The Oregon Clinic, PC v. Fireman's Fund Insurance Company

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF OREGON

THE OREGON CLINIC, PC, an Oregon Case No. 3:21-cv-00778-SB

professional corporation,

OPINION AND ORDER

Plaintiff,

v.

FIREMAN’S FUND INSURANCE

COMPANY, a California corporation,

Defendant.

BECKERMAN, U.S. Magistrate Judge.

This matter comes before the Court on Fireman’s Fund Insurance Company’s (“FFIC”)

motion to dismiss The Oregon Clinic, PC’s (“TOC”) complaint for failure to state a claim upon

which relief can be granted. See FED. R. CIV. P. 12(b)(6). The Court has jurisdiction over this

matter pursuant to 28 U.S.C. § 1332, and all parties have consented to the jurisdiction of a U.S.

Magistrate Judge pursuant to 28 U.S.C. § 636(c). For the reasons that follow, the Court grants

FFIC’s motion to dismiss.

///

///

BACKGROUND1

TOC is an “Oregon professional corporation consisting of more than thirty . . . medical

specialties and subspecialties with over 263 providers practicing at fifty-seven locations in the

Portland metro area.” (Compl. at 2.) FFIC is a California-based insurance company that sold

TOC an “all-risk” “Property-Gard Pinnacle” insurance policy (the “Policy”). (Compl. at 3.) “The

Policy was effective at all times material to this litigation including in . . . March, 2020.”

(Compl. at 4.)

The Policy provides coverage for, among other things, “loss resulting from all ‘risks of

direct physical loss or damage’ to covered property,” subject to certain exceptions. (Id.) TOC

alleges that beginning in March 2020, as a result of the COVID-19 pandemic, the presence of

COVID-19 in its offices, and “various governmental orders,” TOC “sustained direct physical

loss or damage to property at or near its insured locations, and to dependent properties, resulting

in significant interruption of and loss of business income, and costs to ensure patient and

employee safety, to repair its damaged property, and to mitigate the loss of income.” (Compl. at

2.)

TOC alleges that FFIC improperly denied its claims for coverage, and TOC therefore

filed this action on May 20, 2021, seeking a declaration of rights and alleging claims for breach

of contract and breach of the implied covenant of good faith and fair dealing. (Compl. at 2, 34-

38.) On June 14, 2021, FFIC moved to dismiss TOC’s complaint pursuant to FED. R. CIV. P.

12(b)(6). (Def.’s Mot. to Dismiss (“Mot.”), ECF No. 7.)

///

///

1 This Opinion cites primarily to the CM/ECF-generated document and page numbers

located at the top of each page.

LEGAL STANDARDS

To survive a motion to dismiss under FED. R. CIV. P. 12(b)(6), a plaintiff’s “complaint

must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible

on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly,

550 U.S. 544, 570 (2007)). “A claim has facial plausibility when the plaintiff pleads factual

content that allows the court to draw the reasonable inference that the defendant is liable for the

misconduct alleged.” Id. (citing Twombly, 550 U.S. at 556). “The plausibility standard is not akin

to a probability requirement, but it asks for more than a sheer possibility that a defendant has

acted unlawfully.” Mashiri v. Epsten Grinnell & Howell, 845 F.3d 984, 988 (9th Cir. 2017)

(simplified).

DISCUSSION

FFIC raises three primary arguments in support of its motion to dismiss TOC’s

complaint. First, FFIC argues that TOC has not alleged any “direct physical loss or damage” to

property. (Mot. at 21.) Second, FFIC argues that TOC has not alleged facts sufficient to support

coverage under the Policy’s “Loss Adjustment Expense” extension. (Mot. at 37.) Third and

finally, FFIC argues that the Policy’s mortality and disease exclusion bars coverage. (Id.)

I. INSURANCE POLICY INTERPRETATION

“In Oregon, the interpretation of an insurance policy is a question of law.”2 Factory Mut.

Ins. Co. v. Peri Formworks Sys., Inc., 223 F. Supp. 3d 1133, 1137 (D. Or. 2016) (citing Hoffman

Constr. Co. v. Fred S. James & Co., 836 P.2d 703, 706 (Or. 1992)). As the Oregon Supreme

2 As the parties have acknowledged (see, e.g., Pl.’s Corrected Resp. at 11 n.2), the Court

“ha[s] diversity jurisdiction, so [it] must follow Oregon law with respect to the interpretation of

the insurance policy.” Alexander Mfg., Inc. Emp. Stock Ownership Plan & Tr. v. Ill. Union Ins.

Co., 560 F.3d 984, 986 (9th Cir. 2009) (citing Kabatoff v. Safeco Ins. Co. of Am., 627 F.2d 207,

209 (9th Cir. 1980)).

