Petition for Writ of Certiorari — Goodwill Industries of Central Oklahoma, Inc., dba Goodwill Career Pathways Institute, Petitioner v. Philadelphia Indemnity Insurance Company
Supreme Court briefApr 14, 2022
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No. 21-___
IN THE
Supreme Court of the United States
————
GOODWILL INDUSTRIES OF CENTRAL OKLAHOMA, INC.
D/B/A GOODWILL CAREER PATHWAYS INSTITUTE,
Petitioner,
v.
PHILADELPHIA INDEMNITY INSURANCE COMPANY,
Respondent.
————
On Petition for a Writ of Certiorari to the
United States Court of Appeals
for the Tenth Circuit
————
PETITION FOR A WRIT OF CERTIORARI
————
JIM T. PRIEST
Counsel of Record
316 S. Blackwelder Avenue
Oklahoma City, OK 73108
(405) 278-7111
jpriest@okgoodwill.org
Counsel for Petitioners
April 14, 2022
WILSON-EPES PRINTING CO., INC. – (202) 789-0096 – WASHINGTON, D.C. 20002
QUESTIONS PRESENTED FOR REVIEW
There is a centrally compelling reason dealing
with principles of federalism that calls for this Court
to take action in this case. The question is this:
Whether federal courts are violating Erie R. Co. v.
Tompkins, 304 U.S. 64 (1938), and principles of federalism in uniformly refusing to seek guidance from
a state’s highest court on state law questions relating
to COVID-related insurance coverage. Tellingly, state
courts have dismissed COVID-19 coverage cases
51.8% of the time while federal courts have dismissed them at the astonishing rate of 92.5%. The
odds of surviving a motion to dismiss are 5 times
greater in state court than in federal court. This is a
statistically significant variation (similar to what is
encountered in employment discrimination cases),
raising a rebuttable presumption of unequal treatment. This disparity is inexplicable, and a return to
Erie compliance is mandated.
During the COVID-19 pandemic, state and local
governments forced business to close their doors in
order to slow the spread of the virus. Many of those
business, including Goodwill Industries of Central
Oklahoma, Inc. (“Goodwill”), filed claims for business
interruption coverage under their commercial lines
insurance policies. These policies typically provide
coverage for “loss of Business Income” when the
insured is required to suspend operations during the
“period of restoration” due to “direct physical loss of or
damage to” covered property. They often also contain
virus exclusions which preclude coverage for loss or
damage “caused by or resulting from any virus . . . that
induces or is capable of inducing physical distress,
illness, or disease.”
(i)
ii
In Goodwill’s case, the Tenth Circuit affirmed the
Western District of Oklahoma’s dismissal of Goodwill’s
claim for declaratory relief, finding that “direct physical loss of or damage to” requires tangible damage
to property. It further affirmed the validity and
application of the Virus Exclusion to the policy. It did
so despite the fact that phrase “direct physical loss or
damage” does not have a settled meaning under
Oklahoma law, and the Oklahoma Supreme Court
stands poised to enter a ruling in pending cases on
accelerated appeal where the meaning of such language is in dispute.
The questions presented here are:
(1) Whether federal courts are violating Erie R.
Co. v. Tompkins, 304 U.S. 64 (1938), as
well as principles of federalism, in uniformly
refusing to seek answers from a state’s
highest court on state law questions relating
to COVID-related insurance coverage;
(2) Whether the phrase “direct physical loss of
or damage to” requires an immediate, perceptible, and tangible destruction or deprivation of property;
(3) Whether the courts below properly applied
Oklahoma’s rules of contract construction
with respect to insurance policies;
(4) Whether the phrase “direct physical loss of or
damage to” is ambiguous; and
(5) Whether the Virus Exclusion precludes
coverage.
iii
PARTIES TO THE PROCEEDINGS
All parties to the proceedings are listed in the
caption. The Petitioner is Goodwill Industries of Central Oklahoma, Inc. d/b/a Goodwill Career Pathways
Institute (“Goodwill”). The Respondent is Philadelphia
Indemnity Insurance Company (“PIIC”).
CORPORATE DISCLOSURE STATEMENT
Pursuant to Supreme Court Rule 29.6, the undersigned counsel states that Petitioner Goodwill is a
not-for-profit corporation duly incorporated under the
laws of Oklahoma. It has no parent company. Goodwill
has no stock; as such, there is no publicly-held
corporation which ten percent or more of Goodwill’s
stock.
LIST OF PROCEEDINGS
Goodwill Industries of Central Oklahoma, Inc.
d/b/a Goodwill Career Pathways Institute v.
Philadelphia Indemnity Insurance Company,
Court of Cleveland County, State of Oklahoma,
CV-2020-798. Notice of Removal filed June 30,
2020.
Goodwill Industries of Central Oklahoma, Inc.
d/b/a Goodwill Career Pathways Institute v.
Philadelphia Indemnity Insurance Company,
United States District Court for the Western
District of Oklahoma, CIV-20-511-R. Order
Granting PIIC’s Motion to Dismiss and corresponding Judgment entered November 9, 2020;
Order Denying Motion to Alter or Amend
Judgment entered March 11, 2021.
iv
Goodwill Industries of Central Oklahoma, Inc.
d/b/a Goodwill Career Pathways Institute v.
Philadelphia Indemnity Insurance Company,
United States Court of Appeals for the Tenth
Circuit, Case No. 21-6045. 10th Circuit Opinion
affirming dismissal issued December 21, 2021;
Order Denying Goodwill’s Petition for Rehearing entered January 14, 2022; Mandate issued
January 24, 2022.
TABLE OF CONTENTS
Page
QUESTIONS PRESENTED ...............................
i
PARTIES TO THE PROCEEDINGS ..................
iii
CORPORATE DISCLOSURE STATEMENT .....
iii
LIST OF PROCEEDINGS...................................
iii
TABLE OF AUTHORITIES ................................
viii
OPINIONS BELOW ............................................
1
STATEMENT OF JURISDICTION ....................
1
STATUTORY PROVISIONS INVOLVED ..........
2
STATEMENT OF THE CASE ............................
2
A.
Factual Background .................................
2
B.
Procedural Background ............................
4
REASONS FOR GRANTING THE PETITION..
6
I.
THE COURT SHOULD ENSURE FEDERAL COURTS ARE COMPLYING
WITH THE ERIE DOCTRINE.................
6
WHERE POSSIBLE, CIRCUIT COURTS
SHOULD ABATE RULING ON AN
ISSUE PENDING A DECISION IN
THE STATE’S HIGHEST COURT OR
SHOULD CERTIFY THE ISSUE ............
9
III. THE LOWER COURTS FAILED TO
PROPERLY INTERPRET OKLAHOMA
LAW ...........................................................
14
A. The Term “Direct Physical Loss”. .......
14
II.
(v)
vi
TABLE OF CONTENTS—Continued
Page
B. Goodwill Sufficiently Pled a Claim
for Declaratory Relief and Coverage
Under Its All-Risk Policy with PIIC ...
16
1. Goodwill Suffered a Covered Loss .
16
2. Policy Provisions Relating To “Direct
Physical Loss” Are Ambiguous
And Must Be Construed In
Goodwill’s Favor .............................
25
3. The Lower Courts Failed to Consider the Reasonable Expectations
of Goodwill ......................................
28
4. Goodwill’s Loss Was Fortuitous ....
30
C. Goodwill Sufficiently Pled the Inapplicability of the Virus Endorsement..
31
CONCLUSION ....................................................
34
APPENDIX
APPENDIX A – ORDER OF THE UNITED
STATES COURT OF APPEALS FOR THE
TENTH CIRCUIT, Filed January 14, 2022 ..
1a
APPENDIX B – OPINION
OF
THE
UNITED STATES COURT OF APPEALS
FOR THE TENTH CIRCUIT, Filed
December 21, 2021 .........................................
2a
APPENDIX C – ORDER OF THE UNITED
STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF OKLAHOMA,
Filed March 11, 2021 .....................................
18a
vii
TABLE OF CONTENTS—Continued
Page
APPENDIX D – ORDER OF THE UNITED
STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF OKLAHOMA,
Filed November 9, 2020 .................................
32a
APPENDIX E — JUDGMENT OF THE
UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF
OKLAHOMA, Filed November 9, 2020 ...........
43a
APPENDIX F — 28 U.S.C.A § 1446 .............
44a
viii
TABLE OF AUTHORITIES
CASES
Page(s)
Adair State Bank v. Am. Cas. Co. of
Reading, Pa., 949 F.2d 1067 (10th Cir.
1991), overruled on other grounds by
Stauth v. Nat’l Union Fire Ins. Co. of
Pittsburgh, 236 F.3d 1260 (10th Cir.
2001) .......................................................... 16-17
Am. Econ. Ins. Co. v. Bogdahn,
89 P.3d 1051 (Okla. 2004) ........................
30
Am. Guar. & Liab. Ins. Co. v. Ingram
Micro, Inc., No. 99-185 TUC ACM, 2000
WL 726789 (D. Ariz. Apr. 18, 2000) .........
21
Arizonans for Official English v. Arizona,
520 U.S. 43 (1997) .....................................
10
Aston v. Cunningham,
216 F.3d 1086, 2000 WL 796086
(10th Cir. June 21, 2000) .......................... 31, 33
Branch v Farmers Ins. Co.,
No. 00-6385, 2001 WL 1028385
(10th Cir. 2001), certified question
answered, 55 P.3d 1023 (Okla. 2002) .......
13
Castaneda v. Partida
430 U.S. 482 (1977) ...................................
9
Choctaw Nation of Oklahoma v.
Lexington Ins. Co.,
Okla. Sup. Ct. Docket 119413 .................. 9-10
Cherokee Nation v. Lexington Ins. Co.,
Okla. Sup. Ct. Docket 119359 ..................
10
Delaney v. Cade,
986 F.2d 387 (10th Cir.1993) .................... 11, 12
ix
TABLE OF AUTHORITIES—Continued
Page(s)
Dodson v. St. Paul Ins. Co.,
812 P.2d 372 (Okla. 1991) ........................
26
Edens v. The Netherlands Ins. Co.,
834 F.3d 1116 (10th Cir. 2016) .................
30
Elegant Massage, LLC v. State Farm
Mut. Auto. Ins. Co.,
No. 2:20-CV-265, 2020 WL
7249624 (E.D. Va. Dec. 9, 2020) ...............
33
Erie R.R. Co. v. Tompkins,
304 U.S. 64 (1938) .....................................
6, 8
Erik Scott Media, LLC v. Owners
Ins. Co., No. 2:16-CV-35, 2018 WL
4146608 (D. Utah. Aug. 20, 2018) ............ 26, 27
First United Methodist Church
of Stillwater, Inc. v.
Philadelphia Indem. Ins. Co.,
423 P.3d 29 (Okla. Civ. App. 2016) ..........
25
Goodwill Industries of Central
Oklahoma v. Philadelphia
Indemnity Insurance Co.,
31 F.4th 704 (10th Cir. 2021) ..................passim
Goodwill Industries of Central Oklahoma
v. Philadelphia Indemnity Insurance Co.,
499 F.Supp.3d 1098 (W.D. Okla. 2020) ....
1
Goodwill Industries of Central Oklahoma,
Inc. d/b/a Goodwill Career Pathways
Institute v. Philadelphia Indemnity
Insurance Co,
Case No. 21-6045 ...................................... 1, 34
x
TABLE OF AUTHORITIES—Continued
Page(s)
Hazelwood School District
v. United States,
433 U.S. 299 (1977) ...................................
9
Henderson Road Rest. Sys., Inc. v. Zurich
Am. Ins. Co., No. 1:20-CV-1239, 2021 WL
168422 (N.D. Ohio Jan. 19, 2021) ............ 22, 33
Houston v. Nat’l Gen. Ins. Co.,
817 F.2d 83 (10th Cir. 1987) .....................
17
Houston Gen. Ins. Co. v. Am. Fence Co., Inc.,
115 F.3d 805 (10th Cir. 1997) ................... 14, 15
IDG, Inc. v. Cont’l Cas. Co.,
275 F.3d 916 (10th Cir. 2001) ...................
14
In re: Society Ins. Co. COVID-19 Bus.
Interruption Prot. Ins. Litig.,
MDL No. 2964, 2021 WL 679109
(N.D. Ill. Feb. 22, 2021) ............................
20
Lehman Bros. v. Schein,
416 U.S. 386, 391, 94 S. Ct. 1741,
40 L.Ed.2d 215 (1974) ......................... 10, 11, 12
Max True Plastering Co. v. U.S. Fid. &
Guar. Co., 912 P.2d 861 (Okla. 1996). 15, 29, 30
Morgan v. State Farm Mut. Auto Ins. Co.,
819 F. App’x 614 (10th Cir 2020),
certified question answered No. 118881,
2021 WL 2099602 (Okla. May 25, 2021) ..
13
Nat’l Indem. Co. v. U.S.
Pollution Control, Inc.,
717 F. Supp. 765 (W.D. Okla. 1989) .........
17
xi
TABLE OF AUTHORITIES—Continued
Page(s)
Nautilus Grp., Inc. v.
Allianz Global Risks US,
No. C11-5281BHS, 2012 WL 760940
(W.D. Wash. Mar. 8, 2012) .......................
22
Neuro-Commc’n Servs., Inc.
v. Cincinnati Ins. Co.,
No. 4:20-cv-1275, 2021, WL
274318 (N.D. Ohio, Jan. 19, 2021),
certified question accepted,
162 Ohio St. 3d 1427 (2021) .....................
12
North State Deli, LLC v.
Cincinnati Ins. Co.,
20-CVS-02569, 2020 WL 6281507
(N.C. Super. Ct. Oct. 9, 2020) ....... 18, 20, 27, 28
Oklahoma Sch. Risk Mgmt. Tr. v.
McAlester Pub. Sch.,
457 P.3d 997 (Okla. 2019),
reh’g denied (Apr. 29, 2019) ......................
14
One Place Condo., LLC v. Travelers
Prop. Cas. Co. of Am.,
No. 11 C 2520, 2015 WL 2226202
(N.D. Ill. Apr. 22, 2015) ............................
21
Order from Cajun Conti LLC v. Certain
Underwriters at Lloyd’s, London,
No. 2020-02558 (La. Dist. Ct.
Nov. 4, 2020) .............................................
20
xii
TABLE OF AUTHORITIES—Continued
Page(s)
Order from Cherokee Nation v.
Lexington Ins. Co.,
CV-20-150, Cherokee Cnty.
Dist. Ct. Okla. (Jan. 29, 2021) .................passim
Order from Choctaw Nation of
Oklahoma v. Lexington Ins. Co.,
CV-20-42, Bryan Cnty. Dist. Ct.
Okla. (Feb. 15, 2021) ....................... 17-18, 28, 33
Order from MacMiles, LLC d/b/a
Grant Street Tavern v. Erie Ins. Exch.,
No. GD-20-7753, Court of Common
Pleas of Allegheny County, Pa.
(May 25, 2021)...........................................
23
Phillips Petroleum Co. v. McCormick,
211 F.2d 361 (10th Cir. 1954) ...................
21
Pino v. United States,
507 F.3d 1233 (10th Cir. 2007) ................. 11, 12
Pitco Prod. Co. v. Chaparral Energy, Inc.,
63 P.3d 541 (Okla. 2003) ..........................
26
Poland v. Martin,
761 F.2d 546 (9th Cir. 1985) .....................
17
Prudential Prop. & Cas. Ins.
Co. v. Lillard-Roberts,
No. CV-01-1362-ST, 2002
WL 31495830 (D. Or. Jun. 18, 2002)........
21
Sandy Point Dental, PC v. Cincinnati Ins.
Co., 488 F. Supp. 3d 690 (N.D. Ill. 2020),
reconsideration denied, No. 20 CV 2160,
2021 WL 83758 (N.D. Ill. Jan. 10, 2021)..
23
xiii
TABLE OF AUTHORITIES—Continued
Page(s)
Shaw v. Grumbine,
278 P. 311 (Okla. 1929) ............................
17
Source Food Tech., Inc. v.
U.S. Fid. Guar. Co.,
465 F.3d 834 (8th Cir. 2006) .....................
24
State Farm Mut. Auto. Ins. v. Fisher,
609 F.3d 1051 (10th Cir. 2010) .................
13
Stewart v. Adolph Coors Co.,
217 F.3d 1285 (10th Cir. 2000) .................
15
Studio 417, Inc. v. Cincinnati Ins. Co.,
No. 20-CV-03127-SRB, 2020 WL
4692385 (W.D. Mo. Aug. 12, 2020) ...........
23
Texas E. Transmission Corp. v. Marine
Office-Appleton & Cox Corp.,
579 F.2d 561 (10th Cir. 1978) ................... 14, 31
Turek Enters., Inc. v. State
Farm Mut. Auto. Ins. Co.,
484 F. Supp. 3d 492 (E.D. Mich. 2020) .... 24, 25
U.S. Fid. & Guar. Co. v. Guenther,
281 U.S. 34 (1930) .....................................
26
United Air Lines, Inc. v.
Ins. Co. of State of PA,
439 F.3d 128 (2d Cir. 2006) ......................
28
VBF, Inc. v. Chubb Grp.
of Ins. Companies,
263 F.3d 1226 (10th Cir. 2001) .................
15
xiv
TABLE OF AUTHORITIES—Continued
STATUTES
Page(s)
28 U.S.C. § 1254 ...........................................
1
28 U.S.C. § 1446 ...........................................
2
15 O.S. § 151, et seq, .....................................
14
Okla. Admin. Code 365:15-1-3 .....................
32
Okla. Stat. tit. 20, § 1602 .............................
11
RULES
10th Cir. R. 27.1 ...........................................
13
Fed. R. Civ. P. 59(e) ......................................
5
Sup. Ct. R. 10(b) ...........................................
1
Sup. Ct. R. 13 ................................................
1
OTHER AUTHORITIES
Page(s)
4 Appleman Insurance Law and Practice,
§ 2329 ........................................................
28
17A C. Wright, A. Miller et al., Federal
Practice & Procedure, § 4248 (1988) ........
