Is coronavirus contamination considered property damage in the context of business interruption insurance?
As countries around the world work hard to mitigate the health impact from the evolving coronavirus crisis (SARS-CoV-2), businesses remain concerned about the potential financial impact on them. We anticipate that many businesses will now be carefully reviewing their existing insurance products to determine if adequate coverage is available for coronavirus-related property losses.
One particular scenario which we envisage will cause some difficulty, is where a business has to shut down work premises in order to sanitise/deep clean because, for example, one or more employees working at those premises have been positively diagnosed and where there is sufficiently clear evidence of viral contamination. In such situations, many businesses will look to their business interruption cover but in most cases, cover will only be triggered by physical loss of, or damage to, insured property. Policyholders will therefore be seeking to prove that the premises and/or contents has been damaged, which is likely to cause considerable difficulties.
What is damage?
The Oxford Dictionary definition of ‘damage’ is:
Physical harm that impairs the value, usefulness, or normal function of something…
The courts have also attempted to refine the definition of damage in varying contexts and the result is broadly consistent with the above definition, with the cases tending to suggest that the following elements should be considered:
- The focus is on the physical condition of the subject property
- There must be a physical alteration or change in the subject property (not necessarily permanent)
- The alteration/change must be for the worse – it must impair the value or usefulness of it.
Whilst each case will inevitably turn on its own facts it is useful to consider cases that have already dealt with contamination of property through other means, to understand what may be considered “damage”,.
The development of ‘damage’ in contamination cases
- Merlin v. British Nuclear Fuels Plc  - the question arose as to whether the aerial contamination of land situated in close proximity to a nuclear fuel reprocessing plant could be described as ‘damage to property’ under the relevant legislation. The court decided that it was not. The rationale was that the dose of radionuclides required to produce any detectable damage to the molecular structure of inanimate objects, such as building materials, furniture, etc., was much greater than was present in the claimant’s house. The contamination of the air (space between the walls of the house as claimed) was not sufficient. The choice to leave the property was caused by the future risk of damage to the occupants; not property damage.
- F & H Contractors v Commercial Union Assurance Co plc  - the court decided that where property is compromised from a purely functional perspective it would be hard to establish damage. In that case it was defective compost resulting in fewer seeds germinating.
- Losinjska Plovidba v Transco Overseas Ltd (The Orjula)  - a vessel was found to be damaged following spillage of hydrochloric acid. Despite the corrosive nature of the chemical, no argument was put forward that the vessel's deck and hatch areas were physically altered by the temporary covering of acid. However, specialist contractors were engaged to undertake decontamination work, which were sufficient for the court to support a finding of damage.
- Hunter v Canary Wharf Ltd  - the House of Lords decided that dust could, in certain circumstances, cause damage to property - for example - where it was trampled into a carpet in such a way as to lessen the value of the fabric and/or where professional cleaning of the fabric is reasonably required because of the effects of excessive dust on the fabric.
- Blue Circle Industries Plc v. Ministry of Defence [1999) - this case concerned the contamination of the claimant's land by radioactive waste that overflowed from a pond on the defendant's site. In this case, the court believed there was property damage. The court said the land itself was physically damaged because the plutonium had been intermingled or admixed with the soil to such an extent that it could not be separated from the soil by any practical process. As such, the chemical composition of the land had changed.
- Pilkington United Kingdom Limited v CGU Insurance  – this case dealt with a ‘poisoning effect’ on another’s property and the court confirmed that generally, damage requires ‘some altered state’ and this alteration must be ‘harmful in the commercial context’.
Coronavirus contamination damage
Applying the earlier case law to coronavirus contamination highlights the difficulty in establishing whether there has been ‘damage’. Inanimate objects such as office furniture, door handles, walls and so on, are unlikely to be physically altered at a molecular level. There is also unlikely to be any “intermingling” and/or any impact on chemical composition. In addition, the value of property may well be unaffected.
Further, the survivability of the virus, will be dependent on:
- The virus strain
- The surface in question
- The environmental conditions (which will all affect how long the property is affected).
The matter is also complicated by the fact that many office surfaces may already be ‘contaminated’ by certain virus particles and other microbes, as is typical in normal office operation. Of course, the impact is likely to be different for novel, riskier strains such as the coronavirus.
Bearing in mind the above, an effective argument on damage might be that there was a physical deposition of hazardous biological material (coronavirus particles) upon property, such that decontamination was reasonably required before the property could be used again. It will of course depend upon the evidence and facts of each case. Where there has been a discrete and quantifiable cost incurred by outside contractors and good evidence that this was unavoidable (particularly if there is government guidance or regulations to that effect), the courts may be more receptive to arguments on damage. With the ongoing spread, it may not be long before this issue falls before a court to determine.
The contamination cases highlighted above provide useful context for how the courts are likely to approach the issue and the relevant factors under consideration. For those considering business interruption coverage in such situations, it will be important to become familiar with the concept of damage and to carefully analyse the evidence on a case by case basis to evaluate if damage has occurred.