Court has explained, “[i]f an insurance policy explicitly defines the phrase in question, [the court

applies] that definition.” Holloway v. Rep. Indem. Co. of Am., 147 P.3d 329, 333 (Or. 2006)

(citing Groshong v. Mut. of Enumclaw Ins. Co., 985 P.2d 1284, 1287 (Or. 1999)). But when the

insurance policy does not define one of the terms in question, as is the case here, the court

“resort[s] to various aids of interpretation to discern the parties’ intended meaning.” Id. (citation

omitted).

“The first aid to interpretation is determining whether the term at issue has a plain

meaning.” Groshong, 985 P.2d at 1287 (citing Hoffman, 836 P.2d at 706). “The meaning of a

term is ‘plain’—that is, unambiguous—if the term is susceptible to only one plausible

interpretation.” Id. “If the term has only one plausible interpretation, the ‘parties’ intent

conclusively is established, and [the court’s] interpretive inquiry is at an end.’” Peri Formworks,

223 F. Supp. 3d at 1138 (quoting Groshong, 985 P.2d at 1287). Considering “the breadth and

flexibility of the English language, the task of suggesting plausible alternative meanings is no

challenge to capable counsel.” Id. (quoting Hoffman, 836 P.2d at 706). “Competing plausible

interpretations simply establish ambiguity that will require some interpretive act by the court.”

Id. (citation omitted).

If the parties present competing plausible interpretations and thus establish ambiguity, the

court must then examine the ambiguous, undefined “term in light of the ‘particular context in

which that term is used in the policy and the broader context of the policy as a whole.’” Id.

(quoting Hoffman, 836 P.2d at 706). Finally, “[i]f the ambiguity remains after the court has

engaged in [the aforementioned] analytical exercises, then any reasonable doubt as to the

intended meaning of [the term] will be resolved against the insurance company and in favor of

extending coverage to the insured.” Id. (quoting N. Pac. Ins. Co. v Hamilton, 22 P.3d 739, 742

(Or. 2001)) (simplified).

II. DIRECT PHYSICAL LOSS OR DAMAGE

TOC claims that it is entitled to coverage for its COVID-related losses under ten Policy

provisions: (1) Property Coverage; (2) Business Income and Extra Expense Coverage;

(3) Business Access Coverage; (4) Civil Authority Coverage; (5) Dependent Property Coverage;

(6) Expediting Expense Coverage; (7) Extended Business Income and Extra Expense Coverage;

(8) Communicable Disease Coverage; (9) Ordinance or Law Coverage; and (10) Loss

Adjustment Expense Coverage.3 (Compl. ¶¶ 10, 117.) As discussed below, with the exception of

the Loss Adjustment Expense Coverage provision, all of these provisions depend on whether

TOC has plausibly alleged that its claimed losses amounted to “direct physical loss or damage”

to property.

A. Relevant Policy Provisions

1. Property Coverage

The Property Coverage provision provides that FFIC “will pay for direct physical loss or

damage to Property Insured . . . caused by or resulting from a covered cause of loss during the

Policy Period.”4 (Decl. of Anthony Todaro Ex. A (“Policy”) at 42, ECF No. 8-1) . The Policy

defines “[p]roperty [i]nsured” to include “business personal property,” such as furniture, fixtures,

3 The Court takes judicial notice of the Policy pursuant to the incorporation by reference

doctrine. See Benanav v. Healthy Paws Pet Ins., LLC, No. 20-421, 2021 WL 4319447, at *4

(W.D. Wash. Sept. 23, 2021) (“[The] policy documents are judicially noticeable under the

‘incorporation by reference’ doctrine, which allows courts to consider documents ‘whose

contents are alleged in a complaint and whose authenticity no party questions, but which are not

physically attached to the [plaintiff’s] pleading.’” (quoting Knievel v. ESPN, 393 F.3d 1068,

1076 (9th Cir. 2005))).

4 The Court has omitted any bold font when citing to the Policy herein.

equipment, supplies, electronic data processing equipment, mobile communication equipment,

personal effects, tenant’s improvements and betterments, and valuable papers and records.

(Policy at 42, 87, 95.)

2. Business Income and Extra Expense Coverage

The Business Income and Extra Expense Coverage provision provides, in relevant part,

that FFIC:

will pay for the actual loss of business income and necessary extra expense you

sustain due to the necessary suspension of your operations during the period of

restoration arising from direct physical loss or damage to property at a location, or

within 1,000 feet of such location, caused by or resulting from a covered cause of

loss.

(Policy at 42.) The Policy defines “[l]ocation” in part as the “legal boundaries of a parcel of

property at the address described in the Declarations.” (Policy at 91.)

3. Business Access Coverage

The Business Access Coverage provision provides that FFIC “will pay for the actual loss

of business income and necessary extra expense you sustain due to the necessary suspension of

operations at a location if access to such location is impaired or obstructed.” (Policy at 54.)

However, “[s]uch impairment or obstruction must . . . [a]rise from direct physical loss or damage

to property other than at such location[.]” (Id.)