11
Carl Salisbury, Federal Covid-19 Insurance
Decisions Ignore State Law (April 6,
2021, 4:12 PM EDT), https://www.law
360.com/articles/1372499/federal-covid19-insurance-decisions-ignore-state-law ....
6, 7
Direct, Merriam-Webster (Online ed. 2020)
18
Fortuitous, Merriam-Webster (Online ed.
2020), https://www.merriamwebster.com
/dictionary/fortuitous ................................
31
xv
TABLE OF AUTHORITIES—Continued
Page(s)
INTENTIONAL JOB DISCRIMINATION
IN METROPOLITAN AMERICA (Alfred
W. Blumrosen & Ruth G. Blumrosen,
1999), http://www.eeo1.com/1999_NR/Ch
apter06.pdf#:~:text ...................................
9
John Koch, COVID Insurance Cases
Highlight Federal-State Court Tension,
Law360 (Nov. 24, 2021, 12:39 PM EST),
https://www.law360.com/articles/144118
5/covid-insurance-cases-highlight-feder
al-state-court-tension................................
7, 8
Law and Practice of Insurance Coverage
Litigation (West Group & ABA 2000) ......
17
Loss, Merriam-Webster (Online ed. 2020)...
19
Loss, Random House Unabridged Dictionary
(Online ed. 2020) .......................................
19
N.Y. Jur. Insurance, § 539 (2005) ................
28
Okla. Executive Order 2020-07 (March 15,
2020) ..........................................................
4
Physical, Black’s Law Dictionary (11th ed.
2019) ..........................................................
19
Physical, Merriam-Webster (Online ed.
2020) ..........................................................
18
Physical, Webster’s Third New International Dictionary (2020) ............................
19
To, Merriam-Webster, https://www/merr
iam-webster.com/dictionary/to (last visited
Aug. 31, 2020) ...........................................
24
PETITION FOR A WRIT OF CERTIORARI
Petitioner Goodwill respectfully asks the Court to
issue a writ of certiorari to the United States Court
of Appeals for the Tenth Circuit in Goodwill Industries
of Central Oklahoma, Inc. d/b/a Goodwill Career
Pathways Institute v. Philadelphia Indemnity Insurance Company, Case No. 21-6045.
OPINIONS BELOW
The Tenth Circuit’s Order denying Goodwill’s Petition for Hearing is reprinted in the Appendix at App.
1a. The Tenth Circuit’s Opinion affirming the district court’s dismissal of Goodwill’s lawsuit is published at 31 F.4th 704 and reprinted at App. 2a. The
district court’s Order denying Goodwill’s Motion to
Alter or Amend Judgment is reprinted at App. 18a.
The district court’s Order granting PIIC’s Motion to
Dismiss is published at 499 F.Supp.3d 1098 (W.D.
Okla. 2020) and reprinted at App. 32a. The district
court’s corresponding Judgment dismissing Goodwill’s
lawsuit is reprinted at App. 43a.
STATEMENT OF JURISDICTION
The Tenth Circuit denied Goodwill’s Petition for
Rehearing on January 14, 2022. App. 1a. This Court
has jurisdiction under 28 U.S.C. § 1254, having timely
filed this Petition for a Writ of Certiorari within ninety
(90) days pursuant to Supreme Court Rule 13.
Rule10(b) of the Supreme Court Rules provides for
review when a circuit court rules contrary to a state
court of last resort. Although the Oklahoma Supreme
Court has not yet ruled on the issue of the meaning
of the pertinent insurance phrase “direct physical
loss or damage,” the circuit court’s decision departed
from the “accepted and usual course of judicial pro-
2
ceedings” by ignoring extant law in Oklahoma district
court decisions and failed to await the imminent
decision of the Oklahoma Supreme Court or stay
proceedings pending that decision.
STATUTORY PROVISION INVOLVED
This case involves the removal statute, 28 U.S.C.
§ 1446, which is reproduced at App. 44a.
STATEMENT OF THE CASE
A. Factual Background.
This case involves two important issues: (1) whether
federal courts should defer ruling on a case involving
state law when the state’s highest court is poised to
do so; and (2) an insured’s right to expect protection
from its insurance company when the government
forces it to close its doors in light of a worldwide
pandemic.
Goodwill is an Oklahoma not-for-profit corporation
which serves vulnerable populations of the State. In
2019, Goodwill renewed its all-risk policy with PIIC
for a term from May 1, 2019 to May 1, 2020. Therein
PIIC agreed to provide “Business Income” coverage
as follows:
We will pay for the actual loss of Business
Income you sustain due to the necessary
“suspension” of your operations during the
“period of restoration.” The suspension must
be caused by direct physical loss of or damage to property at the premises which are
described in the Declarations and for which a
Business Income Limit of Insurance is shown
in the Declarations. The loss or damage must
3
be caused by or result from a Covered Cause
of Loss.
“Covered Causes of loss” are defined as “risks of direct
physical loss” to covered property unless otherwise
excluded or limited under the policy. The Policy
defines “Suspension” and “Operations” as follows:
“Suspension” means:
a. The slowdown or cessation of your business activities; or
b. That a part of all of the described premises is rendered untenable, if coverage for
Business Income Including “Rental Value”
or “Rental Value” applies.
*
*
*
“Operations” means:
a. Your business activities occurring at the
described premises; and
b. The tenantability of the described premises, if coverage for Business Income
Including “Rental Value” or “Rental
Value” applies.
At some point, without notice or value given, PIIC
added a Virus Endorsement to the Policy, which
purports to exclude coverage for any “loss or damage
caused by or resulting from any virus, bacterium,
or other microorganism that induces or is capable
of inducing physical distress, illness or disease.”
Goodwill’s Petition disputes the applicability and
enforceability of this Endorsement.
In early 2020, the COVID-19 virus began infecting
citizens throughout the country, often with deadly
consequences. The pandemic quickly drew responses
4
from various civil authorities, including state-ordered
closures, stay-at-home/safer-at-home orders, mandatory
restrictions on gatherings, and required social distancing. On March 15, 2020, Oklahoma’s Governor
issued Executive Order 2020-07 and declared an emergency caused by the impending threat of COVID-19
to the people of Oklahoma and the public’s peace,
health and safety. Effective March 25, 2020, all businesses not identified as being within a critical infrastructure were ordered to close to the public. Goodwill
was not identified as being within a critical infrastructure sector. Mayors of the cities followed suit,
including Oklahoma City, Norman, Moore, Ardmore,
Guthrie, Stillwater, and Midwest Cities. Goodwill
has operations in each of these locales. Pursuant to
these orders, Goodwill temporarily closed its doors
and made a claim for business interruption coverage
with PIIC.
B. Procedural Background.
On May 6, 2020, Goodwill filed a claim for declaratory judgment in the District Court of Cleveland
County, State of Oklahoma, seeking a declaration that
it was entitled to business income coverage under the
Policy. On June 3, 2020, Goodwill filed its Notice of
Removal in the United States District Court for the
Western District of Oklahoma. On June 8, 2020, PIIC
filed its Motion to Dismiss, arguing Goodwill failed to
plead any facts showing it suffered a “direct physical
loss of or damage to” its premises because it suffered
no tangible, physical alteration to its property. PIIC
also argued the Virus Endorsement bars Goodwill’s
claim for declaratory judgment. Goodwill disagreed,
arguing that “direct physical loss of or damage to” its
premises does not require tangible loss, that the
policy language is ambiguous and must be construed
5
in its favor under Oklahoma law, and that it sufficiently pled lack of consideration and consent for the
Virus Endorsement, as well as its inapplicability to
Goodwill’s claim for business income coverage.
On November 9, 2020, the court granted PIIC’s
Motion to Dismiss, finding Goodwill failed to allege a
“direct physical loss” caused by the pandemic—a term
the court found unambiguous and requiring physical
alteration of or tangible damage to the property. App.
32a. The district court further held that even if it
applied Goodwill’s interpretation of “direct physical
loss” to include intangible loss, its claim is still subject
to dismissal because the Virus Endorsement precludes
coverage, and Goodwill failed to sufficiently state any
facts showing why the Virus Endorsement would not
apply. Id. The district court entered its Judgment in
PIIC’s favor on November 9, 2020. App. 43a.
On December 7, 2020, Goodwill filed its Motion to
Alter or Amend Judgment pursuant to Fed. R. Civ. P.
59(e). The district court denied Plaintiff’s Motion,
restating its holding that no ambiguity exists in the
Policy and that any amendment was untimely and
futile. App. 18a. Goodwill appealed to the Tenth
Circuit asking the Circuit the district court to either
abate the case pending an imminent decision by the
Oklahoma Supreme Court which involved an interpretation of the insurance policy phrase “direct physical loss or damage,” or to certify questions to the
Oklahoma Supreme Court on this issue. The Tenth
Circuit declined to either abate or certify and affirmed
district court’s dismissal without even addressing the
only extant Oklahoma state court law on the issue
which favored Goodwill’s position. App. 2a. En Banc
review was requested but denied. App. 1a.
6
REASONS FOR GRANTING THE PETITION
I. THE COURT SHOULD ENSURE FEDERAL COURTS ARE COMPLYING WITH
THE ERIE DOCTRINE.
From Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938)
on, this Court has sought to promote uniform application of state law in state and federal courts. The
central and critical reason to grant this Petition is to
uphold this Court’s ruling in Erie R. Co. v. Tompkins,
304 U.S. 64 (1938). This court should exercise its
“supervisory power” to ensure federal courts are
properly complying with this Court’s decision in Erie.
The Tenth Circuit, as well as other federal courts,
have ignored Erie and dismissed cases without regard
to extant or imminent state court rulings. As was
explained by Carl Salisbury in an article entitled
Federal Covid-19 Insurance Decisions Ignore State
Law (April 6, 2021, 4:12 PM EDT):
Hundreds of lawsuits are pending in state
and federal courts nationwide in which policyholders seek business interruption insurance coverage as a result of COVID-19 lockdowns. Decisions on motions to dismiss and
for summary judgment are coming out of
those courts nearly every day, changing the
landscape. Nonetheless, a clear pattern has
emerged, and it shows that federal courts are
dismissing the cases at a far higher rate than
state courts. The pattern strongly suggests
that federal courts are ignoring state law.
As every law student knows, when a federal
court’s jurisdiction is based upon diversity
of citizenship, the Erie doctrine — from the
U.S. Supreme Court’s 1938 decision in Erie
7
R.R. Co. v. Tompkins — requires the court
to apply the substantive law of the state in
which the court sits. Insurance coverage is
uniquely a creature of state law. One would
expect, then, that state and federal court
decisions on substantive coverage issues
would be fairly consistent on motions to
dismiss COVID-19 business interruption
cases. But they are far from it.
The University of Pennsylvania maintains a
handy tracking site for COVID-19-related
coverage cases, broken down between state
and federal courts and sorted by the outcomes
of motions to dismiss or for summary
judgment.
The site reveals that state courts have
dismissed COVID-19 coverage cases 51.8% of
the time. Federal courts, however, have
dismissed them at the remarkable rate of
92.5%. It is not clear, at first, what accounts
for this discrepancy. A closer look suggests
that federal courts are not applying state law
faithfully, as the Erie doctrine requires.
John Koch, COVID Insurance Cases Highlight FederalState Court Tension, Law360 (Nov. 24, 2021, 12:39 PM
EST), https://www.law360.com/articles/1372499/federalcovid-19-insurance-decisions-ignore-state-law. And in
another publication, the following dire warning was
sounded:
For whatever reason, many federal courts
nationwide seem to be quick to predict state
law before state high courts have the chance
to weigh in, leaving both policyholders and
insurance companies uncertain as to whether
8
subsequent, binding state high court decisions will be in accord. This situation created
by the pandemic is unique and has the
potential to bring undesirable results.
The most undesirable potential result is
painfully obvious. If, for example, the federal district and appellate courts mostly rule
against policyholders on the physical loss or
physical damage issue, but even a few state
high courts ultimately disagree, we will witness probably the most egregious and widespread case of conflicting outcomes in our
nation’s history.
John Koch, COVID Insurance Cases Highlight FederalState Court Tension, Law360 (Nov. 24, 2021, 12:39 PM
EST), https://www.law360.com/articles/1441185/covidinsurance-cases-highlight-federal-state-court-tension.
As noted above, the odds of surviving a motion to
dismiss are 5 times greater in state court than in
federal court. This is a statistically significant variation, indicating something is amiss. This has led to
the question: Are federal courts ignoring Erie R. Co. v.
Tompkins, 304 U.S. 64 (1938) in litigation arising from
the COVID-19 pandemic? That is a question squarely
posed in the instant Petition.
In employment discrimination cases this Court has
recognized the “two standard deviation” rule, providing that where relevant statistics reveal a business
is two standard deviations or more below the average
in an occupation or industry, the law imposes major
consequences in a discrimination case.
. . . [T]he law treats the finding of two
standard deviations so seriously that it
requires employers to make the case that
9
they did not discriminate. As do the courts,
this study gives serious weight to the two
standard deviations principle to identify
apparent intentional discrimination. The two
standard deviation rule creates a presumption of discrimination . . .
INTENTIONAL JOB DISCRIMINATION IN METROPOLITAN AMERICA Chapter 6 – Intentional Discrimination Demonstrated by Statistics, page 49 (see
http://www.eeo1.com/1999_NR/Chapter06.pdf#:~:text).
In footnotes to two opinions, Castaneda v. Partida
430 U.S. 482 (1977) (grand jury discrimination) and
Hazelwood School District v. United States, 433 U.S.
299 (1977) (racial discrimination in employment), this
Court not only performed a few textbook calculations, but also spoke of “two or three standard
deviations” as being necessary to establish statistical
significance. Applying the “two standard deviation
rule” to the differing results in federal and state
court in COVID-related business interruption cases,
something is clearly disquieting—whether it be called
discrimination or not—and this Court must address
the statistical presumption of irregularity.
II. WHERE POSSIBLE, CIRCUIT COURTS
SHOULD ABATE RULING ON AN ISSUE
PENDING A DECISION IN THE STATE’S
HIGHEST COURT OR SHOULD CERTIFY
THE ISSUE.
The Oklahoma Supreme Court has two cases currently pending which involve whether a liability
policy with business interruption insurance provides
coverage for a closure of business due to COVIDrelated government orders: (1) Choctaw Nation of
Oklahoma v. Lexington Ins. Co., Oklahoma Supreme
10
Court Docket 119413; and (2) Cherokee Nation v.
Lexington Ins. Co., Oklahoma Supreme Court Docket
119359. These (now consolidated) cases are already
on the Oklahoma Supreme Court’s docket and raise
insurance policy issues comparable to the ones raised
by Goodwill. The Tenth Circuit should have abated
its ruling on Goodwill’s appeal pending a decision by
the Oklahoma Supreme Court, or certified the question to that court, especially on topic that is inherently a matter of state law. The basic idea of doctrines
such as abstention and certification is to discourage
federal courts from intruding on sensitive and
complicated issues of state law without giving state
courts a chance to review, and perhaps resolve, the
matter first.
This Court has long recognized that certification
“allows a federal court faced with a novel state-law
question to put the question directly to the State’s
highest court, reducing the delay, cutting the cost,
and increasing the assurance of gaining an authoritative response.” Arizonans for Official English v.
Arizona, 520 U.S. 43, 76 (1997). In Lehman Brothers
v. Schein, this Court “for the first time express its
view as to the use of certification procedures by the
federal courts.” 416 U.S. 386, 395 (1974) (Rehnquist,
J., concurring). The Court noted that certification is
not “obligatory,” but found it “particularly appropriate” in that case “in view of the novelty of the question and the great unsettlement of Florida law” and to
“help[] build cooperative judicial federalism.” Id. at
391 (majority). Accordingly, the Court vacated the
decision below and remanded the case so that the
lower court could “reconsider whether the controlling issue of Florida law should be certified.” The
same result should be reached here where the issues
presented in Goodwill’s appeal are distinctively state-
11
law issues, are indisputably novel, and their resolution will have broad implications.
In Pino v. United States, 507 F.3d 1233 (10th Cir.
2007), Judge (now Supreme Court Justice) Gorsuch
opined on the considerations affecting certification,
stating in pertinent part:
The standards governing our independent
analysis stem from both state and federal
law. Under Oklahoma law, the Oklahoma
Supreme Court has the power to answer a
question certified to it by any federal court
“if the answer may be determinative of an
issue in pending litigation in the certifying
court and there is no controlling decision of
the Supreme Court or Court of Criminal
Appeals, constitutional provision, or statute
of this state.” Okla. Stat. tit. 20, § 1602.
*
*
*
While we apply judgment and restraint before
certifying, however, we will nonetheless
employ the device in circumstances where
the question before us (1) may be determinative of the case at hand and (2) is sufficiently
novel that we feel uncomfortable attempting
to decide it without further guidance. Delaney
v. Cade, 986 F.2d 387, 391 (10th Cir.1993); see
Lehman Bros. v. Schein, 416 U.S. 386, 391, 94
S. Ct. 1741, 40 L.Ed.2d 215 (1974) (finding
certification particularly appropriate where
the legal question is novel and the applicable
state law is unsettled); 17A C. Wright, A.
Miller et al., Federal Practice & Procedure,
§ 4248, (1988), supra, § 4248. In making the
assessment whether to certify, we also seek to
12
give meaning and respect to the federal
character of our judicial system, recognizing
that the judicial policy of a state should be
decided when possible by state, not federal,
courts. See Lehman Bros., 416 U.S. at 391, 94
S. Ct. 1741 (noting federal certification of
state law questions “helps build a cooperative
judicial federalism”); Delaney, 986 F.2d at 391
(certifying because of “our judicial policy that
matters of state law should first be decided by
state courts”).
Id. at 1236-37 (internal footnote omitted).
On January 19, 2021, a federal court in the Northern District of Ohio certified questions similar to
those posed raised by Goodwill to its state Supreme
Court in Neuro-Commc’n Servs., Inc. v. Cincinnati Ins.
Co., No. 4:20-cv-1275, 2021 WL 274318 (N.D. Ohio,
Jan. 19, 2021), certified question accepted, 162 Ohio St.
