Direct physical loss
The requirement that property be physically altered to trigger property cover. It leaves out perils that degrade use without altering matter.
In August 2024, in Another Planet Entertainment v. Vigilant Insurance, the California Supreme Court held that the alleged presence of the COVID-19 virus in a building is not “direct physical loss or damage” under a property policy. The doctrine conditions indemnity on a physical alteration of the insured property. It let insurers win the pandemic business interruption litigation, then the wildfire debris litigation, where the debris was held uncovered for want of actual physical loss. Its weakness is its age: it was forged when perils destroyed things. Today's perils (smoke, ash, contamination, radiation, corrupted data) degrade use without altering matter. Every victory built on that requirement erodes the perceived value of the product and hastens the moment the state nationalizes the risk.
Textbook case: a policyholder claims the cost of clearing wildfire debris deposited on the property. The court refuses: absent a physical alteration of the property itself, there is no direct physical loss to indemnify.
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