In a recent case, the Oregon District Court adopted a liberal interpretation of “property damage.” The Oregon Shakespeare Festival Association (OSF) suffered a loss during its season: nearby wildfires caused smoke to infiltrate a partially outdoor theater where performances were being held, necessitating cancellations. Oregon Shakespeare Festival Association v. Great American Insurance Company, 2016 WL 3267247 at 1-3 (D. Or. June 7, 2016).
OSF’s insurance policy covered “direct physical loss or damage” to its property and the “actual loss of Business Income” caused by such loss or damage. Id. at 4. Thus, to get coverage for the business losses it sustained by cancelling performances, OSF had to show that the smoke infiltration, the undisputed reason for the cancellations, was “direct physical loss or damage” to property.
OSF argued that “physical loss or damage” means “any injury or harm to a natural or material thing.” Id. at 5. Great American Insurance, OSF’s insurer, argued that air is not “property,” and that covered damage must be “physical”—not just smoky air. Id. at 5-6. The court agreed with OSF, holding that Great American’s definition was too restrictive: there was nothing in the policy, the court said, to suggest contaminated indoor air is not covered, nor could Great American explain why air is not “physical.” Id. The court explained: