As insurance professionals and insurance lawyers are aware, Washington State is historically one of the most liberal jurisdictions in the country. This has often led to decisions and rulings that favor policy holders. However, on August 25, 2022, the Washington State Supreme Court issued a decision finding that COVID-19 related business income losses are not covered under standard commercial property insurance policies. Hill & Stout, PLLC v. Mutual of Enumclaw Insurance Company, Cause No. 100211-4.
Hill & Stout is a Washington dentistry practice. When the COVID-19 pandemic first arose in the State of Washington, Governor Jay Inslee declared a state of emergency and issued multiple proclamations relating to public health and safety, including a proclamation prohibiting all non-emergent dental procedures. In light of the emergence of COVID-19 and the governmental and societal response thereto, Hill & Stout joined thousands of businesses in Washington and around the country in seeking Business Interruption coverage under its commercial property policy.
Mutual of Enumclaw (MOE) denied Hill & Stout’s claim effectively for two reasons. First, the business income loss coverage is triggered only where there is “direct physical loss or damage” to the insured premises. Second, the MOE policy contained an exclusion for any losses caused by a virus. Hill & Stout sued in the King County Superior Court.
Since the inception of the global pandemic, thousands of lawsuits relating to business income loss coverage have been filed by businesses seeking to recover their losses. The courts around the U.S. have been nearly universal in finding that there is no coverage for these claims. In fact, as Lether Law Group has previously reported, the United States District Court for the Western District of Washington has previously ruled in favor of insurers on these claims. Germack v. The Dentists Insurance Company, W.D. Wa. Cause No. 2:20-cv-00661-BJR.
However, until Hill & Stout, the highest court in the State of Washington had not fully and finally resolved the issue in this jurisdiction. In Hill & Stout, the Supreme Court found that there is no coverage for COVID-related business losses because the virus and the governmental proclamations related thereto do not cause direct physical loss or damage to the insured premises. The insured had focused their argument on the claim that they had a “loss” of the business. The Supreme Court rejected that argument finding that the loss was not “physical”.
The Court went on to find that the efficient proximate cause of the business losses was not the governmental response to the virus, but the virus itself. As a result, the Court held that the virus exclusion would operate to preclude coverage, even if there was a direct physical loss.
Lether Law Group represents multiple carriers in Washington and in jurisdictions around the United States in COVID-related business income loss claims. This includes the Germack case referenced above. If you would like to speak with us regarding these or any other claims, please contact us at any time.
Kevin J. Kay
Shareholder
Kevin is a graduate of Pacific Lutheran University and Seattle University School of Law. He is licensed to practice in the state and federal courts of Washington and admitted to practice before the Ninth Circuit Court of Appeals. In addition, Kevin has appeared pro hac vice in courts in Louisiana and California. Kevin has represented insurers and insureds in coverage for 16 years. These claims involve personal and commercial auto policies, commercial general liability, professional liability, and E&O insurance. Kevin has also advised and represented risk pools, insurers, and insured in matters ranging from automobile/bus accidents to catastrophic landslides. His practice also includes construction defect disputes, personal injury claims, commercial leases, and significant property damage disputes.
In a recent decision, the Washington State Supreme Court certified a question from the Western District of Washington in Preferred Contractors Insurance Company, Risk Retention Group, LLC v. Baker and Son Construction, Inc. The Court was asked whether a contractor’s liability insurance policy violated Washington public policy. The certified question was as follows:
When a contractor’s liability insurance policy provides only coverage for “occurrences” and resulting “claims-made and reported” that take place within the same one-year policy period, and provide no prospective or retroactive coverage, do these requirements together violate Washington public policy and render either the “occurrence” or “claims-made and reported” provisions unenforceable?
The Court answered the question in the affirmative, finding that the particular insurance policies at issue violated public policy.
In the case at hand, the insured was a contractor renovating a hotel. There was a serious injury on the site which resulted in death. The incident occurred on October 31, 2019, during the first policy period. Notice of a potential wrongful death claim was given to the insured on September 23, 2020. The insured notified its carrier on September 25, 2020, during the second policy period.
The carrier denied coverage, at least in part because the occurrence and reporting dates did not occur during the same policy year. The policies at issue provided there was no continuous coverage between renewed policies. The policies were non-retroactive, meaning the retroactive date was set to the first day of each policy.
The Court relied upon RCW 18.27 to outline the public policy at issue. This statute, in part, requires a contractor to either have insurance or the ability to cover $100,000 for injuries or damage. This is a prerequisite for registration with the state, Here, the Court found that the state had an interest in ensuring that contractors are financially responsible for losses caused by negligence, and that insurance is the primary means for ensuring this financial responsibility. In the eyes of the Court, this interest outweighed the parties freedom to contract. Specifically, the Court stated as follows:
We are mindful that parties to insurance contracts generally should have the freedom to contract. But when the legislature orders contractors to bear financial responsibility for the injuries their negligence may cause and dictates insurance is the preferable method to comply with this mandate, we cannot enforce insurance provisions that render coverage so narrow it is illusory. …insurers should not issue policies that essentially cause contractors to default on their statutorily mandated financial responsibility.
This ruling is limited to narrow, claims made policies. However, insurance carriers will need to be mindful if they are issuing policies with coverages that may fall short of the financial responsibility laws in a particular state.
Lether Law Group currently represents multiple insurers in coverage litigation in state and federal courts in a number of states and has experience navigating complex issues such as the one presented here. If you have questions about the implications of this case or general questions in regard to pending insurance claims, please feel free to contact our office.
