coverage is fairly commonplace. We will follow up with case examples granting and denying coverage in future posts.

I will also partially retract what I wrote yesterday and contemplate greater use of the "reasonable expectations" doctrine--at least when I am in a New Jersey court.

Indeed, this issue does not get raised just by insurance adjusters. My experience is that when insurance defense counsel hire engineers, the engineering report repeatedly notes the lack of “structural” damage to a building. A noted example of this is with roof claims. HAAG engineers often repeat in their reports and at seminars that there is no structural or functional damage to shingles or parts of the roof. The result is insurance company attorneys saying that they are not paying for anything unless there is proof of “structural damage.”

I am going to provide just one example to show how absurd this position is. The FC&S Bulletins discuss the issue and use the same example of vandalism that I usually provide. Interestingly, the question posed involved a roof with cosmetic damage, and I bet the insurance company had a roofing expert say there was no functional or structural damage to the roof:

Direct Physical Loss and Cosmetic Loss

Hail stones have created dents to a copper roof. The section of roofing is located over a second story bay window. It does not appear that the hail has compromised the life span of the roof's surface or otherwise affected or decreased its useful lifespan.

Our HO policy provides coverage for direct physical loss. If the roof's integrity was not compromised by the hail stone impact, has a physical loss occurred?

We believe that some carriers view this type of damage as cosmetic and do not provide coverage for replacement of the copper roof. Does FC & S have an opinion?

ANSWER

Whether or not the dents are cosmetic or affect the roof structure, they are still direct physical loss. The policy doesn’t define damage so standard practice is to go to a desk reference. Merriam Webster Online defines damage as loss or harm resulting from injury to property, person, or reputation. The roof now has dents where it didn't before; that's direct damage. The policy doesn't exclude cosmetic damage, so direct damage, even if it is cosmetic, is covered. It's the same as if vandals had painted the side of the house purple. While cosmetic, it's damage, and is covered. The principle of indemnity is to restore the insured to what they had before the loss, and this insured had a roof with no dents.

I am raising this issue in part because there are so many Hurricane Ike disputes where the insurers are not paying for roof damage. One of the arguments is that they do not pay for “cosmetic damage” which is wrong. The vandalism example made by the editors of the FC&S Bulletin clearly shows that the property policy covers for damages to the appearance of structure or property so long as it is by a covered peril.

The problem is that the property insurance policy covers loss caused by physical damage. To receive benefits, you normally have to have “physical damage” to something caused by a peril that is covered under the policy. Virtually all modern forms say something to the effect that the coverage is for “direct physical loss or damage to covered property…..caused by or resulting from a Covered Cause of loss.” If you can show that there has been physical loss or damage caused by an insured peril, the warranty value is a consideration for the amount of the loss. Without actual damage, however, you cannot make a claim for the contractual loss because property insurance policies require physical damage.

The FC&S Bulletin has two question and answers about this issue regarding warranties which are very instructive. The first is on point with the questions posed to me:

Warranty Cancelled—Direct Physical Loss?

Our client has a CP 00 10 04 02 covering their leased telephone system. The system, consisting of several components located throughout the building, was only thirty days old when it suffered water damage from a frozen overhead water pipe.

The lessor insists that any component exposed to water be replaced, whether it suffered obvious damage or not. The lessor will not honor the warranty/service agreement for any components exposed to water but not replaced. Likewise, the lessor will not honor the agreement for components which are repaired, rather than replaced.

The insurer says that they are only obligated to pay for components which suffered obvious damage. They will not replace equipment simply because it was exposed to water. Similarly, they refuse to replace components where repairs cost less than replacement. According to the insurance company, the loss of the warranty/service agreement is not "direct physical loss or damage" and is not covered under the policy.