4. Civil Authority Coverage

The Civil Authority Coverage provision provides that FFIC “will pay for the actual loss

of business income and necessary extra expense you sustain due to the necessary suspension of

your operations caused by action of civil authority that prohibits access to a location.” (Id.)

However, “[s]uch prohibition of access to such location by a civil authority must . . . [a]rise from

direct physical loss or damage to property other than at such location.” (Id.)

///

5. Dependent Property Coverage

The Dependent Property Coverage provision provides that FFIC “will pay for the actual

loss of business income and necessary extra expense you sustain due to the necessary suspension

of operations during the period of restoration at a location,” but “[t]he suspension must be due to

direct physical loss or damage at the location of a dependent property, situated inside or outside

of the Coverage Territory, caused by or resulting from a covered cause of loss.” (Policy at 54.)

The Policy defines “[d]ependent property” as “property operated by others upon which you

depend to . . . [d]eliver materials or services to you . . . [or] [a]ccept your products or services[.]”

(Policy at 89.)

6. Expediting Expense Coverage

The Expediting Expense Coverage provision provides that FFIC “will pay the necessary

expediting expense you sustain due to direct physical loss or damage to property at a location

caused by or resulting from a covered cause of loss.” (Policy at 55.) The Policy defines

“[e]xpediting expense” as “necessary extra costs, including overtime wages and express freight

or other rapid means of transportation, in order to expedite . . . [e]mergency or temporary repairs

of damaged covered property; or . . . [p]ermanent repair or replacement of such damaged

property.” (Policy at 89.)

7. Extended Business Income and Extra Expense Coverage

The Extended Business Income and Extra Expense Coverage provision provides that

FFIC:

will pay for the actual loss of business income you sustain during the period that

begins on the date property . . . is actually repaired, rebuilt, or replaced, and

operations are resumed and ends on the earlier of:

(a) The date you could restore your operations with reasonable speed, to the level

which would generate the business income amount that would have existed if no

direct physical loss or damage occurred; or

(b) The number of consecutive calendar days, stated in the Declarations, after the

date operations are resumed.

(Policy at 55.)

8. Communicable Disease Coverage

The Communicable Disease Coverage provision provides that FFIC “will pay for direct

physical loss or damage to Property Insured caused by or resulting from a covered

communicable disease event at a location including [the costs described herein].” (Policy at 57.)

The Policy defines a “[c]ommunicable disease event” as “an event in which a public health

authority has ordered that a location be evacuated, decontaminated, or disinfected due to the

outbreak of a communicable disease at such location.” (Policy at 88.) The Policy defines a

“[c]ommunicable disease” as “any disease, bacteria, or virus that may be transmitted directly or

indirectly from human or animal to a human.” (Id.)

9. Ordinance or Law Coverage

The Ordinance or Law Coverage provision provides that FFIC “will pay” if “Property

Insured at a location sustains direct physical loss or damage caused by or resulting from a

covered cause of loss; and . . . [s]uch covered loss or damage results in the enforcement of a

covered ordinance or law.” (Policy at 60.) The Policy defines “[o]rdinance of law” as, among

other things, “any ordinance, law, regulation, or rule that is in force at the time of the covered

loss or damage and . . . [r]egulates the construction, use, occupancy, operation, improvement,

replacement, modification, installation, . . . or repair of any property[.]” (Policy at 94.)

B. Analysis

The Court concludes that TOC has not alleged any “direct physical loss or damage” to

property, and therefore grants FFIC’s motion to dismiss TOC’s complaint on this ground.

There is a long line of district court decisions, including decisions by Chief U.S. District

Judge Marco Hernández and U.S. District Judge Michael Mosman in this district, holding that

“neither COVID-19 nor the governmental orders associated with it cause or constitute property

loss or damage for purposes of insurance coverage.” Out W. Rest. Grp. Inc. v. Affiliated FM Ins.

Co., 527 F. Supp. 3d 1142, 1148 (N.D. Cal. 2021), appeal filed No. 21-15585 (9th Cir. Apr. 1,

2021); see also Nguyen v. Travelers Cas. Ins. Co. of Am., No. 2:20-cv-00597, --- F. Supp. 3d ----

, 2021 WL 2184878, at *1 (W.D. Wash. May 28, 2021) (“Like the overwhelming consensus that

has formed, this Court determines that COVID-19 does not cause the physical loss or damage to

property required as a condition precedent to trigger coverage in all the relevant policies.”),

appeal filed No. 21-35523 (9th Cir. June 30, 2021).5

5 The insureds have appealed most of these decisions, including the decisions discussed

below from this district. Several circuit courts have already addressed questions similar to the

one before the Court. See Mudpie, Inc. v. Travelers Cas. Ins. Co. of Am., 15 F.4th 885, 889-95