3d 1427 (2021), stating:
Dozens, if not hundreds, of cases seeking
coverage for losses related to the pandemic
under policies similar or identical to that
at issue in this case have been filed in
both federal and state courts in Ohio. As these
cases wind through the various court
systems, differing interpretations of Ohio
contract law by different courts threaten to
undermine the uniform application of that
law to similarly situated litigants. The certification procedure invoked here will allow the
Supreme Court of Ohio to decide these questions and bring uniformity to the application
of state law to these policies.
Id. at *1.
13
In Branch v. Farmers Ins. Co., No. 00-6385, 2001 WL
1028385 (10th Cir. 2001), certified question answered,
55 P.3d 1023 (Okla. 2002), the Tenth Circuit emphasized the importance of allowing the state’s highest
court to determine issues of state laws:
. . . (w)e certify the above questions to the
Oklahoma Supreme Court on our motion
pursuant to 10th Cir. R. 27.1 because there
is a burgeoning number of similar cases
and the core question-the requirements of
Oklahoma insurance law in construing these
insurance contracts-is a matter of state law
likely to be finally resolved by the state’s
highest common law court. Because we do not
find the current Oklahoma case law dispositive and because the answers may be determinative of important issues in this and
other cases, we certify these questions for
instructions based on the facts as developed
in the cases discussed above.
Id. at *3; see also Morgan v. State Farm Mut. Auto Ins.
Co., 819 F. App’x 614, 617 (10th Cir 2020), certified
question answered No. 118881, 2021 WL 2099602
(Okla. May 25, 2021) (certifying novel issues of
Oklahoma law regarding insurance contracts to the
Oklahoma Supreme Court, recognizing “the importance
of allowing [state courts] to decide questions of state
law and policy, and thus define state law”) (quoting
State Farm Mut. Auto. Ins. v. Fisher, 609 F.3d 1051,
1058-59 (10th Cir. 2010)). Put simply, state high
courts, rather than federal courts, should be given the
opportunity to determine unsettled matters of state
law. The lower courts should have abated its ruling
pending a ruling by the Oklahoma Supreme Court on
14
similarly situated cases, or it should have certified this
issue as Goodwill requested.
III. THE LOWER COURTS FAILED TO
PROPERLY INTERPRET OKLAHOMA
LAW.
An all-risk policy is “a special type of insurance
extending to risks not usually contemplated.” Texas E.
Transmission Corp. v. Marine Office-Appleton & Cox
Corp., 579 F.2d 561, 564 (10th Cir. 1978). In order to
establish coverage under an all-risk policy, Oklahoma
law only required Goodwill to show: (1) it suffered a
covered loss; and (2) the loss was fortuitous. Oklahoma
Sch. Risk Mgmt. Tr. v. McAlester Pub. Sch., 457 P.3d
997, 1002 (Okla. 2019), reh’g denied (Apr. 29, 2019)
(“[a]n ‘all-risk’ policy [covers] a loss when caused by
any fortuitous peril not specifically excluded by the
policy.”). The lower courts misapplied Oklahoma’s
rules of contract construction with respect to insurance policies and improperly dismissed Goodwill’s
claim for declaratory judgment.
A. The Term “Direct Physical Loss”.
“The interpretation of an insurance contract is
governed by state law and, sitting in diversity, we
look to the law of the forum state diversity action,
interpretation of the insurance policy is controlled
by Oklahoma law.” Houston Gen. Ins. Co. v. Am. Fence
Co., Inc., 115 F.3d 805, 806 (10th Cir. 1997). Under
Oklahoma law, an insurance policy is a contract
subject to general contract interpretation principles
of ordinary contract law. IDG, Inc. v. Cont’l Cas. Co.,
275 F.3d 916, 921 (10th Cir. 2001).1 An unambiguous
1
The ordinary rules of contract interpretation are set forth in
15 O.S. § 151, et seq.
15
insurance policy is interpreted according to the plain
meaning of the language of the policy. VBF, Inc. v.
Chubb Grp. of Ins. Companies, 263 F.3d 1226, 1230
(10th Cir. 2001).
However, where the policy language is ambiguous—
that is, when it is reasonably susceptible to more than
one meaning—special interpretive rules are then
applied in favor of coverage. See Stewart v. Adolph
Coors Co., 217 F.3d 1285, 1290 (10th Cir. 2000) (ambiguity exists when a contract provision is “reasonably
susceptible to more than one meaning, or where there
is uncertainty as to the meaning of a term”) (internal
citations omitted). For example, it is well-established
that when policy language is ambiguous, it will be
construed against the insurer and in favor of the
insured. See, e.g., VBF, Inc., 263 F.3d at 1230-31 (if a
policy is ambiguous it will be construed against the
insurer); Houston Gen. Ins. Co. v. Am. Fence Co., 115
F.3d 805, 806 (10th Cir. 1997) (“We are mindful . . .
that where a genuine ambiguity exists in an insurance
policy, Oklahoma courts will interpret the contract
most favorably to the insured and against the carrier.”).
Oklahoma recognizes the “reasonable expectations”
doctrine with respect to insurance policies. See Max
True Plastering Co. v. U.S. Fid. & Guar. Co., 912 P.2d
861 (Okla. 1996). This doctrine, which is also employed
when policy provisions are found to be ambiguous,
seeks to honor the objectively reasonable expectations
of insureds concerning the terms of the insurance
contract “even though painstaking study of the policy
provisions might have negated those expectations.”
Id. at 862. Ordinary contract principles, therefore, are
simply the starting point for interpretation of an insurance policy. In the face of ambiguity, those principles give way to the application of these special rules.
16
B. Goodwill Sufficiently Pled a Claim for
Declaratory Relief and Coverage Under
Its All-Risk Policy with PIIC.
Goodwill’s all-risk Policy with PIIC provides for
business income coverage during the “suspension” of
operations, defined as a “slowdown or cessation of
business activities” caused by “direct physical loss of
or damage to property at [Goodwill’s] premises.” The
loss or damage must be caused by or result from
“Covered Causes of Loss,” which are defined as “risks
of direct physical loss” to covered property. However,
the lower courts misinterpreted “direct physical loss of
or damage to” property—a term which is not defined
anywhere in the Policy—in dismissing Goodwill’s
lawsuit.
1. Goodwill Suffered a Covered Loss.
The Tenth Circuit found Goodwill is not entitled to
business income coverage because the term “direct
physical loss” is unambiguous and requires “an immediate and perceptible destruction or deprivation of
property” which does not include intangible losses.
App. 9a. It further held that “[t]he requirement that
the loss be physical” is “widely held to exclude alleged
losses that are intangible or incorporeal.” Id. (internal
citation omitted). This is an incorrect reading of the
Policy language and contrary to Oklahoma law.
Because the phrase “direct physical loss” is not
defined in the Policy, the Tenth Circuit turned to
dictionary definitions “to supply the words’ common
meanings.” App. 8a.2 In doing so, the Circuit defined
2
Goodwill certainly does not object to the lower courts’ use of
dictionaries to ascertain the meaning of words, as it is a practice
well-established by Oklahoma courts, see, e.g., Adair State Bank
v. Am. Cas. Co. of Reading, Pa., 949 F.2d 1067 (10th Cir. 1991),
17
“physical” as “of or relating to natural material things
as opposed to things mental, moral spiritual, or
imaginary,” and a “loss” as “failure to keep possession: deprivation” or “destruction, ruin, or perdition.”
Id. (internal citation omitted). The ciecuit held that
“[a]lthough the COVID orders temporarily restricted
Goodwill’s use of its property, Goodwill never lost
physical control of its buildings or merchandise from
its stores.” Id. This is inaccurate. Goodwill did, in a
very real sense, lose “physical control” of its buildings.
It was forced to close its doors, albeit for a temporary
period. There is nothing about the definitions relied
upon which the Tenth Circuit which require any
structural damage or destruction to the buildings in
order to be deprived of a physical space.
Oklahoma courts have unambiguously interpreted
the phrase “direct physical loss” to include intangible
loss and/or property rendered unusable for its
intended purpose due to orders stemming from the
COVID-19 pandemic. See, e.g., Order from Choctaw
Nation of Oklahoma v. Lexington Ins. Co., CV-20-42,
overruled on other grounds by Stauth v. Nat’l Union Fire Ins. Co.
of Pittsburgh, 236 F.3d 1260 (10th Cir. 2001) (addressing the
meaning of the word “collusion,” the court noted the district
court’s reference to a dictionary to ascertain the popular meaning
of the term); Nat’l Indem. Co. v. U.S. Pollution Control, Inc., 717
F. Supp. 765 (W.D. Okla. 1989) (court resorted to dictionary to
ascertain a term’s plain, ordinary and accepted use in common
speech), as well as the consideration of the structure and
grammatical arrangement of the words used. See, e.g., Shaw v.
Grumbine, 278 P. 311, 315 (Okla. 1929); Law and Practice of
Insurance Coverage Litigation § 1.3 at pp. 1-75 (West Group &
ABA 2000). However, “if there is a range of reasonable [dictionary] meanings[,] the court must apply the meaning which
provides the most coverage for the insured.” Houston v. Nat’l Gen.
Ins. Co., 817 F.2d 83, 85 (10th Cir. 1987) (quoting Poland v.
Martin, 761 F.2d 546, 548 (9th Cir. 1985)).
18
Bryan Cnty. Dist. Ct. Okla. (Feb. 15, 2021) (“Choctaw
Nation Order”) (granting summary judgment in favor
of insured on business interruption coverage and
recognizing the reasonableness of the insured’s interpretation of “direct physical loss” to include intangible loss); Order from Cherokee Nation v. Lexington Ins.
Co., CV-20-150, Cherokee Cnty. Dist. Ct. Okla. (Jan.
29, 2021) (“Cherokee Nation Order”) (same). It is these
two orders which are currently on appeal before the
Oklahoma Supreme Court.
A recent decision in North Carolina is also instructive on this issue. In North State Deli, LLC v.
Cincinnati Ins. Co., 20-CVS-02569, 2020 WL 6281507
(N.C. Super. Ct. Oct. 9, 2020), the court granted summary judgment in favor of the insured on the same
issue before this Court.3 The court analyzed whether
the insured was entitled to business income coverage
due to COVID-19 related orders using a similar
analysis of what “direct physical loss” means under
standard Merriam-Webster and Black’s Law definitions. Id. However, the North State Deli court reached
the opposite (and correct) conclusion:
As an initial matter, the Policies do not define
the terms “direct,” “physical loss,” or “physical damage.” The Court must therefore turn
first to the ordinary meaning of those terms.
Merriam-Webster defines “direct” when used
as an adjective, as “characterized by close,
logical, casual, or consequential relationship”
3
Significantly, the policy language at issue in North State Deli
is actually more restrictive than the language here. The North
State Deli policies required “accidental physical loss or accidental
physical damage” “to property,” whereas the instant Policy
requires only “direct physical loss of or damage to property”—a
distinction which cannot be ignored.
19
as “stemming immediately from a source,” or
as “proceeding from one point to another in
time or space without deviation or interruption.” Direct, Merriam-Webster (Online ed.
2020). Merriam-Webster defines “physical” as
relating to “material things” that are “perceptible especially through the sense.” Physical,
Merriam-Webster (Online ed. 2020). The
term is also defined in a way that is tied to
the body: “of or relating to the body.” Id.
Webster’s Third New International Dictionary defines physical as “of or relating to natural or material things as opposed to things
mental, moral, spiritual, or imaginary.”
Physical, Webster’s Third New International
Dictionary (2020). The definition from Black’s
Law Dictionary comports: “Of, relating to,
or involving material things; pertaining to
real, tangible objects.” Physical, Black’s Law
Dictionary (11th ed. 2019). Finally, “loss” is
defined as “the act of losing possession,” “the
harm of privation resulting from loss or separation,” or the “failure to gain, win, obtain,
or utilize.” Loss, Merriam-Webster (Online
ed. 2020). Another dictionary defines the
term as “the state of being deprived of or
being without something that one has had.”
Loss, Random House Unabridged Dictionary
(Online ed. 2020).
Applying these definitions reveals that the
ordinary meaning of the phrase “direct physical loss” includes the inability to utilize or
possess something in the real, material, or
bodily world, resulting from a given cause
without the intervention of other conditions.
Id.
20
Accordingly, the North State Deli Court held that
“‘direct physical loss’ describes the scenario where
business owners and their employees, customers,
vendors, suppliers, and others lose the full range of
rights and advantages of using or accessing their
business property. This is precisely the loss caused
by the Government Orders.” Id. The court further
explained that because the plaintiff’s businesses “were
expressly forbidden by government decree from
accessing and putting their property to use for the
income-generating purposes for which the property
was insured,” such loss is “unambiguously a ‘direct
physical loss,’ and the Policies afford coverage.” Id.; see
also In re: Society Ins. Co. COVID-19 Bus. Interruption
Prot. Ins. Litig., MDL No. 2964, 2021 WL 679109, at
*1 (N.D. Ill. Feb. 22, 2021) (reasonable people could
determine a loss due to the pandemic was a “direct
physical loss” when the plaintiffs were unable to fully
use the physical space of their restaurants); Order
from Cajun Conti LLC v. Certain Underwriters at
Lloyd’s, London, No. 2020-02558 (La. Dist. Ct. Nov. 4,
2020) (insurer’s motion for summary judgment denied
where COVID-19 related orders caused insured
restaurant to “drastically change its operations to
exclude sit-down patrons, which was previously the
heart of its business, because the Orders restricted
their presence in the building”).
Two judges from different Oklahoma counties agree
with the North State Deli court that a “direct physical
loss” occurs when property is no longer rendered
usable for its intended purpose, stating that “the
ordinary meaning of the phrase ‘direct physical loss’
includes the inability to utilize or possess something
in the real, material or bodily world, resulting from
a given cause without the intervention of other
conditions.” See Choctaw Nation Order; Cherokee
21
Nation Order. The federal courts here should have
reached the same conclusion here, or as stated above,
it should have stayed any ruling until the Oklahoma
Supreme Court rules on the issue. 4 Remarkably, the
Tenth Circuit did not even cite to or attempt to
distinguish these state law cases.
The lower courts also failed to give meaning to each
word of the phrase “direct physical loss of or damage
to.” See Phillips Petroleum Co. v. McCormick, 211 F.2d
361, 364 (10th Cir. 1954) (“Every word, phrase or part
of a contract should be given a meaning and significance according to its importance in the context of
the contract.”). There is no point including both “loss
of” and “damage to” in this provision unless they are
intended to mean different things.
In a case in the Northern District of Ohio, the court
granted summary judgment in the insureds’ favor
concerning business interruption coverage triggered
4
Numerous other courts throughout the country have similarly held that “tangible damage” such as structural alteration is
not required to trigger coverage under insurance policies containing “direct physical loss” or “direct physical loss of or damage
to” policy language. See, e.g., One Place Condo., LLC v. Travelers
Prop. Cas. Co. of Am., No. 11 C 2520, 2015 WL 2226202, at *9
(N.D. Ill. Apr. 22, 2015) (“where a general all-risk commercial or
homeowner’s policy insureds against both ‘loss’ and ‘damage’ to
an existing structure, ‘physical’ damage may take the form of loss
of use of otherwise undamaged property, which in turn suffices
as a covered loss”); Prudential Prop. & Cas. Ins. Co. v. LillardRoberts, No. CV-01-1362-ST, 2002 WL 31495830, at *9 (D. Or.
Jun. 18, 2002) (“the inability to inhabit a building [is] a ‘direct,
physical loss’ covered by insurance”); Am. Guar. & Liab. Ins. Co.
v. Ingram Micro, Inc., No. 99-185 TUC ACM, 2000 WL 726789, at
*2 (D. Ariz. Apr. 18, 2000) (holding that “physical damage” is “not
restricted to the physical destruction or harm of computer circuitry but includes loss of access, loss of use, and loss of
functionality.”).
22
by closure orders entered as a result of the COVID-19
pandemic. See Henderson Road Rest. Sys., Inc. v.
Zurich Am. Ins. Co., No. 1:20-CV-1239, 2021 WL
168422 (N.D. Ohio Jan. 19, 2021). As here, the insurer
argued “direct physical loss” required the property to
be damaged so that the property exhibit “physical
alteration or structural damage.” Id. at *5. However,
“Zurich’s Policy d[id] not state that ‘direct physical loss
of or damage to property’ required ‘physical alteration
or structural damage to any property at the Insured
Premises.’” Id. The court acknowledged the validity of
the plaintiffs’ argument “that physical loss of the real
property means something different than damage to
the real property . . . .” Id. at *10. “Otherwise, why
would both phrases appear side-by-side separated by
the disjunctive conjunction ‘or’? Plaintiffs argue that
they lost their real property when the state governments ordered that the properties could no longer be
used for their intended purpose—as dine-in restaurants. The Policy’s language is susceptible to this
interpretation.” Id (emphasis in original); see also
Nautilus Grp., Inc. v. Allianz Global Risks US, No.
C11-5281BHS, 2012 WL 760940, at *7 (W.D. Wash.
Mar. 8, 2012) (stating that “if ‘physical loss’ was
interpreted to mean ‘damage,’ then one or the other
would be superfluous.”).
A state court in Pennsylvania recently granted the
insured’s motion for summary judgment on its claim
for declaratory relief, analyzing this same language as
follows:
However, as noted above, in the context of
this insurance contract, the concepts of “loss”
and “damage” are separated by the disjunctive “or,” and, therefore, the terms must mean
something different from each other. Accord-
23
ingly, in this instance, the most reasonable
definition of “loss” is one that focuses on the
act of losing possession and/or deprivation of
property instead of one that encompasses
various forms of damage to property, i.e.,
destruction and ruin. Applying this definition gives the term “loss” meaning that is
different from the term “damage.” Specifically, whereas the meaning of the term
“damage” encompasses all forms of harm to
Plaintiff’s property (complete or partial), this
Court concluded that the meaning of the
term “loss” reasonably encompasses the act
of losing possession [and/or] deprivation,
which includes the loss of use of property
absent any harm to property.
Order from MacMiles, LLC d/b/a Grant Street Tavern
v. Erie Ins. Exch., No. GD-20-7753, Court of Common
Pleas of Allegheny County, Pa. (May 25, 2021)
(emphasis added).
