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Insurance Policy – Physical Loss Or Damage

The trigger of coverage is proof of physical loss or damage to or destruction of property identified in the policy. For the purpose of defining the trigger it is not necessary to consider the meaning of event or occurrence, although as we will see, they may be relevant when applying deductibles under the policy.

The loss of or damage to the property must be absolute and not temporary. For example, in Moore vs. Evans [1918] the assured was unable to provide proof that the property consigned to a German consignee, prior to the First World War, could not be recovered after the war. Therefore, the assured could not prove that a permanent loss had occurred under the policy. This case is at odds with an Australian case of Ranicar vs. Frigmobile Pty Ltd. [1983] in which it is suggested that a change in the physical state of the goods, although perhaps temporary, can constitute damage.

Most, if not all, ARPI policies contain specific clauses excluding indirect or consequential loss, but are such clauses necessary? In the context of ARPI it is generally accepted that consequential or financial loss is not covered without the inclusion of a specific extension. Certainly in the case of Theobaldv. Railway Passenger’s Assurance Co. [1854], it was held that a liability policy did not cover financial loss. It is wise, however, to include the consequential loss exclusion.

Physical loss probably requires some physical change to the property, and not simply a reduction in value. For example, a factory may be affected by an earth tremor insured under ARPI. The building may not be physically affected but it results in the factory becoming less valuable – prospective purchasers are concerned about the effects of the tremor. This would not amount to physical loss and, probably, does not constitute damage, but it would be sensible to insert the words “physical” prior to “damage”.

In the case of Glens Falls Insurance Co. vs. George Covert, vehicle safety stabilisers fell to the floor. They were sealed units and it was impossible to determine whether there was internal damage. The manufacturer withdrew its warranty and the assured decided that it would not sell them without the warranty. His claim on his all risks policy failed because there was no evidence of physical loss or damage, thus giving “damage” the same meaning as “physical loss”.

On household policies the Insurance Ombudsman has extended the meaning of “damage” to include impairment of usefulness. For example, in one case the assured successfully claimed for the cost of unblocking a pipe and the cost was allowed.

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