(9th Cir. 2021) (applying California law, holding that the insured did not allege “direct physical

loss of or damage to” property, and noting that “[i]nterpreting the phrase ‘direct physical loss of

or damage to’ property as requiring physical alteration of property is consistent with other

provisions” of the policy, which included provisions that provided coverage “only during the

‘period of restoration’” and defined “the ‘period of restoration’ as ending on ‘[t]he date when the

property at the described premises should be repaired, rebuilt or replaced with reasonable speed

and similar quality; or . . . [t]he date when business is resumed at a new permanent location”);

see also Sandy Point Dental, P.C. v. Cincinnati Ins. Co., --- F.4th --- , 2021 WL 5833525, at *2-

6 (7th Cir. Dec. 9, 2021) (applying Illinois law, noting that the policy included “clues that

reinforce the conclusion that ‘direct physical loss’ requires a physical alteration to property”

because “[w]ithout a physical alteration to property, there would be nothing to repair, rebuild, or

replace,” and stating that “[i]t is thus no surprise that the overwhelming majority of courts,

including the four circuits that have so far spoken on the issue, have adopted this interpretation

of the relevant provisions”); Santo’s Italian Café LLC v. Acuity Ins. Co., 15 F.4th 398, 401-03

(6th Cir. 2021) (applying Ohio law, explaining that “[e]ven when called ‘all-risk’ policies, as

these policies sometimes are, they still cover only risks that lead to tangible ‘physical’ loss or

damages, say by fire, water, wind, freezing and overheating, or vandalism,” as “[i]n each case,

the subject property suffers a direct physical change, whether by damage to it that requires repair

or the total loss of it that requires replacement,” and noting that all-risk “policies do not typically

apply to losses caused by government regulation”); Gilreath Family & Cosmetic Dentistry, Inc.

v. Cincinnati Ins. Co., No. 21-11046, 2021 WL 3870697, at *1-3 (11th Cir. Aug. 31, 2021)

(applying Georgia law, noting that the policy provisions applied “only if the events alleged

In Dakota Ventures, LLC v. Oregon Mutual Insurance Co., --- F. Supp. 3d --- , 2021 WL

3572657, at *1 (D. Or. Aug. 11, 2021), appeal filed No. 21-35758 (9th Cir. Sept. 9, 2021), for

example, Chief Judge Hernández addressed an insurer’s motion to dismiss an insured’s

complaint, wherein the insured alleged that the insurer breached its insurance contract by

denying “coverage for losses stemming from the COVID-19 pandemic,” including losses caused

by, among other things, “the Governor’s [executive] orders[.]” Id. Like this case, the insured

sought coverage under numerous policy provisions (including property, civil authority, and

business income-related coverage provisions) that depended on whether the insured’s claimed

losses amounted to “direct physical loss or damage” to property, and the policy did not define the

phrase “direct physical loss or damage” to property. Id. at *1-2.

Applying Oregon law on insurance policy interpretation, Chief Judge Hernández

determined that “the plain meaning of the phrase ‘direct physical loss of or damage to property’

is direct (without any intervening space or time) physical (of or relating to natural or material

things) loss of (the act or fact of losing) or damage (injury or harm) to property,” and that “[t]he

plain meaning of those terms requires a Covered Cause of Loss to directly cause property to be

lost or physically damaged for coverage to exist under the [insurance policy] provisions [at

here—the COVID-19 pandemic and related shelter-in-place order—caused direct ‘accidental

physical loss’ or ‘damage’ to the [covered] property,” explaining that “there must be ‘an actual

change in insured property’ that either makes the property ‘unsatisfactory for future use’ or

requires ‘that repairs be made,’” holding that the insured failed to state a claim, and noting that

the court could not “see how the presence of [viral] particles would cause physical damage or

loss to the property”) (citation omitted); Oral Surgeons, P.C. v. Cincinnati Ins. Co., 2 F.4th 1141,

1143-45 (8th Cir. 2021) (applying Iowa law, considering whether the pandemic and government

orders resulted in “accidental physical loss or accidental physical damage” to business property,

interpreting the policy to require direct physical loss or physical damage, and concluding that

“there must be some physicality to the loss or damage of property—e.g., a physical alteration,

physical contamination, or physical destruction”).

issue].”6 Id. at *6 (citing Or. Shakespeare Festival Ass’n v. Great Am. Ins. Co., No. 15-1932-CL,

2016 WL 3267247, at *5 (D. Or. June 7, 2016), vacated by stipulation, 2017 WL 1034203 (D.

Or. Mar. 6, 2017); Columbiaknit, Inc. v. Affiliated FM Ins. Co., No 98-434-HU, 1999 WL

619100, at *5 (D. Or. Aug. 4, 1999), and Wyo. Sawmills, Inc. v. Transp. Ins. Co., 578 P.2d 1253,

1256 (Or. 1978)).