Moreover, other courts deciding similar cases have
opined on the importance of the “physical loss of or
damage to” policy language present here, as opposed
to other more limiting language. For example, in
Sandy Point Dental, PC v. Cincinnati Ins. Co., 488 F.
Supp. 3d 690 (N.D. Ill. 2020), reconsideration denied,
No. 20 CV 2160, 2021 WL 83758 (N.D. Ill. Jan. 10,
2021), the court found a policy that covered only
“direct physical ‘loss’ to property” required tangible
damage, distinguishing the restrictive policy language
from that at issue in Studio 417, where the court
“rested its decision on that policy’s expansive language, language very different from the policy in the
instant case.” Id. at 694, n.2
24
Likewise, in Turek Enters., Inc. v. State Farm Mut.
Auto. Ins. Co., 484 F. Supp. 3d 492 (E.D. Mich. 2020)—
a case relied upon heavily by the district court in its
Order [see App. 38a, 41a]—the court rejected the
plaintiff’s claim for business income coverage due to
its closure in response to executive orders in Michigan,
construing the policy to require “tangible damage” to
trigger coverage. Id. at 500. However, the relevant
policy language in Turek provided coverage only for
“accidental direct physical loss to Covered Property.”
Id. at 499-01. As the Turek court explained, “[t]he term
here is ‘direct physical loss,’ not ‘direct physical loss or
damage.’ Consequently, reading ‘direct physical loss’
to require tangible damage does not risk redundantly
interpreting ‘loss’ and ‘damage.’” Id. at 500 (italics in
original; bold added). The Turek court further stated:
Plaintiff suggests that “physical loss to Covered Property” includes the inability to use
Covered Property. This interpretation seems
consistent with one definition of “loss” but
ultimately renders the word “to” meaningless.
“To” is used here as a preposition indicating
contact between two nouns, “direct physical
loss” and “Covered Property.” To, MerriamWebster, https://www/merriam-webster.com/
dictionary/to (last visited Aug. 31, 2020).
Accordingly, the plain meaning of “direct
physical loss to Covered Property” requires
that there by a loss to Covered Property; and
not just any loss, a direct physical loss.
Plaintiff’s interpretation would be plausible
if, instead, the term at issue were “accidental
direct physical loss of Covered Property.” See
Source Food Tech., Inc. v. U.S. Fid. Guar. Co.,
465 F.3d 834, 838 (8th Cir. 2006) (“[T]he
policy’s use of the word ‘to’ in the policy lan-
25
guage ‘direct physical loss to property’ is
significant. [The claimant’s] argument might
be stronger if the policy’s language included
the word ‘of’ rather than ‘to,’ as in ‘direct
physical loss of property’ or even ‘direct loss
of property.’”) (emphasis original).
Id. at 500-01 (internal footnotes omitted) (emphasis in
original)). This more expansive policy language is
present here. Again, the Policy reads “direct physical
loss of or damage to,” and therefore demands the
opposite result reached by the district court.
Based on the foregoing, a plain reading of the
Policy’s language unambiguously demonstrates
Goodwill suffered a “direct physical loss of or damage
to property” due to the restrictions imposed on it by
the state and local orders. Goodwill sufficiently stated
a claim for declaratory relief.
2. Policy Provisions Relating To “Direct
Physical Loss” Are Ambiguous And
Must Be Construed In Goodwill’s
Favor.
“[I]f an insurer desires to limit its liability under a
policy, it must employ language that clearly and
distinctly reveals its stated purpose.” First United
Methodist Church of Stillwater, Inc. v. Philadelphia
Indem. Ins. Co., 423 P.3d 29, 40 (Okla. Civ. App. 2016)
(emphasis added). This entire lawsuit could have
been avoided had PIIC included a definition for the
term “direct physical loss of or damage to” within the
Policy, defining it to include only “physical alteration
to property.” It did not. The Policy leaves the words
undefined and left to their plain and ordinary meaning which, as stated above, includes intangible rights
such as the ability to possess something and use it for
26
its intended purpose. While such a reading supports
Goodwill’s interpretation of the Policy, at the very
least the Policy is susceptible of two different meanings, requiring application of Oklahoma contract law
governing ambiguity.
Language of a contract is considered ambiguous
when it is “fairly susceptible to two different constructions, so that reasonably intelligent men, on
reading the contract would honestly differ as to its
meaning.” Pitco Prod. Co. v. Chaparral Energy, Inc.,
63 P.3d 541, 545-46 (Okla. 2003) (citing U.S. Fid. &
Guar. Co. v. Guenther, 281 U.S. 34, 37 (1930)). When
a term in an insurance policy is reasonably susceptible
to more than one meaning, Oklahoma courts construe
the term in favor of the insured and against the
insurer. Dodson v. St. Paul Ins. Co., 812 P.2d 372, 37677 (Okla. 1991). In other words, in order to defeat
coverage, PIIC must show that its interpretation of
the language in question is the only reasonable one.
For the reasons set forth above, PIIC cannot make
this showing.
The holding in Erik Scott Media, LLC v. Owners
Ins. Co., No. 2:16-CV-35, 2018 WL 4146608 (D. Utah.
Aug. 20, 2018) is instructive regarding the presence
of ambiguity in the phrase “direct physical loss of or
damage to.” In Erik Scott Media, the insured sought
coverage under its commercial property coverage provision of its policy for the loss of unretrieved products
which were mis-shipped to its customers. The policy
provided the insurer would pay for “direct physical
loss of or damage to covered property at the premises
described in the declarations caused by or resulting
from any covered cause of [l]oss.” Id. at *2. The insurer
denied coverage under the provision, contending there
was “no direct physical loss of the property” because
27
“the term ‘loss’ requires the physical destruction of the
property.” Id. at *3. The court disagreed, stating:
The term “direct physical loss is not defined
in the Policy. Nor is it stated that “direct
physical loss” requires destruction of or any
physical impact altering the property itself.
“Direct physical loss” of the property is not
clear or unmistakable. A plain reading of the
term as used in the CPC provision could
include the loss of physical possession or
control of property that was not physically
destroyed or altered in any way. The term
“loss” is susceptible to different interpretations and under Utah law must therefore be
construed in favor of coverage. The Court
finds that [the insured] suffered a direct
physical loss of the products it sent to the
wrong customers or in the wrong amounts.
Id.
The court in North State Deli reached a similar
conclusion regarding the phrase “direct physical loss,”
explaining:
The parties sharply dispute the meaning of
the phrase “direct physical loss.” Cincinnati
argues that “the policies do not provide
coverage for pure economic harm in the
absence of direct physical loss to property,
which requires some form of physical alteration to property. Even if Cincinnati’s proffered ordinary meaning is reasonable, the
ordinary meaning set forth above [that “direct
physical loss” includes losing the full range of
right and advantages of using or accessing
the business property] is also reasonable,
28
rendering the Policies at least ambiguous.
Accordingly, in giving the ambiguous terms
the reasonable definition which favors coverage, the phrase “direct physical loss” includes
the loss of use or access to covered property
even where that property has not been
structurally altered.
2020 WL 6281507, at *3.
Further, the mere fact that courts have come down
on either side of this issue only highlights the term’s
ambiguity, which must be resolved in Goodwill’s favor.
This includes courts in Oklahoma which have granted
summary judgment in favor of the insured on this
issue. See Choctaw Nation Order; Cherokee Nation
Order.
3. The Lower Courts Failed to Consider the Reasonable Expectations
of Goodwill.
Business income provisions of all-risk policies “are
intended to do for the insured what the business itself
would have done had no interruption occurred.”
4 Appleman Insurance Law and Practice, § 2329. “In
other words, the goal is to preserve the continuity of
the insured’s earnings.” United Air Lines, Inc. v. Ins.
Co. of State of PA, 439 F.3d 128, 131 (2d Cir. 2006)
(quoting N.Y. Jur. Insurance § 539 (2005)). Goodwill
had a reasonable expectation its all-risk Policy with
PIIC would provide business income coverage in the
event it had to close its doors. The lower courts’ rulings
fail to take into account this reasonable expectation.
The Oklahoma Supreme Court expressly adopted
the reasonable expectations doctrine, recognizing a
departure from the ordinary rules of contract
construction when an ambiguity exists in an insurance
29
policy. In Max True Plastering, the Court analyzed the
reasoning of courts which have adopted the reasonable
expectations doctrine, stating:
These courts acknowledge that different
rules of construction have traditionally been
applied to insurance contracts because of
their adhesive nature. Tribunals embracing
the doctrine recognize that it is consistent
with numerous other interpretive rules
pertaining to adhesion contracts. Many of
these rules are a part of Oklahoma law. For
instance: 1) ambiguities are construed most
strongly against the insurer; 2) in cases of
doubt, words of inclusion are liberally applied
in favor of the insured and words of exclusion
are strictly construed against the insurer; 3)
an interpretation which makes a contract
fair and reasonable is selected over that
which yields a harsh or unreasonable result;
4)insurance contracts are construed to give
effect to the parties’ intentions; 5) the scope
of an agreement is not determined in a vacuum, but instead with reference to extrinsic
circumstances; and 6) words are given effect
according to their ordinary or popular
meaning.
912 P.2d at 865 (footnotes omitted). The Court goes on
to emphasize that the presence of ambiguous terms is
the springboard for the application of insurancespecific rules of interpretation, stating:
In Oklahoma, unambiguous insurance contracts are construed as are other contracts,
according to their terms. The interpretation
of an insurance contract and whether it is
30
ambiguous is determined by the court as a
matter of law.
*
*
*
The reasonable expectations doctrine comports with our case law and with the rules of
construction applied to insurance contracts.
Id. at 869-70 (footnotes omitted). As stated above, the
term “direct physical loss of or damage to” is, at the
very least, ambiguous. “Under the reasonable expectations doctrine, when construing an ambiguity or
uncertainty in an insurance policy, the meaning of
the language is not what the drafter intended it to
mean, but what a reasonable person in the position of
the insured would have understood it to mean.” Edens
v. The Netherlands Ins. Co., 834 F.3d 1116, 1121 (10th
Cir. 2016) (citing Am. Econ. Ins. Co. v. Bogdahn, 89
P.3d 1051, 1054 (Okla. 2004)).
Any reasonable insured would expect its insurance
company to step in and protect it from unexpected
losses over which it has no control. Goodwill followed
the State’s orders and closed its doors to protect the
safety and welfare of Oklahoma citizens from the
spread of COVID-19. It has a reasonable expectation
of protection from PIIC due to these closures—
an expectation the lower courts’ rulings failed to
acknowledge.
4. Goodwill’s Loss Was Fortuitous.
There is no question Goodwill’s losses due to the
pandemic and resulting executive orders were
fortuitous. The Tenth Circuit, interpreting Oklahoma,
defined a “fortuitous event” as follows:
A fortuitous event . . . is an event which so
far as the parties to the contract are aware, is
31
dependent on chance. It may be beyond the
power of any human being to bring the event
to pass; it may be within the control of third
persons; it may even be a past event, as the
loss of a vessel, provided that the fact is
unknown to the parties.
Texas E. Transmission Corp., 579 F.2d at 564. The
pandemic is an event that neither Goodwill nor PIIC
were aware could occur in 2020, rendering it a
fortuitous event. See also Merriam-Webster (Online
ed. 2020), https://www.merriam-webster.com/diction
ary/fortuitous (“fortuitous” defined as “occurring by
chance”). Because Goodwill sufficiently pled it suffered
a covered, fortuitous loss, Goodwill stated a claim for
coverage under its all-risk Policy and the district court
erred in dismissing its lawsuit.
C. Goodwill Sufficiently Pled the Inapplicability of the Virus Endorsement.
In its Order dismissing Goodwill’s lawsuit, the district court held that even if it applied a more
expansive meaning of the phrase “direct physical
loss,” Goodwill’s claim “is still subject to dismissal
because the Virus Endorsement expressly excludes
coverage.” App. 40a. The Tenth Circuit agreed, finding
the Virus Exclusion was “valid, enforceable, and
barred coverage both under its plain language and
under the efficient proximate cause doctrine.” App.
12a-13a. The lower courts are wrong for two reasons.
First, an appellate court can only uphold a dismissal
for failure to state a claim “when the plaintiff failed to
plead facts which, if proved, would entitle him to
relief.” Aston v. Cunningham, 216 F.3d 1086, 2000 WL
796086, at *2 (10th Cir. June 21, 2000) (unpublished).
Goodwill’s Complaint alleged:
32
At some point, [PIIC] added an endorsement
to the Policy that purports to exclude coverage for loss due to virus or bacteria. However,
no consideration was provided to Goodwill
in exchange for the addition of this endorsement. Therefore, the endorsement is void or
invalid. Furthermore, [PIIC] failed to obtain
consent from Goodwill to add the subject
endorsement. Because said endorsement is
void or invalid, [PIIC] cannot rely upon said
endorsement as a basis to limit or deny
coverage.
In addition, Goodwill argued a representative of PIIC
failed to sign the Endorsement in accordance with
Oklahoma Administrative Code 365:15-1-3. This is
certainly sufficient to put Goodwill on notice that the
Virus Endorsement was improperly added to the
Policy and its application to Goodwill’s claim was
questionable, at best. If Goodwill proves the facts
alleged—that PIIC improperly added the Virus
Endorsement to the Policy without proper consent or
consideration—then it would be rendered void and/or
invalid. These allegations are sufficient under the law,
and Goodwill should have survived a motion to
dismiss.
Second, the Virus Endorsement is not applicable to
Goodwill’s insurance claim. The Endorsement precludes coverage “for loss or damage caused by or
resulting from any virus, bacterium, or other microorganism that induces or is capable of inducing
physical distress, illness or disease.” In other words,
Goodwill’s claim was for losses due to the pandemicrelated Orders—not the presence of the virus itself.
To that point, Judge Campbell in the Choctaw
Nation case found the same exclusion before the
33
Court would not apply absent “proof of actual viral
presence.” Choctaw Nation Order (“Defendant Liberty
Mutual’s Excess Policy exclusion requires the virus
is ‘capable of inducing physical distress, illness or
disease,’ but to be capable of inducing such an effect
the virus would need to be on the premises.”). The lower
courts disregarded this ruling from an Oklahoma
court.5
Goodwill has not alleged the cessation of its operations was caused by the presence of COVID-19 at
Goodwill’s locations, but rather resulted from governmental orders. Had PIIC intended to exclude losses
caused by government-ordered closures arising from
a virus, it could have done so. It did not. Id. at *14
(“Going forward, Zurich could undoubtedly include
an exclusion for government closures in its policies.
But the Policy that Plaintiffs purchased did not
contain such an exclusion.”). As such, the lower
courts erred in finding the Virus Endorsement bars
Goodwill’s claims.
5
See also Elegant Massage, LLC v. State Farm Mut. Auto. Ins.
Co., No. 2:20-CV-265, 2020 WL 7249624, at *12-13 (E.D. Va. Dec.
9, 2020) (“Therefore, in applying the Virus Exclusion there must
be a direct connection between the exclusion and the claimed loss
and not, as the Defendants argue, a tenuous connection anywhere
in the chain of causation . . . Here, Plaintiff is neither alleging
that there is a presence of a virus at the covered property nor that
a virus is the direct cause of the property’s physical loss . . . .
Therefore, Defendants have failed to meet its burden to show that
the Virus Exclusion applies to Plaintiff’s claim.”); Henderson
Road, 2021 WL 168422, at *14-15 (“Here, Plaintiffs’ argument
prevails because the Microorganism exclusion does not clearly
exclude loss of property caused by a government closure. Plaintiffs’ restaurants were not closed because there was an outbreak
of COVID-19 at their properties; they were closed as a result of
governmental orders.”)
34
CONCLUSION
If the Tenth Circuit opinion is allowed to stand,
and Oklahoma’s Supreme Court issues a ruling in the
pending COVID-19 insurance cases that is favorable
to Goodwill’s position, Goodwill will have suffered a
wrong with no remedy. The Circuit should have abated
or certified questions so that Goodwill was not left
bereft of justice.
To avoid this injustice and affirm the principles of
federalism and the Erie doctrine, the Court should
grant the Petition and issue a writ of certiorari to
the United States Court of Appeals for the Tenth
Circuit in Goodwill Industries of Central Oklahoma,
Inc. d/b/a Goodwill Career Pathways Institute v.
Philadelphia Indemnity Insurance Company, Case No.
21-6045.
Respectfully submitted,
JIM T. PRIEST
Counsel of Record
316 S. Blackwelder Avenue
Oklahoma City, OK 73108
(405) 278-7111
jpriest@okgoodwill.org
Counsel for Petitioners
April 14, 2022
APPENDIX
1a
APPENDIX A
UNITED STATES COURT OF APPEALS
FOR THE TENTH CIRCUIT
[Filed January 14, 2022]
————
No. 21-6045
(D.C. No. 5:20-CV-00511-R)
(W.D. Okla.)
————
GOODWILL INDUSTRIES OF CENTRAL OKLAHOMA, INC.,
d/b/a Goodwill Career Pathways Institute,
Plaintiff-Appellant,
v.
PHILADELPHIA INDEMNITY INSURANCE COMPANY,
Defendant-Appellee.
AMERICAN PROPERTY CASUALTY
INSURANCE ASSOCIATION, et al.,
Amici Curiae.
————
ORDER
Before TYMKOVICH, Chief Judge, MATHESON, and
PHILLIPS, Circuit Judges.
Appellant’s petition for rehearing is denied.
The petition for rehearing en banc was transmitted
to all of the judges of the court who are in regular
active service. As no member of the panel and no judge
in regular active service on the court requested that
the court be polled, that petition is also denied.
Entered for the Court
/s/ Christopher M. Wolpert
CHRISTOPHER M. WOLPERT, Clerk
2a
APPENDIX B
PUBLISH
UNITED STATES COURT OF APPEALS
FOR THE TENTH CIRCUIT
[Filed December 21, 2021]
————
No. 21-6045
————
GOODWILL INDUSTRIES OF CENTRAL OKLAHOMA, INC.,
d/b/a Goodwill Career Pathways Institute,
v.
