A number of insurance law treatises are relied upon to provide guidance to lawyers and judges regarding the general state of insurance law. One of those is Couch on Insurance (Couch) published by Thomson Reuters. Merlin Law Group subscribes to a number of services providing treatise information on insurance law, including Couch in our Westlaw subscription. This service and information is not cheap. Thomson Reuters publishes a onetime purchase of the treatise for $18, 493.00. The Internet advertisement for Couch states:

This new edition reflects law and practices governing insurance issues today. It offers definitive treatment on practically all types of insurance, including life, property, health and accident, liability and indemnity, automobile, fidelity guarantee, contract guarantee, group, reinsurance, annuities, governmental life and disability, ERISA, and COBRA. Timely topics in the insurance industry are addressed, as well as insurance contracts, risks covered, and representations and warranties. Being newly rewritten and reorganized by Steven Plitt, Daniel Maldonado, and Joshua D. Rogers, who maintain an insurance litigation practice with Kunz, Plitt, Hyland, Demlong and Kleifield in Phoenix, the successor authors are experienced trial attorneys and experts in the insurance field.

A soon to be article which will be published in the American Bar Association’s Tort, Trial and Insurance Practice Law Journal, COUCH’S “PHYSICAL ALTERATION” FALLACY: ITS ORIGINS AND CONSEQUENCES, has a stinging criticism of Couch‘s accuracy. The introduction explains the issue:

Look at virtually any Covid-19 case favoring an insurer, and you will find a citation to Section 148:46 of Couch on Insurance. It is virtually ubiquitous: courts siding with insurers cite Couch as restating a ‘widely held rule’ on the meaning of ‘physical loss or damage’—words typically in the trigger for property-insurance coverage, including business-income coverage. It has been cited, ad nauseam, as evidence of a general consensus that all property-insurance claims require some ‘distinct, demonstrable, physical alteration of the property.’ Indeed, some pro-insurer decisions substitute a citation to this section for an actual analysis of the specific language before the court.

Couch is generally recognized as a significant insurance treatise, and courts have cited it for almost a century. That respect began with the first edition written by George Couch and subsequent editions written by his successors.

This particular section, however, as formulated in the third edition of Couch, contains an unfortunate, and serious, error. Couch’s apparent conclusion—that ‘direct physical loss’ requires a ‘distinct, demonstrable, physical alteration’—is wrong. It was wrong when Couch first made it in 1998, and it is wrong today.

As another well-respected treatise puts it, ‘when an insurance policy refers to physical loss of or damage to property, the ‘loss of property’ requirement can be satisfied by any ‘detriment,’ and a ‘detriment’ can be present without there having been a physical alteration of the object.’

A review of the three editions of Couch shows that this statement first appeared in 1998 in the third edition. As originally published, it supported its assertion by citing to five cases for support and two cases holding to the contrary, presenting the former as ‘widely held’ majority rule.

But none of these cases used the ‘distinct, demonstrable, physical alteration’ test that Couch presents, and it was far from the majority rule. As of March 2020, there were at least thirty-five cases adopting a broader rule (including many binding appellate decisions and several rulings by state high courts), and significantly fewer following the Couch test. The ‘physical alteration’ test gained traction only because courts relied on Couch’s initial mischaracterization in 1998—inferred from a single district court opinion that was disapproved three years later by the governing Court of Appeals, rather than from the thirteen extant cases then holding to the contrary.

We may never know why Couch got the law so profoundly backwards on this key issue. But one thing is clear: courts need to stop citing it as the sine qua non of what ‘physical loss or damage’ means. It is not. If the courts, and particularly the federal courts, continue down this path without addressing Couch’s fallacy, there will be serious practical consequences. They risk overruling decades of insurance law and drastically narrowing the scope of property insurance that forms the backbone of risk protection for homeowners, businesses, and the banks that lend to them. All of those policies rest on the same terms Couch misconstrued. More immediately, courts will deprive American businesses of billions of dollars in coverage they paid for and need to survive the worst public health crisis in a century. Until Couch reckons with this error, busy trial and appellate judges cannot, and should not, trust it to give them the straight answer on this foundational question. (footnotes omitted)

After academically explaining why Couch cannot be trusted on this important issue, and other treatises find differently, the article concludes with the following:

This particular section of Couch does not aid courts whatsoever in their efforts to faithfully apply the law. Not only does it get the law wrong, but it invites courts to set dangerous precedent that could unravel decades of settled property-insurance law, on which ordinary businesses, banks, and families rely. If courts accept Couch’s ‘physical alteration’ fallacy, the results could be catastrophic. The ensuing legal regime could well deny policyholders the benefit of the all-risk coverage they purchased and, under the pressure of the greatest health and economic dislocation in a century, send droves of policyholders into bankruptcy. That is both bad law and bad policy.

I will be curious if those that write and edit Couch will have a response to these serious allegations. “Getting it right” when being honest about the state of insurance law is what we pay dearly for with our subscription to Couch. If it is wrong as this logical analyzed article suggests, it needs to be corrected as soon as possible. We will certainly be sending this article to our Westlaw account representative.

Thought For The Day

Accuracy is the twin brother of honesty; inaccuracy, of dishonesty.
—Nathaniel Hawthorne