Whether property has suffered ‘direct physical loss’ when it cannot be used for its intended purpose is the first hurdle that most policyholders will face in the 1,500 lawsuits that have been filed regarding property insurance for COVID-19.

It arises because property policies provide coverage separately for loss and for damage, typically through insuring agreements that cover ‘direct physical loss or damage.’

Courts are tied up in knots analyzing what ‘loss’ means in these insuring agreements, i.e., whether it means something different from ‘damage,’ whether it encompasses impaired functionality, and whether such coverage is necessarily precluded by the fact that economic loss can also be a measure of damages.

So far, most federal courts have found no difference between loss and damage in insuring agreements, dismissing complaints on grounds that the policies unambiguously require structural, visible harm — and there was none.

Many state courts have disagreed. They have either granted summary judgment for policyholders or allowed discovery to proceed into the facts and the policy language.