Physical Loss Destruction Or Damage - What Does It Mean?

The Operative Clause of Section 1 of the policy begins with the words "In the event of physical loss, destruction or damage…..". What do these words mean? If there is no physical loss, destruction or damage there may be no claim.

In most instances the evidence of physical loss, destruction, or damage is obvious. The charred remains from a fire, the collapsed ceilings from a storm, the soggy carpets from a flood are clear examples of physical damage.

But what of the chemical processing plant that produces various chemicals in batches. The plant must be thoroughly flushed via an automated cleaning system so that each batch of chemicals is not contaminated with the compounds from the previous batch. The cleaning system fails. The failure is not detected before the subsequent chemical batch is produced. The subsequent batch of product appears to be intact but simply cannot be released as the risks of some contamination, no matter how small, is too great. Has there been "physical loss, destruction or damage"?

A technical report will be necessary but if the structure of the property has been changed in any way it may be possible to argue it has been physically damaged.

A similar example of less tangible physical damage is the impact of smoke. Smoke as the grey, malodourous cloud generated by a fire, but what does it contain? Acidic gases, carbon deposits, vapourised plastics and other unknown materials. Once it is deposited on property is the property physically damaged? Definitely. Once it is wiped off has the property been restored to its pre-fire condition? Perhaps not. The deposits left on the article may cause some latent deterioration which still needs to be addressed.

All is not always as it seems.

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Published with permission of Claim Solutions Pty Ltd. 

Insurance Policy

Country: - Australia

Policy Description: - Mark IV Industrial Special Risks (ISR) policy

Insurer: - Various

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