Insurance Policies Must be Read Using the Common Meaning of the Words in the Policy Like “Physical Loss or Damage”
Hillbro LLC d/b/a Hills Restaurant attempted a class action lawsuit against Oregon Mutual Insurance Company seeking a declaratory judgment that its insurance policy covers its business income losses stemming from the COVID-19 pandemic. In Hillbro LLC, dba Hills Restaurant, individually and on behalf of all others similarly situated v. Oregon Mutual Insurance Company, an Oregon corporation, No. 3:21-cv-00382-HZ, United States District Court, D. Oregon (September 7, 2021) dealt with another of the interminable business interruption claims made as a result of the Covid-19 Pandemic.
People across the world have lost their lives and livelihood as a result of the pandemic. The Court sympathizes with the plight of businessowners who suffered significant and even catastrophic financial losses due to the government closure orders.
Plaintiff operates a restaurant and bar in Shoreline, Washington. Compl. Plaintiff insured its business with a business insurance policy from Defendant. Due to the COVID-19 pandemic and business closure orders issued by the state of Washington, “Plaintiff had to close, suspend, and/or curtail its business” leading to financial losses. Although the closure orders allowed restaurants to serve take-out food for off-premises consumption, Plaintiff’s business revenues have significantly reduced because Plaintiff has been unable to use its dining room and full-service bar for on-premises food and beverage consumption. Plaintiff admits that COVID-19 has not been detected in its restaurant.
Defendant moved to dismiss Plaintiff’s complaint because there was no “direct physical loss of or damage to” property occurred to invoke coverage under the Business Income and Civil Authority coverages, and no “direct physical loss or damage to” property occurred that would provide coverage under the Extra Expense and Ingress or Egress coverages. Defendant also argues that the Ordinance or Law Exclusion excludes coverage for Plaintiff’s losses.
Generally, when parties to a contract clearly express in the contract the law that applies, the contractual rights and duties of the parties are governed by the law or laws that the parties have chosen.
Plain Meaning of Policy’s Terms
Each of the coverage provisions apply only if a Covered Cause of Loss occurred. The 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 and, thereby, to preclude any claim against the property insurer when the insured merely suffers a detrimental economic impact unaccompanied by a distinct, demonstrable, physical alteration of the property.
Meaning Of “Direct Physical Loss Of Or Damage To Property”
The plain meaning of the policy requires a Covered Cause of Loss to directly cause property to be lost or physically damaged for coverage to exist under the Business Income and Civil Authority provisions. Physical loss or damage means any injury or harm to a natural or material thing. The inclusion of the terms “direct” and “physical” could only have been intended to exclude indirect, nonphysical losses.
While the insured no doubt sustained consequential losses it did not sustain “direct physical loss.” Construing Plaintiff’s allegations in the light most favorable to Plaintiff, the losses Plaintiff alleges are purely economic and not the result of any “direct physical loss of or damage to property.”
When the terms of an insurance policy have plain meaning, then the Court applies the plain meaning without need to resort to other methods of contract interpretation. However, it is worth emphasizing that the context in which the phrases “direct physical loss, ” “direct physical loss of or damage to property, ” and “direct physical loss or damage to property” appear in the Policy confirms the accuracy of the Court’s conclusion that the Policy requires a direct physical alteration of the condition of the property or dispossession of the property for coverage to apply.
An inability to use property in the manner the insured intended is not something that can be repaired, rebuilt, or replaced. Consequently, the context in which the phrases “direct physical loss of or damage to” and “direct physical loss or damage” appear in the Policy supports the Court’s conclusion that coverage does not apply under the plain meaning of the Policy’s terms.
The Court, therefore, granted Defendant’s Motion to Dismiss and Plaintiff’s Complaint was dismissed with prejudice. The plain meaning of the policy language and the multitude of cases interpreting identical and similar language make clear that “direct physical loss of or damage to property” does not include a loss of use or loss of functionality of undamaged property for its intended purpose.
Business owners and their lawyers must be commended for their efforts to continue to find a way to get an insurance company to pay for losses caused to their clients by their state governments who shut them down, and continue to fail with great regularity. The parties ignore the Fifth Amendment to the U.S. Constitution that, by the 14th Amendment applies to the states, and that prohibits any person to “be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use without just compensation.” The plaintiff was deprived of its ability to use its property that was taken for what is claimed as a public use – protect the public against the spread of the pandemic – without compensation. The losses are clearly not covered by insurance but are arguably covered by the Fifth Amendment.
© 2021 – Barry Zalma
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders.
He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business.
He is available at http://www.zalma.com and firstname.lastname@example.org. Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award. Over the last 53 years Barry Zalma has dedicated his life to insurance, insurance claims and the need to defeat insurance fraud. He has created the following library of books and other materials to make it possible for insurers and their claims staff to become insurance claims professionals.
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