Plaintiff-Appellant,
PHILADELPHIA INDEMNITY INSURANCE COMPANY,
Defendant-Appellee.
AMERICAN PROPERTY CASUALTY INSURANCE
ASSOCIATION; NATIONAL ASSOCIATION OF
MUTUAL INSURANCE COMPANIES
Amici Curiae.
————
Appeal from the United States District Court
for the Western District of Oklahoma
(D.C. No. 5:20-CV-00511-R)
————
Jim T. Priest, Oklahoma City, Oklahoma, for PlaintiffAppellant.
Stephen E. Goldman, Robinson & Cole LLP, Hartford,
Connecticut (Wystan M. Ackerman, Robinson & Cole
LLP, Hartford, Connecticut; Phil R. Richards and Joy
Tate, Richards & Connor, Tulsa, Oklahoma, with him
on the briefs) for Defendant-Appellee.
3a
Laura A. Foggan, Crowell & Morning LLP, Washington,
D.C., filed an amicus curiae brief on behalf of DefendantAppellee for the American Property Casualty Insurance Association and National Association of Mutual
Insurance Companies.
————
Before TYMKOVICH, Chief Judge, MATHESON, and
PHILLIPS, Circuit Judges.
MATHESON, Circuit Judge.
Goodwill Industries of Central Oklahoma, Inc., a
nonprofit organization, provides community services
and operates retail stores and donation centers in
central Oklahoma. It suspended operations on March
25, 2020, to comply with state and local orders
regarding the COVID-19 pandemic. After suffering
losses due to the shutdown, Goodwill sued its
insurer, Philadelphia Indemnity Insurance Company
(“Philadelphia”), under its commercial lines policy.
The policy provided coverage for “loss of Business
Income” when the insured must suspend its operations due to “direct physical loss of or damage to”
covered property. App., Vol. 2 at 459.
The district court granted Philadelphia’s motion to
dismiss. It concluded the policy did not cover
Goodwill’s loss and that the policy’s Virus Exclusion
barred coverage. Exercising jurisdiction under 28
U.S.C. § 1291, we affirm.
I. BACKGROUND
A. Factual History
On March 15, 2020, the Governor of Oklahoma
issued an executive order declaring a state-wide
emergency due to COVID-19. Under the order, busi-
4a
nesses like Goodwill that were not part of the “critical
infrastructure sector” had to close to the public
beginning on March 25, 2020. App., Vol. 1 at 44.
Mayors in Oklahoma City, Norman, Moore, Ardmore,
Guthrie, Stillwater, and Midwest City also ordered
nonessential businesses to suspend operations. In
response to the state and local closure orders, Goodwill
halted its operations and suffered financial losses as a
result.
B. The Policy
Philadelphia insured Goodwill under a commercial
lines policy effective from May 1, 2019 to May 1, 2020.
Two key policy provisions governed the coverage
issue here. First, the “Business Income” provision
stated that “[Philadelphia] will pay for the actual loss
of Business Income [Goodwill] sustain[s] due to the
necessary ‘suspension’ of [Goodwill’s] ‘operations’ during the ‘period of restoration.’” App., Vol. 2 at 459. A
“suspension” “must be caused by direct physical loss
of or damage to property at [the covered] premises.” Id.
Second, the “Period of Restoration” clause provided
that the restoration period begins “72 hours after the
time of direct physical loss or damage . . . caused by
or resulting from any Covered Cause of Loss at
the [covered] premises” and “[e]nds on the earlier of:
(1) The date when the property at the described
premises should be repaired, rebuilt or replaced with
reasonable and similar quality; or (2) The date when
business is resumed at a new permanent location.” Id.
at 467.
The policy also contained a Virus or Bacteria
Exclusion. It stated that Philadelphia “will not pay
for loss or damage caused by or resulting from any
virus, bacterium or other microorganism that induces
5a
or is capable of inducing physical distress, illness or
disease.” Id. at 470.
C. Procedural History
In May 2020, Goodwill sued Philadelphia by filing
a petition in the state district court of Cleveland
County, Oklahoma. It sought a declaration that the
policy “covers Goodwill’s losses and expenses related
to the state and local mandated closures of Goodwill’s
stores.” App., Vol. 1 at 46. Philadelphia removed the
case to the Western District of Oklahoma and moved
to dismiss under Federal Rule of Civil Procedure
12(b)(6).1
The district court granted Philadelphia’s motion to
dismiss on two grounds. First, it concluded that coverage for “a direct physical loss unambiguously
requires a showing of tangible damage.” Id. at 14.
Because “Goodwill failed to allege it suffered any
tangible damage,” which at a minimum required
that Goodwill “allege that a substance entered its
premises or attached to its surfaces,” the court determined Goodwill’s claim was “subject to dismissal.” Id.
Second, the court held the policy’s Virus Exclusion was
valid and excluded coverage. Goodwill moved to alter
or amend the judgment under Federal Rule of Civil
Procedure 59(e), and the district court denied the
motion.
Goodwill timely appealed (1) the order granting
Philadelphia’s motion to dismiss and (2) the order
1
Goodwill brought suit by filing a “Petition for Declaratory
Judgment” in Oklahoma state district court. App., Vol. 1 at 39. It
did not file a complaint or amended complaint after Philadelphia
removed the case to federal district court. The petition is therefore the operative pleading here.
6a
denying Goodwill’s Rule 59(e) motion. Goodwill also
moved to abate proceedings and certify questions to
the Oklahoma Supreme Court related to the meaning
of the term “direct physical loss of or damage to” and
the applicability of the Virus Exclusion.
II. DISCUSSION
A. Standard of Review
“We review de novo the grant of a Rule 12(b)(6)
motion to dismiss for failure to state a claim.” Schell
v. Chief Just. & Justs. of Okla. Supreme Ct., 11 F.4th
1178, 1186 (10th Cir. 2021) (quotations omitted). “To
survive a motion to dismiss, a 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)).
We typically consider “only the contents of the
complaint when ruling on a 12(b)(6) motion.” Berneike
v. CitiMortgage, Inc., 708 F.3d 1141, 1146 (10th Cir.
2013). But we also will consider “documents incorporated by reference in the complaint [and] documents
referred to in and central to the complaint, when no
party disputes [their] authenticity.” Id. (quotations
omitted).
B. Oklahoma Law
In this diversity suit, the substantive law of
Oklahoma applies. Edens v. The Netherlands Ins. Co.,
834 F.3d 1116, 1120 (10th Cir. 2016).
Under Oklahoma law, “[t]he interpretation of an
insurance contract and whether it is ambiguous is
determined by the court as a matter of law.” Serra v.
Estate of Broughton, 364 P.3d 637, 641 (Okla. 2015).
“When [the policy’s] terms are unambiguous and
7a
clear, the employed language is accorded its ordinary,
plain meaning and enforced so as to carry out the
parties’ intentions.” Bituminous Cas. Corp. v. Cowen
Constr., Inc., 55 P.3d 1030, 1033 (Okla. 2002) (emphasis removed). “The test for ambiguity is whether the
language is susceptible to two interpretations on its
face from the standpoint of a reasonably prudent lay
person, not from that of a lawyer.” Am. Econ. Ins. Co.
v. Bogdahn, 89 P.3d 1051, 1054 (Okla. 2004) (quotations and alterations omitted). “[A] split in authority
over whether a certain term is ambiguous will not, in
itself, establish an ambiguity nor will the fact that
the parties disagree.” BP Am., Inc. v. State Auto Prop.
& Cas. Ins., 148 P.3d 832, 836 (Okla. 2005) (footnote
omitted).
If, after application of these rules of construction,
there is a “genuine ambiguity,” courts construe the
insurance contract in a way that is “most favorabl[e]
to the insured and against the insurance carrier.”
Dodson v. St. Paul Ins. Co., 812 P.2d 372, 377 (Okla.
1991). But “neither forced nor strained construction
will be indulged, nor will any provision be taken out
of context and narrowly focused upon to create and
then construe an ambiguity so as to import a favorable
consideration to either party than that expressed in
the contract.” Id. at 376.
C. Analysis
We affirm the district court’s determination that (1)
the policy’s Business Income provision did not cover
Goodwill’s losses and (2) the Virus Exclusion applied.2
2
In its petition for declaratory judgment, Goodwill alleged
that its losses were covered under several of the policy’s provisions, including the “business interruption, extra expense, and
interruption by civil authority” provisions. App., Vol. 1 at 45. On
8a
1. Business Income Coverage
Goodwill does not claim “damage to property,” but
it does claim it suffered a “direct physical loss of”
property when it suspended operations in compliance
with COVID shutdown orders. It did not. The Business
Income provision unambiguously covered only losses
stemming from physical alteration or tangible dispossession of property. Neither occurred here. The policy’s
Period of Restoration clause reinforces this conclusion.
So do the decisions of every other circuit and the vast
majority of district courts to address this issue.
a. Business Income Coverage Provision
The policy does not define “direct physical loss,” and
the Oklahoma Supreme Court has not construed this
term. We may consult dictionaries to supply the
words’ common meanings. See Wiley v. Travelers Ins.
Co., 534 P.2d 1293, 1294 (Okla. 1974); Combs v.
Shelter Mut. Ins. Co., 551 F.3d 991, 997 (10th Cir.
2008) (applying Oklahoma law).3
Dictionary definitions inform us that “direct
physical loss” encompasses only tangible destruction
or deprivation of property. The Oxford English
Dictionary Online (3d ed. 2021) defines
appeal, Goodwill argues only that the policy’s Business Income
coverage applies. We therefore only address coverage under that
provision.
3
The Oklahoma Supreme Court has consulted the Oxford
English Dictionary and Webster’s Third New International Dictionary, among others, to derive the ordinary meaning of
statutory terms. See, e.g., Consol. Grain & Barge Co. v. Structural
Sys., Inc., 212 P.3d 1168, 1175 (Okla. 2009); Dean Bailey Olds,
Inc. v. Richard Preston Motor Co., Inc., 32 P.3d 816, 820 (Okla.
2000).
9a
“direct” as “[e]ffected or existing without
intermediation or intervening agency;
immediate”;
“physical” as “[o]f or relating to natural
phenomena perceived through the senses
(as opposed to the mind); . . . natural;
tangible, concrete”; and
“loss” as “[p]erdition, ruin, destruction.”
Webster’s Third New International Dictionary (2002)
defines
“direct” as “marked by absence of an
intervening agency, instrumentality, or
influence: immediate”;
“physical” as “of or relating to natural or
material things as opposed to things
mental, moral, spiritual, or imaginary”;
and
“loss” as “failure to keep possession: deprivation” or “destruction, ruin, perdition.”
Based on these definitions, a “direct physical loss”
requires an immediate and perceptible destruction or
deprivation of property.
Goodwill has not alleged it suffered such a loss.
Although the COVID orders temporarily restricted
Goodwill’s use of its property, Goodwill never lost
physical control of its buildings or merchandise from
its stores. It thus was not deprived of its property. Nor
did COVID destroy Goodwill’s property. The policy
therefore did not cover its loss.
Goodwill contends that the term “direct physical
loss” encompasses “intangible loss and/or property
rendered unusable for its intended purpose due to
10a
orders stemming from the COVID-19 pandemic.” Aplt.
Br. at 17. We disagree. The words “intangible” and
“physical” have opposite meanings. As one leading
insurance law treatise explains, “[t]he requirement
that the loss be ‘physical,’ given the ordinary definition
of that term, is widely held to exclude alleged losses
that are intangible or incorporeal.” 10A Steven Plitt
et al., Couch on Insurance § 148:46 (3d ed. 2021)
(footnotes omitted).
Goodwill also argues that the phrase “direct physical loss of or damage to” encompasses more than
physical damage to property because “loss of” and
“damage to” would otherwise be redundant. We
disagree. The phrase “loss of” refers to dispossession of
property—for example, via theft—and therefore has a
different meaning from the term “damage to.” As the
Sixth Circuit explained, “[t]here is no need to read
‘physical loss’ to include a deprivation of some particular use of a property in order to give the phrase
independent meaning. That possibility could occur
whenever a policy holder is deprived of property
without any damage to it, say a portable grill or a
delivery truck stolen without a scratch.” Santo’s
Italian Cafe LLC v. Acuity Ins. Co., 15 F.4th 398, 404
(6th Cir. 2021).
Goodwill’s temporary inability to use its property
for its intended purpose was not a “direct physical
loss.” To conclude otherwise would ignore the word
“physical” and violate the requirement that every part
of a policy be given meaning. See 15 Okla. Stat. § 157;
see also BP America, Inc., 148 P.3d at 839.
b. Period of Restoration clause
The Period of Restoration clause reinforces the conclusion that Goodwill did not suffer a “direct physical
11a
loss of or damage” to property. The Business Income
provision applied only “during the ‘period of restoration,’” which “[e]nds on the earlier of: (1) The date
when the property at the described premises should
be repaired, rebuilt or replaced with reasonable
speed and similar quality; or (2) The date when
business is resumed at a new permanent location.”
App., Vol. 2 at 459, 467.
The policy thus covered only “direct physical loss of
or damage to” property that could be remedied by the
physical acts of repairing, rebuilding, or replacing the
affected property or by relocating the insured’s business. “That the policy provides coverage until property
‘should be repaired, rebuilt or replaced’ or until business resumes elsewhere assumes physical alteration
of the property, not mere loss of use.” Oral Surgeons,
P.C. v. Cincinnati Ins. Co., 2 F.4th 1141, 1144 (8th
Cir. 2021); see also Sandy Point Dental, P.C. v.
Cincinnati Ins. Co., — F.4th —, 2021 WL 5833525, at
*4 (7th Cir. Dec. 9, 2021). After suspending business
due to COVID restrictions, Goodwill had nothing to
repair, rebuild, or replace before it could resume
operations. Nothing “physical” happened to its property—Goodwill simply had to wait until the government lifted the restrictions.
Goodwill’s attempt to harmonize its loss of use
theory with the Period of Restoration clause fails.
Turning to the dictionary, Goodwill notes that “repair”
means “restore to a sound or healthy state,” and
“restore” means to be “brought ‘back into existence
or use.’” Aplt. Reply Br. at 8-9 (quoting MerriamWebster).4 Relying on this definition of “restore,”
4
Goodwill does not indicate which version or edition of
Merriam-Webster it quotes.
12a
Goodwill contends the period of restoration ended
when it could “once again access and use its property.”
Id. at 9. This argument fails because it ignores the
dictionary definition of “repair,” the word used in
the policy, and instead depends on the definition of
“restore,” a word that is included in the dictionary
definition of “repair” but not used in the policy.
c. Other courts
Other courts have similarly construed the terms at
issue here. Every circuit to address the issue has held
that identical or nearly identical business income provisions did not cover losses caused by COVID closure
orders. See Mudpie, Inc. v. Travelers Cas. Ins. Co. of
Am., 15 F.4th 885 (9th Cir. 2021); Santo’s Italian Cafe,
15 F.4th 398; Oral Surgeons, P.C., 2 F.4th 1141; Sandy
Point Dental, P.C., — F.4th —, 2021 WL 5833525;
Gilreath Fam. & Cosm. Dentistry, Inc. v. Cincinnati
Ins. Co., 2021 WL 3870697 (11th Cir. Aug. 31, 2021)
(per curiam) (unpublished). And the overwhelming
majority of district courts to address the issue have
so held. See, e.g., Image Dental, LLC v. Citizens Ins.
Co. of Am., 2021 WL 2399988 (N.D. Ill. June 11,
2021); Michael Cetta, Inc. v. Admiral Indem. Co., 506
F. Supp. 3d 168 (S.D.N.Y. 2020); Till Metro Ent. v.
Covington Specialty Ins. Co., 2021 WL 2649479 (N.D.
Okla. June 28, 2021).
* * *
Goodwill has not alleged that it suffered a “direct
physical loss of or damage to” its property. We therefore affirm the district court’s conclusion that Goodwill’s
losses were not covered under the policy.
2. Virus Exclusion
In the alternative, the Virus Exclusion was valid,
enforceable, and barred coverage both under its plain
13a
language and under the efficient proximate cause
doctrine.
a. The Virus Exclusion was valid and
enforceable
Goodwill alleges the Exclusion was invalid or void
because (1) “no consideration was provided in
exchange for the addition of this endorsement,” and (2)
Philadelphia “failed to obtain consent from Goodwill
to add the [Exclusion.]” App., Vol. 1 at 43. We disagree.
i. Lack of consideration
Goodwill did not plead facts demonstrating lack of
consideration. Its allegation was therefore a legal conclusion, and the district court was correct to disregard
it. See Khalik v. United Air Lines, 671 F.3d 1188, 1191
(10th Cir. 2012) (“[W]hen legal conclusions are involved in the complaint ‘the tenet that a court must
accept as true all of the allegations contained in a
complaint is inapplicable to those conclusions.’” (quoting Iqbal, 556 U.S. at 663) (alterations omitted)).
Goodwill’s argument also fails because the 20192020 policy was a valid insurance contract supported
by consideration. When an insurer and insured renew
a policy containing a reduction in coverage, and the
insurer sufficiently “alert[s] the insured to the reduction in coverage,” then “the limitations [are] incorporated into the new policy,” and “the renewal . . . is a
new contract.” Wynn v. Avemco Ins. Co., 963 P.2d 572,
574 (Okla. 1998). When Philadelphia issued the 20192020 renewal policy, it included an “advisory notice
to Policyholders” explicitly alerting Goodwill to the
Virus Exclusion. See App., Vol. 1 at 70, 138.5 By
5
To the extent Goodwill’s state court petition for declaratory
judgment implied that Philadelphia added the Exclusion “[a]t
14a
renewing the policy, Goodwill and Philadelphia
entered a new contract supported by consideration—
Goodwill paid a premium, and Philadelphia provided
insurance coverage.
