Don Malecki was an insurance coverage guru. He wrote many treatises regarding insurance coverage. He was respected and a much sought-after insurance coverage expert. Malecki wrote an article in an insurance agent publication, Rough Notes, entitled, Troubled Terminology: “Risks of Direct Physical Loss” Wording Is Currently Read Broadly By Courts.1 He noted that most policyholders do not understand the basic meaning of “risks of direct physical loss”:

Ask a veteran producer the meaning of ‘risks of direct physical loss’—as that term appears in commercial and personal property policies—and the answer will be a lot different from how a purchaser of insurance responds.

The reason is that through experience and study, producers have come to learn that this phrase is an outgrowth of the troublesome terminology having to do with ‘all-risk’ coverage. Insurance buyers, on the other hand, generally do not have a clue about what that phrase means until there is a dispute with an insurer. At that point there is a significant learning curve.

Most policyholders do not read their insurance contracts. Even if they did, most would not understand the contract because they lack sufficient insurance education. The modern-day policy is difficult to understand. Policyholders should be able to rely upon licensed insurance agents to provide proper coverage and considerations of coverage to purchase.

The article is important to the Covid coverage controversy because one of the most enlightened coverage experts said this in his summary:

Considering cases like these, where courts hold that ‘risks of direct physical loss or damage’ or ‘risks of physical loss or damage’ do not require that there be any actual physical damage but simply the threat of damage, there soon may be the impetus for some subtle policy changes.

Instead of referring to ‘risks of direct physical loss,’ it may be better for insurers to amend their policies to state that that coverage applies to direct physical loss or damage to covered property from a covered cause (or all covered causes), not hereinafter excluded or limited. (Some insurers have already taken similar precautions, with some even going so far as to avoid reference to ‘physical loss or damage’ because of its potential for ambiguity.)

Otherwise, given the interpretation of these terms by the courts in the cases discussed here, the momentum to find coverage in the absence of direct physical loss or damage may increase. These changes should be of interest to producers. Insurance buyers, on the other hand, are not likely to care how the policy wording changes until it directly affects them.

Insurance companies wanting to provide their business customers with a clear understanding about whether their business shutdown caused by a covid pandemic is covered, should provide a clear exclusion of the same if they intend to exclude coverage.

Thought For The Day

I look for ambiguity when I’m writing because life is ambiguous.
—Keith Richards
1 Don Malecki, Troubled Terminology: “Risks of Direct Physical Loss” Wording Is Currently Read Broadly By Courts, Rough Notes magazine, June 2008. (Available at