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Coverage for Data as Property

April 13, 2006

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When deciding on the types of fire/hazard property insurance coverage for a small business, an owner needs to consider a number of policy variables.

Loss of the insured's data on its computers should be covered by the general property policy. However, insurance companies sometimes attempt to deny this type of coverage on the grounds that data does not meet the definition of "tangible" property that can suffer a "physical" loss. (This is the same argument that insurance companies have made with respect to liability coverage for damages caused to other person's data.) The courts, however, have rejected this argument.

Nevertheless, prudence dictates that the small business owner carefully reviews the definitions of "property" and "physical" loss, along with exclusions, in any proposed property insurance policy to determine if the proposed policy specifically excludes data from coverage.

A specific and clear-cut exclusion in a policy will be enforced. In this event, an endorsement including this coverage should be considered.

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