Philadelphia’s contractual promises to insure
Goodwill for losses covered by the policy and defend
claims brought against Goodwill constituted consideration for the entire policy, which contained the Virus
Exclusion. See 16 Williston on Contracts § 49:71 (4th
ed.) (explaining that the consideration received by the
insured includes “the dollar amount of protection set
forth in the policy” and “the obligation of a liability
insurer to defend claims brought against the insured
and to indemnify the insured against successful
claims”); see also Thompson v. Bar-S-Foods Co., 174
P.3d 567, 574 (Okla. 2007) (“As a general rule, consideration exists as long as there is a benefit to the
promisor or a detriment to the promisee.”).
ii. Lack of consent
Goodwill also alleges that the Virus Exclusion was
invalid or void because Philadelphia “failed to obtain
consent from Goodwill to add the [exclusion].” App.,
Vol. 1 at 43. The district court did not address this allegation. It fails (1) for lack of factual support and (2)
because Goodwill was not required to sign the
exclusion.
First, Goodwill’s petition for declaratory relief did
not allege facts that Philadelphia “failed to obtain
consent from Goodwill.” Eventually, in its opposition
to the motion to dismiss, Goodwill said Philadelphia
never obtained consent because Goodwill never signed
some point” after the parties entered their contract, App., Vol. 1
at 43, the record shows this was not the case, see id. at 138.
15a
the exclusion. But this allegation was not included in
Goodwill’s petition. “[W]e will not consider evidence
or allegations outside the four corners of the complaint
in reviewing the district court’s Rule 12(b)(6) dismissal.” Waller v. City & Cty. of Denver, 932 F.3d 1277,
1286 n.1 (10th Cir. 2019).
Second, the Virus Exclusion was valid without
Goodwill’s signature. The Oklahoma Administrative
Code requires the insured to sign an endorsement
that eliminates or restricts coverage when it is “issued
during the policy term.” Okla. Admin. Code § 365:151-3(b)(20). But here the Virus Exclusion was included
at the outset of the policy term, not added during it.
The code provision therefore does not apply.
b. The Virus Exclusion applied
Goodwill’s alleged losses
to
Goodwill contends that the Virus Exclusion did not
bar its claim because the provision only applied when
a virus was physically present at a covered property,
which was not the case here. But under the policy’s
plain language and the efficient proximate cause
doctrine, the Virus Exclusion applied to Goodwill’s
losses and excluded them from coverage.
i. Plain language
The Virus Exclusion unambiguously precluded coverage “for loss or damage caused by or resulting from
any virus, bacterium, or other microorganism that
induces or is capable of inducing physical distress,
illness or disease.” App., Vol. 2 at 316. “[A] reasonable
business person would plainly contemplate that an
exclusion for losses ‘caused by or resulting from any
virus’ would extend to losses caused by immediate
efforts to mitigate a viral outbreak.” 100 Orchard St.,
16a
LLC v. Travelers Indem. Ins. Co. of Am., 2021 WL
2333244, at *2 (S.D.N.Y. June 8, 2021).
As Goodwill conceded in its petition for declaratory
relief, “the impending threat of COVID-19 and/or the
COVID pandemic” led the Governor to issue the
shutdown order. App., Vol. 1 at 44. Thus, COVID-19
“caused” the restrictions that forced Goodwill to suspend its operations. No one disputes that COVID-19
is a virus “capable of inducing physical distress, illness
or disease.” The plain language of the Virus Exclusion
therefore applied to and barred coverage of Goodwill’s
losses incurred due to the COVID shutdown orders.
Goodwill counters that the Virus Exclusion did not
apply because its claim “was for losses due to the
pandemic-related Orders—not the presence of the
virus itself.” Aplt. Br. at 33. This argument assumes
that the Virus Exclusion applied only when the virus
was physically present at an insured’s property. But
the Exclusion’s text “in no way suggests that the
virus must be present at the insured property for the
exclusion to apply.” Causeway Auto., LLC v. Zurich
Am. Ins. Co., 2021 WL 486917, at *5 (D.N.J. Feb. 10,
2021). Under its plain language, the Virus Exclusion
was not limited to instances where the virus was
physically present at or on Goodwill’s property.
ii. Efficient proximate cause doctrine
Even if the government COVID restrictions and the
virus itself could be viewed as distinct causes of loss,
the efficient proximate cause doctrine would still
exclude Goodwill’s claim. Under this doctrine, embraced by the Oklahoma Supreme Court in Shirley
v. Tri-State Ins. Co., 274 P.2d 386, 388-89 (Okla. 1954),
the cause “of a loss for the purpose of fixing insurance
liability when concurring causes of the damage appear
17a
. . . is the dominant or efficient one that sets the other
causes in operation,” Duensing v. State Farm Fire &
Cas. Co., 131 P.3d 127, 133 (Okla. Civ. App. 2005)
(quotations omitted).
Here, the dominant cause of Goodwill’s losses—the
efficient proximate cause—was the outbreak and
spread of COVID-19. Goodwill acknowledges as much
in its petition for declaratory relief. See App., Vol. 1 at
44 (stating that “the impending threat of COVID-19
and/or the COVID pandemic” was the impetus for
the shutdown orders). Even if Goodwill’s claims were
“for losses due to the pandemic-related Orders,” Aplt.
Br. at 33, the spread of the virus triggered the
orders. Thus, the Virus Exclusion applied under the
efficient proximate cause doctrine. See Mudpie, Inc.,
15 F.4th at 894 (concluding an identical virus exclusion applied under the efficient proximate cause
doctrine because COVID triggered the downstream
forces that produced the plaintiff’s claimed losses);
Mashallah, Inc. v. W. Bend Mut. Ins. Co., 2021 WL
5833488, at *4-5 (7th Cir. Dec. 9, 2021) (same).
III. CONCLUSION
We affirm the district court’s orders (1) granting
Philadelphia’s motion to dismiss and (2) denying
Goodwill’s motion to alter or amend the judgment. We
deny Goodwill’s motion to certify questions of law
to the Oklahoma Supreme Court and grant amici’s
motion for leave to file an amicus curiae brief.
18a
APPENDIX C
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT
OF OKLAHOMA
[Filed March 11, 2021]
————
No. CV-20-511-R
————
GOODWILL INDUSTRIES OF CENTRAL OKLAHOMA, INC.,
d/b/a GOODWILL CAREER PATHWAYS INSTITUTE,
v.
Plaintiff,
PHILADELPHIA INDEMNITY INSURANCE COMPANY,
Defendant.
————
ORDER
Before the Court is Plaintiff Goodwill Industries of
Central Oklahoma, Inc.’s (“Goodwill”) Motion to
Alter or Amend Judgment. Doc. No. 26. Defendant
Philadelphia Indemnity Insurance Company (“PIIC”)
filed a Response in Opposition. Doc. No. 27. Goodwill
then filed a Reply, Doc. No. 28, and PIIC filed a surReply. Doc. No. 31.
This dispute arises from Goodwill’s closure of its
central Oklahoma locations after the Governor of
Oklahoma issued an Executive Order declaring a
state of emergency due to rising cases of the novel
coronavirus (“COVID-19”) on March 15, 2020. Doc. No.
1-1, p. 6.
Goodwill purchased a Commercial Lines policy
underwritten by PIIC (“the Policy”), providing “Busi-
19a
ness Income” coverage [ ] for “the actual loss of Business Income [ ] sustain[ed] due to the necessary ‘suspension’ of [ ] ‘operations’ during the ‘period of restoration.’” Doc. No. 1-1, p. 2; Doc. No. 1-4, p. 169. The
Policy, which ran “from May 1, 2019, to May 1, 2020,”
only covers “‘suspension[s]’ [ ] caused by direct physical loss of or damage to property.” Doc. No. 1-4, p. 169;
Doc. No. 1-1, p. 2. Any coverage is conditioned on
Goodwill suffering a “direct physical loss of or damage
to property” operated by Goodwill throughout central
Oklahoma. Doc. No. 1-1, pp. 2–3.
Importantly, the Policy included an endorsement
that excludes coverage for “loss due to virus or bacteria.” Doc. No. 1-4, p. 26. The endorsement is titled
“Exclusion of Loss Due to Virus or Bacteria” (“Virus
Endorsement”), and it “applies to all coverage under
all forms and endorsements . . . , including . . . damage to buildings or personal property and . . . business
income, extra expense, or action of civil authority.”
Doc. No. 1-1, p. 100. It states that “[PIIC] will not pay
for loss or damage caused by or resulting from any
virus, bacterium or other microorganism that induces
or is capable of inducing physical distress, illness or
disease.” Doc. No. 1-1, p. 100.
After state-wide orders prompted Goodwill to
close its doors, Goodwill sought a declaratory judgment in state court on May 6, 2020 that “[it] sustained
a ‘direct physical loss’ and/or ‘risk of direct physical
loss’” from the mandated closures. Doc. No. 1-1. On
June 1, 2020, PIIC removed the action to this Court.
Doc. No. 1. PIIC then moved to dismiss the claims
against it on the grounds that Goodwill failed to
allege a “direct physical loss” under the Policy and
because the Virus Endorsement precluded coverage.
Doc. No. 8.
20a
On November 9, 2020, the Court granted PIIC’s
motion to dismiss in its entirety for two reasons. Doc.
No. 24. First, the Court explained that “[a]lleging a
direct physical loss unambiguously requires a showing
of tangible damage.” Doc No. 24, p. 8. Further, because
Goodwill did not allege any tangible damage to its
property, it failed to state a claim of a “direct physical
loss” under the Policy. Id. Second, the Court explained
that “[e]ven if [it] applied a more expansive definition
of direct physical loss, [ ] its claim [was] still subject to
dismissal because the Virus Endorsement expressly
excludes coverage.” Id.
On December 7, 2020, Goodwill filed a “Motion to
Alter or Amend” Judgment pursuant to Fed. R. Civ.
P. 59(e). Doc. No. 26. In its Motion, Goodwill argues
that the Court erred when it granted PIIC’s motion to
dismiss because i) it evaluated the plain meaning of
“direct physical loss” without accounting for the
modifier “risk of direct physical loss”; ii) it did not
adopt Goodwill’s construction of direct physical loss
when Goodwill offered a reasonable construction of
the phrase; and iii) amendment of the Complaint
would not be futile. Doc. No. 26, pp. 4, 6, 8.
Parties may file a motion to alter or amend a judgment under Fed. R. Civ. P. 59(e). “Rule 59(e) derives
from a common-law court’s plenary power to revise its
judgment during a single term of court, before anyone
could appeal.” Banister v. Davis, 140 S. Ct. 1698, 1709
(2020). “The Rule gives a district court the chance ‘to
rectify its own mistakes in the period immediately
following’ its decision.” Id. at 1703 (quoting White v.
N.H. Dep’t of Emp. Sec., 455 U.S. 445, 450 (1982)). The
time for filing a Rule 59(e) motion “is short—28 days
from entry of the judgment, with no possibility of an
21a
extension.” Id.; see also Fed. R. Civ. P. 59(e); Fed. R.
Civ. P. 6(b)(2).
A Rule 59(e) motion may be granted when the
movant presents one of the following circumstances:
“(1) an intervening change in the controlling law, (2)
new evidence previously unavailable, and (3) the need
to correct clear error or prevent manifest injustice.”
Servants of the Paraclete v. Does, 204 F.3d 1005, 1012
(10th Cir. 2000) (citation omitted). In the Tenth
Circuit, “a motion for reconsideration is appropriate
where the court has misapprehended the facts, a
party’s position, or the controlling law.” Id. However,
a motion to reconsider “is not appropriate to revisit
issues already addressed or advance arguments that
could have been raised in prior briefing.” Ferluga v.
Eickhoff, 236 F.R.D. 546, 549 (D. Kan. 2006) (citing
Servants of the Paraclete, 204 F.3d at 1012); see also
Banister, 140 S. Ct. at 1703 (“[C]ourts will not address
new arguments or evidence that the moving party
could have raised before the decision issued.”).
Goodwill argues that under Servants of the Paraclete, the Court should amend its prior judgment to
correct clear error and prevent manifest injustice.
Doc. No. 26, p. 4. To begin with, Goodwill urges the
Court that it erred in its interpretation of the Policy
language when it interpreted “direct physical loss,”
rather than “risks of direct physical loss.” Doc. No. 26,
pp. 4–5 (emphasis in original). Goodwill reasons that
the threat of the spread of the virus, which was “the
entire purpose of the Governor’s Executive order . . .”,
should qualify as a “risk of direct physical loss.” Id.
at 5.
Goodwill argues it “is entitled to coverage if the “loss
or damage” is caused by or result[s] from Covered
Cause of Loss.” Doc. No. 26, p. 4. However, Goodwill
22a
overlooks the fact that prior to describing what qualifies as a “Covered Loss,” the Business Income Coverage Form states that the “‘suspension’ must be caused
by direct physical loss of or damage to property . . .”.
Doc. No. 1-4, at 169. Accordingly, while “risks of
direct physical loss” define what property qualifies
as a “covered loss,” loss of business due to the “necessary suspension of your operations” is only covered
if the period of suspension is caused by “direct physical
loss.” Id. (emphasis added). Thus, as PIIC explains,
and as the Court held in its previous Order, “the
Business Income, Extra Expense, and Civil Authority
Coverages [. . .] specifically require the insured to
establish direct physical loss or damage to property—
not merely a ‘risk of physical loss or damage.’” Doc.
No. 27, pp. 5–6 (citing Doc. No. 1–4, pp. 169–170).
Therefore, the Court did not err when it interpreted
“direct physical loss” rather than “risks of direct
physical loss.”
Next, Goodwill argues that the Court erred in its
interpretation of “direct physical loss” because it
did not “construe the ambiguous term most favorably
toward Goodwill and most strictly against PIIC.” Doc.
No. 26, pp. 6. However, the Court previously explained
that “[a]lleging a direct physical loss unambiguously
requires a showing of tangible damage. Goodwill
failed to allege it suffered any tangible damage, and
therefore, its claim is subject to dismissal.” Doc. No.
24, p. 8 (emphasis added).
Goodwill cites a recent decision from a state court in
North Carolina, which explains that when two proffered definitions are reasonable, the phrase is at least
ambiguous, and the Court should therefore utilize the
“reasonable definition which favors coverage.” Doc.
No. 26, pp. 6–7 (citing North State Deli, LLC v. The
23a
Cincinnati Insurance Company, Case No. 20-CVS02569 (N.C. Super. Ct. Oct. 9, 2020)). However, the
Court is bound by the laws of interpretation of the
state of Oklahoma, not North Carolina.
As the Court explained in its previous Order, in
Oklahoma,
[t]he interpretation of an insurance contract
and whether it is ambiguous is determined by
the Court as a matter of law. Serra v. Estate
of Broughton, 364 P.3d 637, 641 (Okla. 2015).
The Court shall not “force[ ] or constrain[ ]
interpretations to create [. . . or] construe
ambiguities. Max True Plastering v. U.S. Fid.
& Guar. Co., 912 P.2d 861, 869 (Okla. 1996).
Doc. No. 24, pp. 4–5.
Additionally, Goodwill relies on an Oklahoma trial
court summary judgment opinion for its proposition
that Goodwill properly pled a “direct physical loss”
under the policy. Choctaw Nation of Oklahoma v.
Lexington Ins. Co., et. al., Case No. CV-20-42, Order
(Okla. Dist. Ct., Bryan Cnty. Feb. 15, 2021), available
at Doc. No. 34-1. However, in Choctaw Nation, the
trial court explained the distinction in Goodwill’s
policy and Choctaw Nation’s policy. Id. The court
explained that
the Goodwill court noted numerous other
provisions in the [Goodwill Policy] that are
absent from [Choctaw Nation’s] Policy. The
Goodwill policy required “actual loss” due to
a “suspension” of “operation,” but such words
and requirements are absent from [Choctaw
Nation’s] Policy. See Goodwill Indus. of Cent.
Oklahoma, Inc., No. CV-20-511-R, at *1–2.
Meanwhile, [Choctaw Nation’s] Policy pro-
24a
vides coverage for “imminent loss.” See supra
at 8. To interpret these policies the same
would render those different words, definitions, and provisions meaningless, which this
Court will not do.
Choctaw Nation, Case No. CV-20-42, at 10. Accordingly, as the court explained, Choctaw Nation’s policy
used “different words, definitions, and provisions”
than Goodwill’s Policy. Id. Therefore, Goodwill’s reliance on Choctaw Nation is misplaced.
As PIIC notes, “the phrase ‘direct physical loss’ is
not ambiguous simply because it is not defined in the
Policy.” Doc. No. 27, p. 6 (citing Cranfill v. Aetna Life
Ins. Co., 49 P.3d 703, 706 (Okla. 2002)). While
Goodwill argues that a “direct physical loss” encompasses more than “an actual, or material, deprivation
of Plaintiff’s property,” the majority of district courts
across the country disagree.1 See generally Doc. No. 24,
1
A majority of district courts have found a “direct physical
loss” to require some form of tangible damage to property. See,
e.g. DAB Dental PLLC v. Main Street America Protection Ins. Co.,
No. 20-CA-5504 (Fla. Cir. Civ. Div. Nov. 10, 2020); Goodwill
Indus. of Central Okla., Inc. v. Phila. Indem. Ins. Co., ___ F. Supp.
3d ___, 2020 WL 6561315 (W.D. Okla. Nov. 9, 2020); Water Sports
Kauai, Inc. v. Fireman’s Fund Ins. Co., ___ F. Supp. 3d ___, 2020
WL 6562332 (N.D. Cal. Nov. 9, 2020); Real Hospitality, LLC v.
Travelers Cas. Ins. Co. of Am., ___ F. Supp. 3d ___, 2020 WL
6503405 (S.D. Miss. Nov. 4, 2020); Raymond H. Nahmad DDS PA
v. Hartford Cas. Ins. Co., ___ F. Supp. 3d ___, 2020 WL 6392841
(S.D. Fla. Nov. 2, 2020); Travelers Cas. Ins. Co. v. Geragos and
Geragos, ___ F. Supp. 3d ___, 2020 WL 6156584 (C.D. Cal. Oct.
19, 2020); Seifert v. IMT Ins. Co., ___ F. Supp. 3d ___, 2020 WL
6120002 (D. Minn. Oct. 16, 2020); Harvest Moon Distributors,
LLC v. Southern-Owners Ins. Co., ___ F. Supp. 3d ___, 2020 WL
6018918 (M.D. Fla. Oct. 9, 2020); Vandelay Hosp. Group LP v.
