All-Risks Property Insurance: Meaning Of Physical Damage

A recent decision of the Ontario Superior Court of Justice (MDS Inc. v. Factory Mutual Insurance Company (FM Global)) suggests that closures due to COVID-19 could trigger coverage under some business interruption policies.

As discussed in a previous Communique, there is little Canadian law that speaks to whether closures due to a pandemic or a risk of infection could be construed as physical damage. However, the decision in MDS is instructive. MDS involved a nuclear facility, shut down for safety reasons, before any actual damage was done to the plant or any of its employees. The insurer argued that the loss of use of a premises did not constitute "physical damage" in order to trigger coverage under the plant's all-risk property insurance policy.