Consistent with this plain meaning of the phrase “direct physical loss of or damage to

property,” Chief Judge Hernández held that the insured’s operative complaint did “not allege a

Covered Cause of Loss that would trigger coverage under any of the relevant provisions of the

Policy.” Id. at *8. In support of this holding, Chief Judge Hernández emphasized that the insured

did “not allege that its restaurants or the business personal property located inside them was lost,

destroyed, or physically changed in any manner,” nor did the insured “allege that any nearby

property suffered direct physical loss or damage that physically prevented ingress or egress from

[its] restaurants or that resulted in an action of civil authority that prohibited access to its

restaurants.” Id. Chief Judge Hernández also emphasized that the insured’s claimed losses were

“purely economic” and that there was “no physical loss of or physical damage to [the insured’s]

property.” Id. at *9. Furthermore, Chief Judge Hernández explained that the insured’s allegations

were conclusory and failed to state a plausible claim for relief:

The relevant allegations in Plaintiff’s FAC are: (1) ‘the presence of

COVID-19 on property damages property [and] makes it unsafe;’ and (2) ‘[d]ue

to COVID-19, Plaintiff’s property has suffered direct physical loss and damage

under the plain meaning of those words [because] COVID-19 has impaired

Plaintiff’s property by making it unusable.’ Plaintiff alleges that COVID-19

6 In Dakota Ventures, Chief Judge Hernández noted that “[d]espite the slightly different

phrasing, the parties [did] not argue that the phrase ‘direct physical loss or damage to

property’ . . . [had a] different meaning from the phrase ‘direct physical loss of or damage to

property.” 2021 WL 3572657, at *6. As a result, Chief Judge Hernández “assume[d], without

finding, that the . . . phrases have the same plain meaning for purposes of [the Dakota Ventures]

opinion.” Id. Similarly here, the parties do not argue that these phrases have different meanings.

located on property damages property, but, crucially, it does not allege that

COVID-19 was located on its property and damaged its property or any other

property. Absent from those allegations are any facts from which a factfinder

could conclude that any of Plaintiff’s property was lost or damaged. Plaintiff’s

conclusory allegations that it has suffered direct physical loss and damage are

insufficient to state a claim. The absence of facts demonstrating any physical loss

or damage to its business property is fatal to Plaintiff’s claim.

Amici argue that Plaintiff has alleged a plausible claim for ‘direct physical

loss of or damage to property’ by alleging that COVID-19 is present in the

community in numbers that make it ‘statistically certain that the virus was and is

present in high-trafficked restaurants.’ But that solves only one part of the two-

part equation. Even assuming that the virus was present in Plaintiff’s restaurants,

Plaintiffs’ property has not been lost or damaged by the virus in a manner that

required it to suspend operations in order to conduct repairs or replace the

property. No such allegations appear in Plaintiff’s FAC.

Id. at *8 (simplified). Chief Judge Hernández noted that numerous decisions were in accord. See

id.7

Similarly, in RV Agate Beach, LLC v. Hartford Fire Insurance Co., No. 3:21-cv-00460-

MO, 2021 WL 4851304, at *1 (D. Or. Oct. 16, 2021), appeal filed No. 21-35946 (9th Cir. Nov.

10, 2021), Judge Mosman addressed an insurer’s motion to dismiss a complaint, wherein the

insureds alleged that they sustained “direct physical loss and damage” as a result of the COVID-

19 pandemic and “various governmental orders[.]” Id. In granting the insurer’s motion to

dismiss, Judge Mosman explained that the insureds had “not pled ‘direct physical loss or direct

physical damage’ to their property because their pleadings only demonstrate[d] economic and

7 Chief Judge Hernández recently dismissed with prejudice four similar cases seeking to

recover losses related to the COVID-19 pandemic. See NUE, LLC v. Or. Mut. Ins. Co., No. 3:20-

cv-01449-HZ, --- F.Supp.3d ---- , 2021 WL 4071862, at *1 (D. Or. Sept. 4, 2021), appeal filed

No. 21-35813 (9th Cir. Sept. 28, 2021); Nari Suda LLC v. Or. Mut. Ins. Co., No. 3:20-cv-01476-

HZ, --- F.Supp.3d ---- , 2021 WL 4067684, at *1 (D. Or. Sept. 6, 2021), appeal filed No. 21-

35846 (9th Cir. Oct. 7, 2021); HILLBRO LLC v. Or. Mut. Ins. Co., No. 3:21-cv-00382-HZ, ---

F.Supp.3d ---- , 2021 WL 4071864, at *1 (D. Or. Sept. 7, 2021), appeal filed No. 21-35810 (9th

Cir. Sept. 28, 2021); N. Pac. Mgmt., Inc. v. Liberty Mut. Fire Ins. Co., No. 3:21-cv-00404-HZ, --

- F.Supp.3d ---- , 2021 WL 4073278, at *1 (D. Or. Sept. 7, 2021), appeal filed No. 21-35842 (9th