We don't believe the insured is made whole if they lose the warranty/service agreement on their equipment. Whether the insurance company pays to replace the equipment, or pays the value of the warranty (which would be difficult to determine), it seems clear to us that they must recognize the value of the warranty in the claim settlement.
…

Answer

In your insured's case, there is some question whether the telephone components are damaged. The policy covers "direct damage" to property. If that direct damage can be proved, and if the warranty is lost because the manufacturer will not honor the warranty on repaired equipment, then the value of the warranty can be said to be part of the loss. If there is no direct damage to the components exposed to water but not obviously damaged, then there is no coverage. The argument here seems to be with the lessor, and whether it is acting within its rights in voiding a warranty on exposed, but undamaged property.

The insured is caught between two contracts and interests. His "deal" with the insurance company does not mesh with his deal with the telephone equipment manufacturer. We do not know of any insurer will[ing] to replace property only when it might have been damaged and then forego the insurer's option of making repairs rather than replacing.

The editors of the FC&S Bulletin are right. I will research the issue of direct physical loss for examples and post those at another time.

The second question and answer also demonstrates how warranties can be used to increase claim value when physical loss occurs:

Businessowners — Value of a Warranty Included in Replacement Cost?

My client is insured under a businessowners policy, form BP 00 02 12 99. Her laptop computer was damaged, and the loss was covered by the BOP policy. I think the value of the warranty on the damaged laptop should be included in the settlement, but the insurance company adjuster disagrees.

Should the value of the warranty be included or not?

Answer

The value of a warranty should be included in the replacement cost valuation of a damaged object. Insurance policies are contracts of indemnification. As such, the policyholder should be placed in the same condition after the loss as before the loss. The adjuster may want to pro-rate the value of the warranty, but it should be considered.

As I indicated on Friday, everybody doing this for a living should subscribe to the FC&S Bulletins. It is an excellent general first source for questions about coverage and forms to which I routinely refer for my coverage considerations. In my opinion, the on-line edition is much easier to research than the paper edition, which would take hours looking for the proverbial “needle in the haystack.” Still, I learned a lot of coverage issues and answers I would otherwise miss today by reading for irrelevant coverage discussions when researching through the old paper edition.

If you feel you cannot afford a subscription to FC&S Bulletin, you should at least subscribe to their free e-Alert, a monthly online e-newsletter.

In the post, The TWIA Roof Damage Memo: Checking Basic References to Resolve Adjustment Questions, I showed that the TWIA claims memo is wrong based upon the most basic insurance training available to rookie adjusters. Then, in the post preceding this, Roof Repair Methods Prove TWIA is Wrongly Denying Roof Claims, it was shown how roofers and the manufacturer's of shingle roofs appreciate the need to repair shingles that have seals which are broken from a hurricane's high winds and how to fix them. Maybe the TWIA claims executives sitting behind desks in Austin do not know that adhesive seals are a tangible substance or their purpose on roofing shingles. Or, maybe they have been going to HAAG Roofing Seminars and learned a new trick on how to avoid paying for roof shingle damage. HAAG Engineering is good for my business, but not good for policyholders with an insurance claim.

What about the insurance coverage caselaw regarding "direct physical loss?" The case discussions I like best to help those understand "direct physical loss" are Ward Gen. Ins. Services, Inc. v. The Employers Fire Ins. Co., 114 Cal. App. 4th 548, 7 Cal. Rptr. 3d 844 (2003) and Meridian Textiles, Inc. v. Indemnity Insurance Co. of North America, 2008 U.S. Dist. LEXIS 91371, 2008 AMC 1411 (C.D. Cal. 2008).

The facts of Ward involved loss of the insured's computer data which was mistakenly deleted. The insured filed a claim to recover the cost of recovering the data and the business loss incurred from temporary loss of data. The insurers denied the claim on the ground that the policy required a direct physical loss before there would be coverage. The court held computer data was not a tangible or physical item and a physical loss, which did not happen, was required in order to trigger coverage.

The Court first provided a definition for direct physical loss:

"Neither party submitted any evidence suggesting that the phrase "direct physical loss" has some technical meaning or special meaning given by usage. Accordingly, we interpret these words in their ordinary and popular sense to determine whether they impart a clear and explicit meaning in the context of the losses claimed against the insurance policy. We conclude they do.

