A business owner has a commercial property policy that provides coverage for 'direct physical loss.' Which of the following scenarios would most likely NOT be covered under this provision?
- ADamage to the building caused by a sudden fire.
- BWater damage to inventory from a burst pipe.
- CLoss of income due to a temporary power outage not caused by physical damage to the insured's property.
- DA portion of the roof collapsing due to heavy snow.
Show answer & explanationAnswer & explanation
Correct answer: C. Loss of income due to a temporary power outage not caused by physical damage to the insured's property.
Direct physical loss coverage applies to actual, tangible damage to the insured property itself. Loss of income (Business Income) is typically covered only when it results from a direct physical loss to the insured's property. A power outage not caused by physical damage to the insured's property, even if it leads to loss of income, is generally not considered a 'direct physical loss' to the property and would therefore not trigger coverage for business income under the standard direct physical loss provision. Specific endorsements like 'Utility Services - Time Element' or 'Off-Premises Utility Services' might cover such a loss, but not the base 'direct physical loss' coverage itself.
Why the other options are wrong
- A. This is a direct physical loss.
- B. This is a direct physical loss.
- D. This is a direct physical loss.
Direct Physical Loss
Coverage that applies when there is actual, tangible damage to the insured property itself, directly caused by a covered peril.
- Contrast with 'indirect loss' (e.g., loss of income).
- Requires physical alteration or destruction of property.
- Often a prerequisite for other coverages like Business Income.
Memory trick: Direct is the 'smash', indirect is the 'cash' you lose because of it!