Cincinnati Ins. Co., 2020 WL 5946863 (N.D. Tex. Oct. 7, 2020);
Henry’s Louisiana Grill, Inc. v. Allied Ins. Co., ___ F. Supp. 3d
25a
p. 7. Accordingly, the Court did not err when it chose
to apply the plain language of “direct physical loss”
rather than to “force[ ] or constrain [an] interpretation[ ] to create [. . .] ambiguit[y].” Max True Plastering v. Unites States Fid. & Guar. Co., 912 P.2d 861,
869 (Okla. 1996). Thus, because an ambiguity did
not exist, the Court need not defer to Goodwill’s
interpretation.
Lastly, Goodwill argues that it “should be provided
an opportunity to amend its Complaint to set forth
facts establishing a “tangible loss” and alternatively,
that “the Court’s [previous] Order implies that if these
facts were supplied (i.e., facts showing there was not
consideration for the [virus] endorsement), Goodwill’s
claim would not be dismissed.” Doc. No. 26, pp. 8–9.
However, the Court disagrees.
Goodwill did not properly file a motion for leave to
amend. Fed. R. Civ. P. 15(a) gives parties a right to
___, 2020 WL 5938755 (N.D. Ga. Oct. 6, 2020); Mark’s Engine Co.
No. 28 Restaurant LLC v. The Travelers Indemn. Co., 2020 WL
5938689 (C.D. Cal., Oct. 2, 2020); Infinity Exhibits, Inc. v. Certain
Underwriters at Lloyd’s London, ___ F. Supp. 3d ___, 2020 WL
5791583, at *1 (M.D. Fla. Sept. 28, 2020); Mudpie, Inc. v.
Travelers Cas. Ins. Co. of America, 2020 WL 5525171 (N.D. Cal.
Sept. 14, 2020); Pappy’s Barber Shops, Inc. v. Farmers Grp., Inc.,
___ F. Supp. 3d ___, 2020 WL 5500221 (S.D. Cal. Sept. 11, 2020);
Plan Check Downtown III, LLC v. Amguard Ins. Co., 485 F. Supp.
3d 1225 (C.D. Cal., 2020); Turek Enterprises, Inc. v. State Farm
Mut. Auto. Ins. Co., 484 F. Supp. 3d 492 (E.D. Mich. 2020); 10E,
LLC v. Travelers Indemnity Co., 483 F. Supp. 3d 828 (C.D. Cal.
2020); Diesel Barbershop, LLC, et al. v. State Farm Lloyds, 479 F.
Supp. 3d 353 (W.D. Tex. 2020); Rose’s 1, LLC v. Erie Ins. Exch.,
2020 WL 4589206 (D.C. Super. Aug. 06, 2020); The Inns by the
Sea v. California Mut. Ins. Co., Case No. 20-CV-001274 (Cal.
Super. Ct., Monterey Cnty. Aug. 6, 2020); Gavrilides Mgm’t Co.,
LLC v. Mich. Ins. Co., , 2020 WL 4561979 (Mich. Cir. Ct. July 21,
2020).
26a
amend pleadings once as a matter of course at any
time before a responsive pleading is served. Accordingly, Goodwill could have amended the Complaint
as of right after it received the motion to dismiss and
before the Court ruled on it. See, e.g., Glenn v. First
Nat. Bank in Grand Junction, 868 F.2d 368, 370 (10th
Cir. 1989). However, once the Court granted PIIC’s
motion to dismiss, Goodwill was required to obtain
leave of court or written consent from PIIC to amend
the Complaint. Fed. R. Civ. P. 15(a)(2). The Tenth
Circuit has explained that
[a]fter a motion to dismiss has been granted,
plaintiffs must first reopen the case pursuant
to a motion under Rule 59(e) or Rule 60(b)
and then file a motion under Rule 15, and
properly apply to the court for leave to amend
by means of a motion which in turn complies
with Rule 7. In that event, in accordance with
Rule 15, “leave shall be freely given when
justice so requires.”
Glenn, 868 F.2d at 371 (internal citations omitted)
(emphasis added). Instead of properly following the
procedure laid out in Rule 15(a), in its Reply brief,
Goodwill requests that the Court provide an opportunity for it to amend its Complaint.2 Doc. No. 28, p. 2.
Further, though “Rule 59(e) permits a court to alter
or amend a judgment, [ ] it ‘may not be used to
relitigate old matters, or to raise arguments or present evidence that could have been raised prior to the
entry of judgment.’” Exxon Shipping Co. v. Baker, 554
U.S. 471, 485, n.5 (2008) (citing 11 C. Wright & A.
2
Goodwill first requests leave to amend in its initial Rule 59(e)
motion, Doc. No. 26, p. 1, but first provides its proposed amended
Complaint in its Reply brief. Doc. No. 28, pp. 8–9.
27a
Miller, Federal Practice and Procedure § 2810.1, pp.
127–128 (2d ed. 1995) (footnotes omitted)). Goodwill
did not follow the proper procedure for seeking leave
to amend because it did not seek leave prior to the
Court’s ruling on PIIC’s motion to dismiss and it
argued for leave within a motion to reconsider rather
than by filing a motion seeking leave to amend as
outlined in Rule 15(a).
Even though courts freely grant leave to amend
“when justice so requires,” Fed. R. Civ. P. 15(a)(2),
leave to amend may not be granted when the party
opposing the motion shows “undue delay, bad faith or
dilatory motive on the part of the movant, repeated
failure to cure deficiencies by amendments previously
allowed, undue prejudice to the opposing party by
virtue of allowance of the amendment, [or] futility of
amendment.” Foman v. Davis, 371 U.S. 178, 182
(1962); see also Castanon v. Cathey, 976 F.3d 1136,
1145 (10th Cir. 2020) (explaining limitations on the
general notion that amendment should be freely
given); Durham v. Xerox Corp., 18 F.3d 836, 840 (10th
Cir. 1994) (“[U]nexplained delay alone justifie[d] the
district court’s discretionary decision” to deny leave
to amend.). “A proposed amendment to a complaint is
futile if it would be subject to dismissal for any reason,
including that the amendment would not survive a
motion for summary judgment or a motion to dismiss.”
Weinstein v. U.S. Air Force, 468 F. Supp. 2d 1366, 1374
(D.N.M. 2006) (citing Watson ex rel. Watson v. Beckel,
242 F.3d 1237, 1239–40 (10th Cir. 2001); Gohier v.
Enright, 186 F.3d 1216, 1218 (10th Cir. 1999)).
Here, amending Goodwill’s Complaint would be
futile because it would not survive a motion to dismiss.
28a
As explained above, the Court found that a “direct
physical loss” unambiguously requires alleging some
tangible damage to property, and Goodwill did not
allege anything other than business closures due to
government orders. Doc. No. 24, p. 6. Plaintiff’s proposed amended complaint is no different. It alleges
that
closure orders [. . .] prohibited Goodwill from
accessing its property in response to dangerous physical conditions that constitute a
Covered Cause of Loss.
[. . .]
23. [. . .] Goodwill’s property was tangibly
damaged because it was likely customers,
employees, mail delivery persons, and/or
other visitors to the insured property prior to
Goodwill’s closure were infected with COVID19.
24. Goodwill’s property was also tangibly
damaged because it sustained tangible losses
of revenue as a result of the civil authority
mandated closure order.
25. As a result of the likely presence of
COVID-19 on or around Goodwill’s properties, Goodwill was deprived of the use of its
property.
26. Goodwill was required to suspend its
business operations to further prevent physical damages to the premises by the presence
or proliferation of COVID-19 and the physical
harm it could cause persons present on or
near Goodwill’s properties as COVID-19 is
physically transmitted by air and surfaces
29a
that remain infections (sic) for an extended
time.
Doc. No. 28-1, ¶¶ 20, 23–26.
Simply adding words such as “tangible” or “physical”
does not change the nature of Goodwill’s claims.
Just as this Court explained in its previous Order,
Goodwill is alleging that the closure orders rendered
its locations unusable. Doc. No. 24, p. 8. Goodwill does
not allege that any of its properties’ structures were
physically altered or damaged. Rather, the basis of
Goodwill’s claim is that it suffered economic loss
caused by government orders issued in response to
COVID-19. Such allegations are insufficient to state a
direct physical loss. See, e.g., Turek Enterprises, Inc. v.
State Farm Mut. Auto. Ins. Co., No. 20-11655, 2020
WL 5258484 (E.D. Mich. Sept. 3, 2020) (economic loss
did not establish coverage under policy requiring
direct physical loss). Accordingly, granting Goodwill
leave to amend its allegations of a direct physical loss
would be futile because it still cannot plead a direct
physical loss under the Policy.
Alternatively, Goodwill argues it should be permitted to amend its Complaint in regard to the Virus
Endorsement as well.3 Specifically, Goodwill seeks to
plead that
no consideration was provided to Goodwill in
exchange for the addition of this endorsement. The endorsement was not part of the
3
Of the 113 federal district courts to consider a motion to
dismiss by an insurer with a virus endorsement in the policy, 108
granted the motion. See Outcome on Merits-Based Motions to
Dismiss, Covid Coverage Litigation Tracker, available at https://
cclt.law.upenn.edu/judicial-rulings, accessed March 11, 2021 (tracking district court rulings from July 15, 2020 to March 1, 2021).
30a
original Policy. By adding this endorsement,
Philadelphia limited Goodwill’s coverage with
no benefit conferred upon Goodwill in exchange.
Doc. No. 28-1, ¶ 14.
The parties do not dispute that Goodwill obtained
the Policy, No. PHPK1972850, underwritten by PIIC
“for a policy period from May 1, 2019 to May 1, 2020.”
Id. ¶ 5. Further, it is undisputed that the Virus
Endorsement was included in the Policy. Goodwill
apparently seeks to argue that the Virus Endorsement
was not part of “the original Policy.” Doc. No. 28-1,
¶ 14. Perhaps at one point in the relationship between
Goodwill and PIIC, Goodwill was insured under a
policy without a Virus Endorsement. However,
“Oklahoma courts have . . . held that ‘the renewal of
an insurance policy is a new contract.’” DalpaosLawrence v. Guideone Am. Ins. Co., 243 F. App’x 358,
363 (10th Cir. 2007) (citing Wynn v. Avemco Ins. Co., 963
P.2d 572, 574 (Okla. 1998)). Here, PIIC and Goodwill
renewed the Policy between the parties for the period
of May 1, 2019 to May 1, 2020. Doc. No. 28-1, ¶ 5. Once
the Policy was renewed, a new contract between the
parties was formed. This new contract clearly included
the Virus Endorsement. Doc. No. 1-1, p. 32. As this
Court stated previously, the “plain, unambiguous
meaning of the Virus [Endorsement] . . . [ ] negates
coverage.” Doc. No. 24, p. 10 (citing Turek, 2020 WL
5258484, at *9). For this reason, granting leave to
amend the Complaint would be futile.
In conclusion, the Court did not err in its interpretation of “direct physical loss” and amendment of the
Complaint would be futile. Therefore, Goodwill’s motion
to alter or amend judgment pursuant to Rule 59(e) is
hereby DENIED.
31a
IT IS SO ORDERED on this 11th day of March, 2021.
/s/ David L. Russell
DAVID L. RUSSELL
UNITED STATES DISTRICT JUDGE
32a
APPENDIX D
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT
OF OKLAHOMA
[Filed November 9, 2020]
————
No. CV-20-511-R
————
GOODWILL INDUSTRIES OF CENTRAL OKLAHOMA, INC.,
d/b/a GOODWILL CAREER PATHWAYS INSTITUTE,
v.
Plaintiff,
PHILADELPHIA INDEMNITY INSURANCE COMPANY,
Defendant.
————
ORDER
Before the Court is Defendant Philadelphia Indemnity Insurance Company’s (“PIIC”) Motion to Dismiss.
Doc. No. 8. Plaintiff, Goodwill Industries of Central
Oklahoma, Inc. (“Goodwill”), filed a Response to PIIC’s
Motion (Doc. No. 13), and PIIC filed a Reply in Support
of its Motion. Doc. No. 17. The Court finds as follows.
In considering a defendant’s Motion to Dismiss
under Rule 12(b)(6), the Court must determine
whether the plaintiff’s [Petition] contains enough
“facts to state a claim to relief that is plausible on its
face,” and whether the factual allegations “raise a
right to relief above the speculative level.” Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 555, 570 (2007)
(citations omitted).
33a
The Court must accept all the well-pleaded allegations of the Petition as true and must construe the
allegations in the light most favorable to Plaintiff.
Twombly, 550 U.S. at 555; Alvarado v. KOB–TV,
L.L.C., 493 F.3d 1210, 1215 (10th Cir. 2007). However,
the Court need not accept as true those allegations
that are conclusory in nature. Erikson v. Pawnee Cty.
Bd. of Cty. Comm’rs, 263 F.3d 1151, 1154–55 (10th Cir.
2001). “[C]onclusory allegations without supporting
factual averments are insufficient to state a claim
upon which relief can be based.” Hall v. Bellmon, 935
F.2d 1106, 1110 (10th Cir. 1991).
Goodwill is a not-for-profit corporation operating
in various locations throughout central Oklahoma.
Doc. No. 12, p. 2. PIIC is a Delaware corporation with
its principal place of business in Pennsylvania. Doc.
No. 1, ¶ 3.
Goodwill purchased a Commercial Lines Policy
(“the Policy”) underwritten by PIIC for the “period
from May 1, 2019 to May 1, 2020.” Doc. No. 1-1, p. 2.
The Policy provides “Business Income” coverage for
“the actual loss of Business Income you sustain due
to the necessary ‘suspension’ of your ‘operations’
during the ‘period of restoration.’” Doc. No. 1-4, p. 169.
The "‘suspension’ must be caused by direct physical
loss of or damage to property.” Id. It provides similar
coverage for “Extra Expenses” and for interruption
by means of “Civil Authority.” Id. at 169–70. The
parties agree that any coverage is conditioned on
Goodwill suffering a “direct physical loss of or damage
to property” operated by Goodwill throughout central
Oklahoma. Doc. No. 1-1, pp. 2–3.
Additionally, Goodwill alleges that “[PIIC] added an
endorsement to the Policy that purports to exclude
coverage for loss due to virus or bacteria.” Id. p. 5. The
34a
endorsement is titled “Exclusion of Loss Due to Virus
or Bacteria” (“Virus Endorsement”), and it “applies to
all coverage under all forms and endorsements . . .,
including . . . damage to buildings or personal property
and . . . business income, extra expense, or action of
civil authority.” Doc. No. 1-1, p. 100. It states that
“[PIIC] will not pay for loss or damage caused by or
resulting from any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease.” Doc. No. 1-1, p. 100.
On March 15, 2020, the Governor of Oklahoma
issued an Executive Order declaring a state of emergency as a result of the eighth case of the novel
coronavirus (“COVID-19”) in Oklahoma. Id. p. 3. Soon
after, mayors in cities across central Oklahoma required
the “suspension of non-essential businesses,” causing
Goodwill to close its locations in each respective city.
Id.
Goodwill sought a declaratory judgment in the
District Court of Cleveland County on May 6, 2020
that “[it] sustained a ‘direct physical loss’ and/or ‘risk
of direct physical loss’” from the mandated closures.
Doc. No. 1-1. On June 1, 2020, PIIC removed this
action from state court.
Goodwill argues that it alleged a direct physical
loss because the government-mandated COVID-19
closures caused it to “sustain[] direct physical loss or
damage to its property . . . covered by the Policy,” and
further, that PIIC cannot rely on the Virus Endorsement because it was added to the Policy without
consideration and is therefore void. Id. pp. 5, 7. PIIC
argues, however, that the Policy does not cover the
losses resulting from the closures because Goodwill
never suffered a direct physical loss, and even if it
35a
did, the Virus Endorsement excludes its recovery.1
Doc. No. 8, pp. 12, 14.
As discussed above, the Policy entitles Goodwill to
“various forms of coverage, such as business income,
extra expense, and interruption by civil authority,”
Doc. No. 13, p. 7, and Goodwill and PIIC agree that
“[a]ll of these coverages require direct physical loss
of or damage to Goodwill’s property.” Doc. No. 13, p. 7;
Doc. No. 1-1, ¶¶ 6–11. However, “[n]either ‘risk of
direct physical loss’ nor ‘direct physical loss’ is defined
in the Policy,” Doc. No. 1-1, ¶ 7, and the parties dispute
its definition.
PIIC argues that a direct physical loss is a “demonstrable, physical alteration of the property,” which
necessarily “exclude[s] alleged losses that are intangible or incorporeal and . . . unaccompanied by a distinct . . . alteration of the property.” Doc. No. 8, p. 15
(quoting 10A Couch on Ins. § 148:46) (emphasis in
original). Goodwill counters that a direct physical loss
results when “property is rendered unusable for its
intended purpose.” Doc. No. 13, p. 8 (citing Western
Fire Ins. Co. v. First Presbyterian Church, 437 P.2d
52, 39 (Colo. 1968); Matzner v. Seaco Ins. Co., No.
CIV.A.96-0498-B, 1998 WL 566658 at *4 (Mass. Super.
1998)).
1
PIIC also alleges that the Complaint fails to meet Rule 8’s
pleading requirement, arguing that a Complaint must contain “a
short and plaint statement of the claim showing that the pleader
is entitled to relief.” Fed. R. Civ. P. 8(a)(2). The Court finds that
a short and plain statement was properly pled. PIIC also argues
that Goodwill’s “threadbare conclusions are insufficient to state
a claim,” Doc. No. 8, p. 10, and the Court addresses such allegations throughout its analysis of PIIC’s Rule 12(b)(6) discussion,
Doc. No. 8, pp. 12–20.
36a
Importantly, Goodwill does not allege that COVID19 infected its premises, but rather that its loss of
income arose from the suspension of its business in
compliance with the Governor’s Executive Order. Doc.
No. 1-1, ¶ 18. Without a definition in the policy, direct
physical loss “is accorded its ordinary, plain meaning
and enforced so as to carry out the parties’ intentions.”
Bituminous Cas. Corp. v. Cowen Const., Inc., 55 P.3d
1030, 1033 (Okla. 2002) (citing Phillips v. Estate of
Greenfield, 859 P.2d 1101, 1104 (Okla. 1993)).
