All-risks property insurance: Meaning of physical damage

April 20, 2020 | Karen L. Weslowski | Vancouver

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.

The court held that because physical damage was not defined and dictionaries did not provide particular guidance, there was no definitive definition of what constituted “physical damage” in all-risk policies in Canada.

The court reviewed Canadian and US case law and determined that a broad definition of physical damage, encompassing the loss of function or use of a building, was appropriate. The court emphasised that a narrow interpretation would run contrary to the purpose of broad all-risks coverage.

Although each situation is to be considered in light of the specific policy language, as a result of this decision, property insurers should be even more prepared to receive notifications relating to business interruption loss arising from temporary closures due to COVID-19.


Miller Thomson is closely monitoring the COVID-19 situation to ensure that we provide our clients with appropriate support in this rapidly changing environment. For articles, information updates and firm developments, please visit our COVID-19 Resources page.