The word "physical" is defined, inter alia, as "having material existence" and "perceptible esp. through the senses and subject to the laws of nature." (Merriam-Webster's Collegiate Dict. (10th ed. 1993) p. 875.) "MATERIAL implies formation out of tangible matter." (Id. at p. 715.) "Tangible" means, inter alia, "capable of being perceived esp. by the sense of touch." (Id. at p. 1200.) Thus, relying on the ordinary and popular sense of the words, we say with confidence that the loss of plaintiff's database does not qualify as a "direct physical loss," unless the database has a material existence, formed out of tangible matter, and is perceptible to the sense of touch."

The Court then ruled against the policyholder under reasoning that other courts, including one in Texas, disagree:

"...the loss of a database is the loss of organized information, in this case, the loss of client names, addresses, policy renewal dates, etc.

We fail to see how information, qua information, can be said to have a material existence, be formed out of tangible matter, or be perceptible to the sense of touch. To be sure, information is stored in a physical medium, such as a magnetic disc or tape, or even as papers in three-ring binders or a file cabinet, but the information itself remains intangible. Here, the loss suffered by plaintiff was a loss of information, i.e., the sequence of ones and zeroes stored by aligning small domains of magnetic material on the computer's hard drive in a machine readable manner. Plaintiff did not lose the tangible material of the storage medium. Rather, plaintiff lost the stored information. The sequence of ones and zeros can be altered, rearranged, or erased, without losing or damaging the tangible material of the storage medium."

However, the Court also noted a number of examples of "direct physical loss" that provide coverage:

"...in Hughes v. Potomac Ins. Co. (1962) 199 Cal. App. 2d 239 [18 Cal. Rptr. 650], heavy rains caused the backyard of plaintiff's insured dwelling to slide into a creek, but the structure of the building itself was not damaged. The court held the first party insurance policy covering physical loss and damage to the "dwelling" covered plaintiff's loss. This decision does not stand for the proposition that loss of or damage to intangible property can constitute a physical loss. Quite clearly, the loss of the backyard was a physical loss of tangible property. The essential question decided by the Hughes court was whether the insured "dwelling" included the ground under the building.

...in Western Fire Ins. Co. v. First Presbyterian Church (1968) 165 Colo. 34 [437 P.2d 52], gasoline had accumulated in the soil around the insured building, infiltrating and saturating the foundation and making the structure uninhabitable. The court found the loss of use was covered by an insurance policy insuring against the consequential results of a direct physical loss. ( Id. at pp. 38-39.) Again, this case does not stand for the proposition that loss of intangible property can constitute a physical loss. A physical loss occurred when the foundations became saturated with gasoline. The essential question decided by the First Presbyterian court was whether the resultant loss of use could be recovered under the policy.

...in Azalea, Ltd. v. American States Ins. Co. (Fla.Dist.Ct.App. 1995) 656 So. 2d 600, a sewage treatment plant was vandalized by the dumping of an unknown chemical into the system. Inter alia, the chemical destroyed a bacteria colony, which was an integral part of the sewage treatment facility. ( Id. at p. 602.) The court found the loss was covered by a policy insuring against direct physical loss....

...in Retail Systems v. CNA Ins. Companies (Minn.Ct.App. 1991) 469 N.W.2d 735, a third party liability policy covering "physical injury or destruction of tangible property" was held to cover damages for the loss of a computer tape containing the results of a voter survey conducted by a political party. The computer tape, together with the data it contained, was found to be "tangible property," and the measure of recoverable damages was enhanced by the value of the lost data stored on the tape. But the condition of coverage, the loss of tangible property, was plainly satisfied by the loss of the tape.... "

In Meridian Textiles, the Court's discussion is even more helpful to our roofing situation:

"[t]he requirement that the loss be "physical," given the ordinary definition of that term is widely held to exclude alleged losses that are intangible or incorporeal, and, thereby, to preclude any claim against the property insurer when the insured merely suffers a detrimental impact unaccompanied by a distinct, demonstrable, physical alteration of the property.