Cir. Oct. 6, 2021).

not physical harm.” Id. Judge Mosman noted that Chief Judge Hernández recently issued five

decisions, including Dakota Ventures, analyzing “the meaning of the phrase ‘direct physical loss

or damage’ under Oregon law,” and “finding no coverage for COVID-19 business interruption

claims under Oregon law.” Id. (citations omitted). Judge Mosman also noted that in Dakota

Ventures, Chief Judge Hernández “applied the framework for interpreting insurance contracts

under Oregon law,” and determined that:

the plain meaning of the phrase ‘direct physical loss of or damage to property’ is

direct (without intervening space or time) physical (of or relating to natural or

material things) loss of (the act or fact of losing) or damage (injury or harm) to

property. The plain meaning of those terms requires a Covered Cause of Loss to

directly cause property to be lost or physically damaged for coverage to exist[.]

Id. (simplified). Judge Mosman found Chief Judge Hernández’s “reasoning and legal analysis”

persuasive and, therefore, “adopt[ed]” it in dismissing the insureds’ complaint with prejudice. Id.

at *2.

Like Judge Mosman, this Court finds persuasive Chief Judge Hernández’s reasoning and

legal analysis in Dakota Ventures, and thus adopts it in granting FFIC’s motion to dismiss TOC’s

complaint on the ground that TOC has not alleged “direct physical loss or damage” to property.

As explained below, TOC’s attempts to distinguish Dakota Ventures are not persuasive.

TOC argues that the present action is distinguishable from Dakota Ventures because,

unlike the policyholder in Dakota Ventures, TOC alleges that COVID-19 was on its property.

(Pl.’s Sur-Reply at 2.) In so arguing, TOC relies on these allegations from its complaint:

• “The Covid-19 virus can remain infectious for ‘much longer time periods

than generally considered possible.’ In the Journal of Virology,

researchers demonstrated that the Covid-19 virus can survive up to 28

days at room temperature (68°F) on a variety of surfaces including glass,

steel, vinyl, plastic, and paper. A CDC report from March 27, 2020, stated

that the Covid-19 virus was identified on surfaces of the cabins on the

Diamond Princess cruise ship 17 days after the cabins were vacated but

before they were disinfected. Numerous other scientific studies and

articles have identified the persistence of the Covid-19 virus on

doorknobs, toilets, faucets and other high-touch points, as well as on

commonly overlooked surfaces such as floors.”

• “Every county where The Oregon Clinic maintains an office has reported

positive tests for infection by the Covid-19 virus.”

• “The presence of the Covid-19 virus at The Oregon Clinic’s offices, as

well as its dependent locations, was statistically certain or near-certain,

using statistical modeling based on the known incidences of infection and

other information generally used in epidemiology, despite the lack of

commercially available tests for fomite or the aerosolized Covid-19 virus,

and despite the shortage of tests that could have otherwise been

administered to every individual who was on-site at the relevant times.”

• “The omnipresence of the Covid-19 virus is enabled by multiple modes of

viral transmission, including respiratory droplets, airborne and fomite

transmission (i.e., transmission from surfaces and objects). These

transmission methods demonstrate that the Covid-19 virus causes direct

physical loss or damage to property.”

• “[T]he presence of the Covid-19 virus in and on property, including in

indoor air, on surfaces, and on objects, causes direct physical loss or

damage to property by causing physical harm to and altering property and

otherwise making physical property incapable of being used for its

intended purpose.”

• “Through November, 2020, approximately twenty-two of The Oregon

Clinic’s employees or patients that have been on The Oregon Clinic’s

insured property since the beginning of the pandemic have confirmed that

they were infected with the Covid-19 virus while they were on insured

premises. Given the high percentage of persons infected by the Covid-19

virus who are asymptomatic, it is certain or near-certain that the actual

number of The Oregon Clinic employees or patients infected with the

Covid-19 virus that have been in or on The Oregon Clinic’s [insured]

property since the beginning of the pandemic is substantially greater than

the number of employees and patients known to have been infected with

the Covid-19 virus.”

• “The continuous dispersal of the Covid-19 virus into the air and onto

physical surfaces and other property rendered The Oregon Clinic’s

cleaning practices ineffective at removing the virus from surfaces and

from the air inside The Oregon Clinic’s offices, requiring physical and

other changes to The Oregon Clinic’s insured property, and practices.”

• “[Oregon Governor Kate Brown’s] Public Orders caused the physical loss

of or to The Oregon Clinic’s insured property and dependent properties in

that they made portions of those properties (including the portions of

offices or other facilities used for elective or non-urgent procedures; and

those physical spaces that could not accommodate social distancing or

were otherwise unsuitable due to requirements of the Public Orders)

unusable, untenable, inaccessible, and devoid of functionality; and limited

the use of all or portions of the insured properties and dependent

properties by requiring social distancing and other measures; and required

the physical alteration of insured properties and dependent properties to

comply with various requirements of the Public Orders.”