“The interpretation of an insurance contract and
whether it is ambiguous is determined by the [C]ourt
as a matter of law.” Serra v. Estate of Broughton,
364 P.3d 637, 641 (Okla. 2015). The Court shall not
“force[ ] or constrain[ ] interpretations to create . . . [or]
construe ambiguities.” Max True Plastering v. U.S.
Fid. & Guar Co., 912 P.2d 861, 869 (Okla. 1996). Each
party is free to contract as it wishes and is bound
by the terms of the agreement. See Bennett v. The
Preferred Acc. Ins. Co. of N.Y., 192 F.2d 748, 751
(10th Cir. 1951) (interpreting a liability policy in
Oklahoma). Further, “the Court will not undertake to
rewrite . . . nor make . . . either party a better contract
than the one . . . executed.” Bituminous, 55 P.3d 1030
at 1033 (citing Max True Plastering, 912 P.2d at 869).
The Oklahoma Supreme Court has explained that
“terms of an insurance policy must be considered
not in a technical but in a popular sense, and . . .
according to their . . . accepted use in common speech.”
Serra, 364 P.3d at 642 n. 6 (Okla. 2015) ((citing Houston
v. Nat’l Gen. Ins. Co., 817 F.2d 83, 85 (10th Cir. 1987)
(quoting Nat’l Aviation Underwriters, Inc. v. Altus
Flying Serv., Inc., 555 F.2d 778, 782 (10th Cir. 1977))).
PIIC’s proffered definition resembles the common
use of the terms “direct,” “physical,” and “loss.” The
37a
Oklahoma Supreme Court has relied on dictionary
definitions to provide the common usage of terms;
see, e.g., U. S. Fid. & Guar. Co. v. Briscoe, 239 P.2d
754, 757 (Okla. 1951), and Merriam-Webster defines
“direct” as “proceeding from one point to another . . .
without deviation or interruption” or as “stemming
immediately from a source,” implying that a causal
connection must exist. Merriam Webster, https://www.
merriam-webster.com/dictionary/direct (last visited
Oct. 29, 2020). “Physical” is defined as “having
material existence” or as “relating to material things,”
and a “loss” is defined as a “deprivation.” Merriam
Webster, https://www.merriam-webster.com/dictionary/
physical (last visited Oct. 29, 2020); Merriam Webster,
https://www.merriam-webster.com/dictionary/loss (last
visited Oct. 29, 2020). Thus, a direct physical loss
results from an actual, or material, deprivation of
Plaintiff’s property, which closely aligns with PIIC’s
proffered definition explaining that the Policy only
covers a “demonstrable, physical alteration of the
property . . . [which] exclude[s] alleged losses that are
intangible.” Doc. No. 8, p. 15.
Goodwill urges the Court to adopt a more expansive
definition of “direct physical loss.” Doc. No. 13, p. 8. It
argues that a direct physical loss includes a loss that
renders “property unusable for its intended purpose.”
Id. (citing Western Fire Ins. Co. v. First Presbyterian
Church, 437 P.2d 52, 55 (Colo. 1968)). In Western Fire,
the Colorado Supreme Court explained that “because
of the accumulation of gasoline around and under the
church building[,] the premises became so infiltrated
and saturated as to be uninhabitable,” and thus
caused a direct physical loss. Western Fire, 437 P.2d at
55. In two additional cases cited by Goodwill, the
plaintiff alleged that a direct physical loss occurred
because a physical substance entered the covered
38a
premises or somehow otherwise materially affected it.
See, e.g., Travco Ins. Co. v. Ward, 504 F. App’x 251 (4th
Cir. 2013) (toxic gasses within drywall); Matzner, 1998
WL 566658, at *4 (carbon monoxide levels rendered
building uninhabitable). Here, Goodwill did not allege
that any substance entered its premises or damaged
it, but only that the mandated closures rendered its
premises unusable. Doc. No. 13, p. 8.
Goodwill did not allege a “direct physical loss” under
the Policy because it only alleged an intangible loss
to its property. Doc. No. 13, p. 8. Specifically, Goodwill
alleged that “[a]s a result of this COVID-19 pandemic,
Goodwill sustained direct physical loss of or damage
to its property and will continue to sustain direct
physical loss of or damage to its property covered by
the Policy . . . .” Doc. No. 1-1, ¶ 18. As PIIC explains,
Goodwill does not describe “how the spread of a communicable disease nationally caused tangible physical
loss of or damage to any of [Goodwill’s] premises.” Doc.
No. 8, p. 7.
In similar insurance coverage cases brought due to
COVID-19 closures, district courts have repeatedly
held that “direct physical loss” requires showing
some “tangible damage.” See, e.g., Turek Enterprises,
Inc. v. State Farm Mut. Auto. Ins. Co., No. 20-11655,
2020 WL 5258484, at *8 (E.D. Mich. Sept. 3, 2020)
(interpreting direct physical loss as requiring “some
tangible damage to Covered Property.”); Mudpie, Inc.
v. Travelers Cas. Ins. Co. of Am., No. 20-CV-03213JST, 2020 WL 5525171, at *4 (N.D. Cal. Sept. 14,
2020) (“the damage contemplated by the Policy is
physical in nature”) (quoting Philadelphia Parking
Auth. v. Fed. Ins. Co., 385 F. Supp. 2d 280, 287
(S.D.N.Y. 2005)); but see Studio 417, Inc. v. Cincinnati
Ins. Co., No. 20-CV-03127-SRB, 2020 WL 4692385, at
39a
*6 (W.D. Mo. Aug. 12, 2020) (finding that the plaintiffs adequately alleged a direct physical loss when
they stated that “COVID-19 particles attached to and
damaged their property, which made their premises
unsafe and unusable.”). In Malaube, LLC v. Greenwich
Ins. Co., No. 20-22615-CIV, 2020 WL 5051581, at *1
(S.D. Fla. Aug. 26, 2020), the plaintiff had a policy
providing business income and personal property
insurance. The plaintiff closed its doors due to citywide orders preventing restaurants from hosting
patrons indoors, id., and subsequently sought a declaratory judgment that it suffered a direct physical loss.
Id. at 6–7. The district court held that the plaintiff’s
allegations were insufficient because “interruption in
business must be caused by some physical problem
with the covered property,” and the plaintiffs alleged
only that the citywide orders caused its closure. Id.
at 7 (quoting Philadelphia Parking Authority, 385 F.
Supp. 2d at 288).
This Court agrees with the other district courts’
holdings, finding that at a minimum, a plaintiff must
allege that a substance entered its premises or
attached to its surfaces to plead a “direct physical
loss.” Studio 417, 2020 WL 4692385, at *6. The district
court in Studio 417 concluded that the plaintiffs pled
a “direct physical loss” when the plaintiffs alleged that
“COVID-19 . . . attached to and deprived [p]laintiffs of
their property.” Id. at *4. The court ultimately denied
the Defendant’s motion to dismiss because the
plaintiffs in Studio 417 alleged a tangible loss. Id.
Here, however, Goodwill only states that the government’s mandated closures rendered it unusable, not
that COVID-19 “attached to [or] deprived [it] of [its]
property.” Id.
40a
Alleging a direct physical loss unambiguously
requires a showing of tangible damage. Goodwill
failed to allege it suffered any tangible damage, and
therefore, its claim is subject to dismissal.
Even if the Court applied an expansive definition of
direct physical loss, as Goodwill requests, its claim is
still subject to dismissal because the Virus Endorsement expressly excludes coverage. The Virus Endorsement provides that “there is no coverage under such
insurance for loss or damage caused by or resulting
from any virus, bacterium or other microorganism
that induces or is capable of inducing physical distress, illness or disease.” Doc. No. 1-1, p. 32. By its
terms, the exclusion applies because COVID-19 is a
virus that “is capable of inducing physical distress,
illness or disease.” Id.
Goodwill alleges, however, that the unambiguous
exclusion is inapplicable because it lacked consideration and it applies only in the event of “actual
contamination” on the premises rather than “suspected contamination.” Doc. No. 13, p. 18.
First, Goodwill argues that the Virus Endorsement
lacks consideration. Id., p. 3. It explains that “[i]t is
unclear what additional facts PIIC would have liked
Goodwill to plead on this issue. It is not possible,
nor is it required, for Goodwill to plead facts proving
a negative.” Id. Notwithstanding whether it is
“required . . . to . . . prov[e] a negative,” Goodwill must
plead facts that underlie its allegations. See Hall v.
Bellmon, 935 F.2d 1106, 1110 (10th Cir. 1991).
Goodwill did not plead any facts explaining why
the Virus Endorsement lacked consideration. Instead,
Goodwill stated that “[a]t some point, [PIIC] added an
endorsement to the Policy that purports to exclude
41a
coverage for loss due to virus or bacteria,”2 Doc. No. 11, ¶ 12, followed by a legal conclusion—that “no consideration was provided to Goodwill.” Id. The Court
will not credit such conclusory allegations. See
Erikson, 263 F.3d at 1154–55.
Goodwill additionally argues that the Virus Endorsement only applies in the event of “actual contamination” on the premises rather than “suspected contamination,” Doc. No. 13, p. 18, but this argument defeats
itself. First, the Virus Endorsement precludes coverage “resulting from” any virus “capable of inducing
physical distress, illness or disease,” indicating it
would encompass a scenario where “suspected contamination” qualifies. Doc. No. 1-4, p. 26 (emphasis added).
The mandated closures, which caused Goodwill to
seek declaratory judgment, resulted from the ability,
or capability, of COVID-19 to “induc[e] physical
distress, illness or disease.” Thus, even if Goodwill
alleged a Covered Loss, the Virus Endorsement would
exclude coverage.
Other district courts have reached the same conclusion. In Turek Enterprises, Inc. v. State Farm Mut.
Auto. Ins. Co., No. 20-11655, 2020 WL 5258484, at *9
(E.D. Mich. Sept. 3, 2020), the district court held that
even “assuming [p]laintiff has suffered an ‘accidental
direct physical loss to Covered Property,’ the Virus
Exclusion negates any coverage for [p]laintiff’s loss of
income or extra expense.” The Virus Exclusion in
Turek barred coverage for a loss caused by “[v]irus,
bacteria or other microorganism that induces or is
capable of inducing physical distress, illness, or
2
The Complaint does not clearly state when the endorsement
was added.
42a
disease,” just like the Virus Endorsement here. Turek,
2020 WL 5258484, at *8.
Here, “the plain, unambiguous meaning of the Virus
[Endorsement] . . . [also] negates coverage.” Turek,
2020 WL 5258484, at *9. Therefore, COVID-19 clearly
qualifies as a “virus” that caused Goodwill to close
its doors, which bars coverage under the Virus
Endorsement.
PIIC also argues that under Katz v. Gerardi, 655
F.3d 1212 (10th Cir. 2011), Goodwill is attempting to
utilize improper claim-splitting. Doc. No. 8, p. 19. PIIC
alleges Goodwill is seeking a declaration that it suffered a covered loss and if it is successful, that it will
pursue a second action to determine the “amounts . . .
due and owing.” Doc. No. 8, p. 20. However, in Katz,
the Court explained that the “test for claim splitting
is [. . .] whether the first suit . . . would preclude the
second suit.” 655 F.3d at 1218. Thus, until a second
suit is pending, dismissing Goodwill’s suit on claim
splitting grounds is inappropriate.
In conclusion, Goodwill’s claim is, as a matter of
law, not covered by the Policy with PIIC because
Goodwill did not suffer a direct physical loss. Furthermore, even if it did suffer a direct physical loss, the
plain meaning of the Virus Endorsement expressly
excludes Goodwill’s claim from coverage. Therefore,
Goodwill is not entitled to relief and PIIC’s motion to
dismiss is GRANTED in its entirety.
IT IS SO ORDERED on this 9th day of November
2020.
/s/ David L. Russell
DAVID L. RUSSELL
UNITED STATES DISTRICT JUDGE
43a
APPENDIX E
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT
OF OKLAHOMA
[Filed November 9, 2020]
————
No. CV-20-511-R
————
GOODWILL INDUSTRIES OF CENTRAL OKLAHOMA, INC.,
d/b/a Goodwill Career Pathways Institute,
v.
Plaintiff,
PHILADELPHIA INDEMNITY INSURANCE COMPANY,
Defendant.
————
JUDGMENT
In accordance with the Court’s Orders entered this
date, Plaintiff’s action is dismissed, and judgment is
entered in favor of the Defendant. ENTERED this 9th
day of November 2020.
/s/ David L. Russell
DAVID L. RUSSELL
UNITED STATES DISTRICT JUDGE
44a
APPENDIX F
United States Code Annotated
Title 28. Judiciary and Judicial Procedure
(Refs & Annos)
Part IV. Jurisdiction and Venue (Refs & Annos)
Chapter 89. District Courts; Removal of Cases
from State Courts (Refs & Annos)
28 U.S.C.A. § 1446
§ 1446. Procedure for removal of civil actions
(a) Generally.—A defendant or defendants desiring
to remove any civil action from a State court shall
file in the district court of the United States for the
district and division within which such action is pending a notice of removal signed pursuant to Rule 11 of
the Federal Rules of Civil Procedure and containing a
short and plain statement of the grounds for removal,
together with a copy of all process, pleadings, and
orders served upon such defendant or defendants in
such action.
(b) Requirements; generally.—(1) The notice of
removal of a civil action or proceeding shall be filed
within 30 days after the receipt by the defendant,
through service or otherwise, of a copy of the initial
pleading setting forth the claim for relief upon which
such action or proceeding is based, or within 30 days
after the service of summons upon the defendant if
such initial pleading has then been filed in court and
is not required to be served on the defendant,
whichever period is shorter.
(2)(A) When a civil action is removed solely under
section 1441(a), all defendants who have been properly joined and served must join in or consent to the
removal of the action.
45a
(B) Each defendant shall have 30 days after
receipt by or service on that defendant of the initial
pleading or summons described in paragraph (1) to
file the notice of removal.
(C) If defendants are served at different times,
and a later-served defendant files a notice of
removal, any earlier-served defendant may consent
to the removal even though that earlier-served
defendant did not previously initiate or consent to
removal.
(3) Except as provided in subsection (c), if the case
stated by the initial pleading is not removable, a notice
of removal may be filed within 30 days after receipt
by the defendant, through service or otherwise, of a
copy of an amended pleading, motion, order or other
paper from which it may first be ascertained that the
case is one which is or has become removable.
(c) Requirements; removal based on diversity of
citizenship.—(1) A case may not be removed under
subsection (b)(3) on the basis of jurisdiction conferred
by section 1332 more than 1 year after commencement
of the action, unless the district court finds that the
plaintiff has acted in bad faith in order to prevent a
defendant from removing the action.
(2) If removal of a civil action is sought on the basis
of the jurisdiction conferred by section 1332(a), the
sum demanded in good faith in the initial pleading
shall be deemed to be the amount in controversy,
except that—
(A) the notice of removal may assert the amount
in controversy if the initial pleading seeks—
(i) nonmonetary relief; or
(ii) a money judgment, but the State practice
either does not permit demand for a specific sum
46a
or permits recovery of damages in excess of the
amount demanded; and
(B) removal of the action is proper on the basis
of an amount in controversy asserted under subparagraph (A) if the district court finds, by the
preponderance of the evidence, that the amount in
controversy exceeds the amount specified in section
1332(a).
(3)(A) If the case stated by the initial pleading is
not removable solely because the amount in controversy does not exceed the amount specified in section 1332(a), information relating to the amount in
controversy in the record of the State proceeding, or in
responses to discovery, shall be treated as an “other
paper” under subsection (b)(3).
(B) If the notice of removal is filed more than 1
year after commencement of the action and the
district court finds that the plaintiff deliberately
failed to disclose the actual amount in controversy
to prevent removal, that finding shall be deemed
bad faith under paragraph (1).
(c) Notice to adverse parties and State court.—
Promptly after the filing of such notice of removal of a
civil action the defendant or defendants shall give
written notice thereof to all adverse parties and shall
file a copy of the notice with the clerk of such State
court, which shall effect the removal and the State
court shall proceed no further unless and until the
case is remanded.
(d) Counterclaim in 337 proceeding.—With
respect to any counterclaim removed to a district
court pursuant to section 337(c) of the Tariff Act of
1930, the district court shall resolve such counterclaim in the same manner as an original complaint
47a
under the Federal Rules of Civil Procedure, except
that the payment of a filing fee shall not be required
in such cases and the counterclaim shall relate back
to the date of the original complaint in the proceeding
before the International Trade Commission under
section 337 of that Act.
[(f) Redesignated (e)]
(g) Where the civil action or criminal prosecution
that is removable under section 1442(a) is a proceeding in which a judicial order for testimony or documents is sought or issued or sought to be enforced, the
30-day requirement of subsection (b) of this section
and paragraph (1) of section 1455(b) is satisfied if the
person or entity desiring to remove the proceeding
files the notice of removal not later than 30 days
after receiving, through service, notice of any such
proceeding.
CREDIT(S)
(June 25, 1948, c. 646, 62 Stat. 939; May 24, 1949, c.
139, § 83, 63 Stat. 101; Pub.L. 89-215, Sept. 29, 1965,
79 Stat. 887; Pub.L. 95-78, § 3, July 30, 1977, 91 Stat.
321; Pub.L. 100-702, Title X, § 1016(b), Nov. 19, 1988,
102 Stat. 4669; Pub.L. 102-198, § 10(a), Dec. 9, 1991,
105 Stat. 1626; Pub.L. 103-465, Title III, § 321(b)(2),
Dec. 8, 1994, 108 Stat. 4946; Pub.L. 104-317, Title VI,
§ 603, Oct. 19, 1996, 110 Stat. 3857; Pub.L. 112-51,
§ 2(c), Nov. 9, 2011, 125 Stat. 545; Pub.L. 112-63, Title
I, §§ 103(b), 104, Dec. 7, 2011, 125 Stat. 760, 762.)
28 U.S.C.A. § 1446, 28 USCA § 1446
Current through P.L. 117-102. Some statute sections
may be more current, see credits for details.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.