10A Couch on Ins. § 148.46 (3d ed. 2005) (citing Commercial Union Ins. Co. v. Sponholz, 866 F.2d 1162 (9th Cir. 1989) (finding that marine insurance policy did not cover defect in title, which did not constitute physical injury)....see e.g., Farmers Ins. Co. v. Trutanich, 123 Ore. App. 6, 8, 858 P.2d 1332 (Or. Ct. App. 1993) (concluding that under Oregon law odor from methamphetamine "cooking" "was 'physical' because it damaged the house"); Yale Univ. v. CIGNA Ins. Co., 224 F. Supp. 2d 402, 412-13 (D. Conn. 2002) (concluding that while plaintiff could not seek coverage under an all-risk policy for "mere presence of asbestos-and lead-containing materials in its buildings," it could seek coverage for the "contamination of its buildings by the presence of friable asbestos and non-intact lead-based paint").

For example, in Glens Falls Ins. Co. v. Covert, 526 S.W.2d 222 (1975), the insurance policy provided coverage against "ALL RISKS OF PHYSICAL LOSS OR DAMAGE" to certain vehicle safety stabilizers owned and sold by the insured. Id. The stabilizers fell from a storage area to the floor. Id. However, because the stabilizers were sealed units, they could not be inspected for damage. Id. Thus, it was not known if the stabilizers suffered any physical or internal damage. Id. The manufacturer of the stabilizers withdrew its warranty, and the insured decided not to sell the units, concluding that the units lost their merchantability. Id. In affirming the trial court, the Court of Appeals held that although the insured decided that the units could not be sold without their warranties, "under the clear language of the policy of insurance . . . , that was a type of loss not covered." Id. The court concluded that because "there was no physical loss or damage," the insured could not recover...

Similarly, in Columbiaknit, Inc. v. Affiliated FM Insurance Co., 1999 U.S. Dist. LEXIS 11873 (D. Or. 1999), relied upon by defendant, the court held that under an all-risk insurance policy providing coverage for physical loss or damage, the plaintiff must "show that a physical loss occurred to covered property."....

The court noted that "if an article of retail clothing has an odor strong enough that it must be washed to remove it, (and the garment therefore cannot be sold as new) it has sustained physical damage and would be covered under an 'all-risk' property insurance policy."... The court reasoned that on the other hand, a retailer's "decision not to sell the garment as new, in the absence of distinct and demonstrable physical change to the garment necessitating some remedial action that would preclude honestly marketing as first quality goods, is not a covered loss."... The mere "alteration of property at the microscopic level does not obviate the requirement that physical damage need be distinct and demonstrable." Id. The court thus held that to recover, the plaintiff had to demonstrate that its garments and fabric had been water-soaked, that they had developed an odor, mold, or mildew, or that the goods had been physically changed in such a way that the goods would develop an odor, mold, or mildew." 

From this legal perspective, the substance which makes up the adhesive material on or applied to roofing shingles is tangible. It can be felt, measured, and seen. Roofers tell me that the adhesive property of the "seal" can even be measured. Policyholders will need to prove that the winds and debris carried in the winds from Hurricane Ike caused an alteration to the adhesives which formed seals to the roofing shingles. I suspect that many newer and better maintained roofs suffered less of this damage than older and less maintained roofs and shingles.

Adjusters and policyholders need to understand that finding shingle damage is not done from the ground--unless you do not want to find any damage. You have to closely inspect the shingles. Roofers tell me that one does pull up the shingles with your hand to see if the seal is broken, unlike the directions in the TWIA memo. But, be careful. Inspections can damage the roof; and, possibly damage you, if you fall.

One last warning to all who are not attorneys: do not take this post, or copy it, and start practicing law by arguing what cases mean to the insurance company or TWIA. This warning is especially applicable to public adjusters.

I am off to Rome celebrating my fiftieth birthday. Guest Bloggers will take over for the next two weeks

Ciao.