(See Pl.’s Sur-Reply at 2-3, citing and quoting Compl. ¶¶ 36, 39-40, 47, 58, 78, 83, 88).

TOC argues this case is distinguishable from Dakota Ventures because the allegations

above demonstrate that COVID-19 virus was on TOC’s property. In Dakota Ventures, however,

Chief Judge Hernández explained that “[e]ven assuming that the virus was present in Plaintiff’s

restaurants, Plaintiff’s property has not been lost or damaged by the virus in a manner that

required it to suspend operations in order to conduct repairs or replace the property.” 2021 WL

3572657, at *8.

Similarly here, TOC does not allege that its property has been lost or damaged by

COVID-19 in a manner that required TOC to suspend operations to conduct repairs or replace

any insured property. Rather, TOC’s claimed losses are purely economic and not the result of

any “direct physical loss or damage” to covered property. See id. at *9 (“[T]he losses alleged by

Plaintiff are purely economic . . . . Plaintiff’s pleadings attempt to characterize the harmful

effects of government closure orders issued in response to the public health crisis as ‘physical

loss’ or ‘physical damage,’ but no physical loss of or physical damage to its property occurred.

As a result, no coverage exists under the . . . provisions of the Policy.”); see also id. (“[T]he FAC

alleges only that government orders restricted the manner in which its restaurants may serve

customers, while leaving the property itself in Plaintiff’s possession, unharmed, and undamaged.

As a result, Plaintiff has failed to allege a direct physical loss of or damage to its covered

property.”); id. at *10 (“Plaintiff’s FAC alleges that it has been able to serve takeout or delivery

orders and at times has been able to serve a limited number of customers in its restaurants’

dining rooms. Thus, the cases in which courts have found that noxious odors, mold, gas, and

other air quality issues rendered a property uninhabitable to an extent that amounted to ‘physical

loss or damage’ are distinguishable from the facts of this case.”) (simplified).

TOC also argues that the Court should not rely on Chief Judge Hernández’s decision in

Dakota Ventures because it relies on interpretations of policy terms that Oregon state courts have

rejected. (Pl.’s Sur-Reply at 3.) TOC’s argument primarily concerns Chief Judge Hernández’s

determination that the plain meaning of the term “direct physical loss of or damage to property”

requires “a Covered Cause of Loss to directly cause property to be lost or physically damaged,”

and requires an insured to “lose . . . possession of its property or demonstrate a physical

alteration in the condition of its property[.]” 2021 WL 3572657, at *6-7 (emphasis added).

TOC argues that because the emphasized words above do not appear in the policy,

Dakota Ventures “ignore[s]” the mandate under Oregon law that “policies be given ‘a liberal

construction as favorable to the insured as in good conscience will be permitted, and every

reasonable intendment will be allowed in support of a view that will protect the insured and

defeat a forfeiture.’” (Pl.’s Sur-Reply at 3-4, quoting Land v. W. Coast Life. Ins. Co., 270 P.2d

154, 156 (Or. 1954)). TOC, however, fails adequately to explain how Dakota Ventures runs

afoul of this mandate, or convince why its proposed intendment is reasonable here.

Further, TOC argues that Dakota Ventures “committed a clear Erie error in relying on

[the] Couch [treatise] and adopting the ‘physical alteration’ standard.” (Pl.’s Sur-Reply at 5.)

TOC acknowledges that another judge from this district also adopted a “physical alteration”

standard under similar circumstances. (Pl.’s Sur-Reply at 4, citing Great N. Ins. Co. v. Benjamin

Franklin Fed. Savings & Loan Ass’n, 793 F. Supp. 259, 263 (D. Or. 1990), aff’d, 953 F.2d 1387

(9th Cir. 1992) (unpublished table decision)). TOC, however, maintains that the Oregon Court of

Appeals “implicitly” rejected the Benjamin Franklin decision in Farmers Insurance Co. v.

Trutanich, 858 P.2d 1332 (Or. Ct. App. 1993). (Pl.’s Sur-Reply at 4.) The Court is not

persuaded.

TOC fails adequately to address the fact that both Benjamin Franklin and Dakota

Ventures relied on the Oregon Supreme Court’s decision in Wyoming Sawmills, a case that the

Oregon Court of Appeals distinguished and found “not directly applicable” in Trutanich. See

Trutanich, 858 P.2d at 1335 (“This case is different. There is evidence that the house was

physically damaged by the odor that persisted in it. The cost of removing that odor was a direct

rectification of the problem. Wyoming Sawmills thus is not directly applicable here.”); see also

Benjamin Franklin, 793 F. Supp. at 263 (“The liability policy in Wyoming Sawmills used the

term ‘physical injury’ . . . . At issue was whether this language was intended to include

‘consequential or intangible damages such as depreciation in value, within the terms property

damage.’ The court answered ‘no.’ It reasoned that use of the word ‘physical’ could only have

been intended to exclude such coverage. . . . In this case, the policy language is even more

specific than the language in Wyoming Sawmills. It uses the term ‘direct physical loss.’ There is

no evidence here of physical loss, direct or otherwise. The building has remained physically

intact and undamaged. The only loss is economic. The policy, by its own terms, covers only

direct physical loss. The inclusion of the terms ‘direct’ and ‘physical’ could only have been

intended to exclude indirect, nonphysical losses.”); Dakota Ventures, 2021 WL 3572657, at *6

(“Including the word physical in the phrase ‘physical injury to tangible property’ negates any

possibility that the policy was intended to include ‘consequential or intangible damage,’ such as

depreciation in value, within the term ‘property damage.’”) (simplified). As a result, the Court

does not agree that Chief Judge Hernández violated the Erie doctrine in Dakota Ventures.

Also noteworthy is that TOC acknowledges that Dakota Ventures distinguished cases

“involving airborne particles, like Trutanich[.]” (Pl.’s Sur-Reply at 5.) Dakota Ventures did so

based, in part, on the fact that “the presence of the substance [i.e., noxious odor, mold, smoke, or

gas] rendered the property completely uninhabitable, not just dangerous to occupy in significant

numbers.” 2021 WL 3572657, at *10 (citations omitted). TOC argues that “none of those cases

relied on the property being ‘completely’ unusable[.]” (Pl.’s Sur-Reply at 6.) In distinguishing

Wyoming Sawmills, however, Trutanich did rely on the fact that (1) “the house was physically

damaged by the odor that persisted in it,” and (2) “[t]he cost of removing that odor was a direct

rectification of the problem.” 858 P.2d at 1335. Unlike Trutanich, TOC’s allegations do not

suggest that any covered property was “physically damaged” by a virus that persisted in it, or

that the costs of removing the virus would have directly rectified the problem. Accordingly, the

Court follows Dakota Ventures and Benjamin Franklin, both of which relied in part on Wyoming

Sawmills.

In sum, the Court concludes that TOC has not alleged “direct physical loss or damage” to

property. The Court therefore grants FFIC’s motion to dismiss TOC’s complaint on this ground.

III. LOSS ADJUSTMENT EXPENSE COVERAGE

A. Relevant Policy Provision

The Loss Adjustment Expense Coverage provision provides that FFIC “will pay the

necessary loss adjustment expenses you incur that would not have been incurred had there not

been a covered loss.” (Policy at 59.) This provision provides that loss adjustment expenses

include, but are not limited to, “[e]xpenses incurred to document your business income loss or

extra expense sustained,” public or certified public accountant fees, appraisal costs, and “[o]ther

expenses incurred to obtain loss data in support of your claim[.]” (Id.)

B. Analysis

The parties agrees that Loss Adjustment Expense Coverage applies only if a covered loss

occurred. (See Mot. at 37, stating that “the Loss Adjustment extension is only applicable if

coverage is established”; Pl.’s Corrected Resp. at 33, arguing that “there is no question that ‘a

covered loss’ occurred as alleged by TOC”). For the reasons discussed above, TOC has not

alleged a covered loss. Accordingly, the Court grants FFIC’s motion to dismiss on the ground

that TOC has failed to state a claim for Loss Adjustment Expense Coverage.8

IV. DISMISSAL WITH PREJUDICE

The Court dismisses this action with prejudice because TOC cannot allege a plausible

claim under the Policy. See Dakota Ventures, 2021 WL 3572657, at *13 (“Because the Court

finds that Plaintiff’s FAC cannot be amended to plausibly allege a claim under the terms of the

Policy, the Court denies leave to amend.”); RV Agate, 2021 WL 4851304, at *2 (“Because the

Court finds that Plaintiffs’ complaint cannot be amended to plausibly allege a claim under the

terms of the policy, the Court denies leave to amend.”).

///

///

///

///

8 The Court does not address whether the mortality and disease exclusion, which other

courts have referred to as a “virus exclusion,” applies here because TOC fails to allege, and

cannot allege, that its losses fall within the Policy’s grant of coverage. See, e.g., RV Agate Beach,

2021 WL 4851304, at *2 (“[B]ecause Plaintiffs fail to demonstrate that their loss falls within the

policy’s grant of coverage, the Court does not have to find whether the virus exclusion applies.”)

(citation omitted).

CONCLUSION

Based on the foregoing reasons, the Court GRANTS FFIC’s motion to dismiss (ECF No.

7), and dismisses this case with prejudice.

IT IS SO ORDERED.

DATED this 15th day of December, 2021.

Ste Fieeeermar

HON. STACIE F. BECKERMAN

United States Magistrate Judge

PAGE 20 — OPINION AND ORDER