Tom Lether
Founder & Managing Shareholder
Thomas Lether is a graduate of the University of Puget Sound and the University of Puget Sound Law School. He has been involved in insurance and commercial litigation since 1988. Mr. Lether’s primary clients include numerous National and International insurance companies, several smaller insurers and independent adjusting firms. He also represents a number of contractors, property owners, and business owners. His practice predominantly involves the representation of insurance companies and individuals in the investigation, adjustment and defense of complex coverage matters.
Chance’s practice involves insurance coverage and litigation of first and third party disputes involving both contractual and extra-contractual claims, including insurance bad faith, negligence, and violation of the Washington State Consumer Protection Act and Insurance Far Conduct Act. Chance’s experience includes coverage analysis and litigation of disputes arising from commercial general liability, business owners, and automobile insurance policies. Chance also has experience providing legal services to individuals, businesses, and real estate developers in a broad range of real estate disputes
Dan Schilling
Associate Attorney
Dan has a practice background in family law, personal injury, workers’ compensation law, and formerly worked as a public defender in the 24th Judicial District Court for Jefferson Parish in Louisiana. Dan is licensed in both Washington and Louisiana.
Ryan Bisel
Associate Attorney
Ryan graduated from Seattle University School of Law. Ryan is a licensed attorney in Washington and has recently passed the Hawaii State Bar.
Tate Kirk
Associate Attorney
Tate has a practice background in workers’ compensation law and is licensed in both Washington and Oregon.
Matt Allinder
Rule 9 Intern
Matt earned his Juris Doctor from Loyola University Chicago School of Law. Currently working remote, he will join us at the Seattle office in June.
Lether Law Group is engaged in appellate practice across multiple jurisdictions including multiple State Courts of Appeals and the Federal Circuit Courts of Appeal. As any experienced insurance defense litigator knows, a win at the trial level for your client is often not the end of the story. Accordingly, in this week’s newsletter, our office will share some helpful practice pointers we have gained through our litigation in the various Courts of Appeals.
A Complete Record – The first and most essential step in any appeal is assuring you and your client have the complete trial court record. While seemingly elementary, effective appellate advocacy starts with a complete underlying record. Once the Appellant has designated the clerks’ papers and statement of arrangements, and prior to receiving a copy of those clerks’ papers, proactively cross reference opposing counsel’s designation with the trial court docket. If any relevant pleading is absent, or any potentially relevant pleading is absent from opposing counsels designated clerks’ papers, move to supplement the clerk’s papers. Failure to do so will foreclose an appellate attorney’s ability to argue a potentially relevant issue or procedural aspect before the appellate court.
Comprehensive Legal Briefing – There is a natural tendency in appellate practice to rely partly upon the briefing at the trial court level because the issues in question were fully litigated. However, it would be an error to rely on the underlying briefing and assume it is sufficient for a review by the Court of Appeals. Rather, effective appellate practice requires a total reassessment of the underlying case from the facts as plead to the citations relied upon by the parties. The loadstar for any appeal is the standard of review. A de novo review by the Court of Appeals will requires a total reevaluation of the underlying case in a manner that a review for abuse of discretion might not. Further, the caselaw relied upon by the parties at the trial court level may have changed in the time since the trial court’s decision and should always be verified as to the holdings they purport. Accordingly, the process of drafting an appeal often requires a ground up reassessment of the facts and law surrounding the trial court’s decision.
Patience – Appeals take time. The average lifespan of an Appeal is 18 to 24 months. Even after the Court of Appeals receives all briefing from the parties, it will often take 6 to 10 months or more to render a decision on the matter. Given this expansive timeline, it is helpful to communicate reasonable expectations to your client about the resolution their appeal. Further, it is essential to communicate with the client periodically throughout this time to inform them you are monitoring the matter throughout the lengthy appeals process.
Lether Law Group currently represents clients in multiple jurisdictions for their appellate matters. For questions regarding acute appeals State Courts of Appeal or the Federal Circuit Courts of Appeal, please feel free to contact our office.
Chris Kranda
Associate Attorney
Born and raised in the pacific northwest Chris attended Seattle University’s Matteo Ricci College where he graduated cum laude with a bachelor’s degree in Humanities. He remained in the area and earned his Juris Doctor Seattle University School of Law.
During law school, Chris externed in US District Court for the Western District of Washington for the Honorable Robert S. Lasnik, and later worked as a Rule 9 prosecutor before joining the King County Prosecutor’s Office as a Deputy Prosecuting Attorney. He served in District Court and Violent & Economic Crime Units from 2019 to 2021 before joining Lether Law Group to begin his civil practice.
In his free time, Chris enjoys camping, fly fishing, and road trips.
On May 28, 2021, the United States District Court for the Western District of Washington issued an Order Granting Motions to Dismiss, which given various consolidations effectively dismissed 60+ COVID-19 Business Interruption cases, including in Germack v. The Dentists Insurance Company, Cause No. 2:20-cv-00616.
The Business Income Loss coverage in the policies issued by the multiple defendant insurers provides coverage for loss of business income due to a necessary suspension of operations because of “direct physical loss of or damage to the insured premises,” caused by a “covered cause of loss.” The Court focused its analysis on whether COVID-19 has caused “direct physical loss of or damage to” the insured premises and whether virus exclusions operate to eliminate COVID-19 as a “covered cause of loss.”
Regarding the first issue, the Court engages in a thorough analysis of what it is that constitutes “direct physical loss of or damage to” insured property, paying particular attention to the distinction between the terms “loss” and “damage”. As to the term “damage”, the Court rejected the argument that the average purchaser of insurance would believe that COVID-19 causes damage because it contaminates and therefore alters physical surfaces. The Court ultimately agreed with other Courts throughout the country, holding as follows:
The Court rejects this interpretation of direct physical damage. As numerous courts have recognized, “COVID-19 hurts people, not property,” . . . as “the pandemic impacts human health and human behavior, not physical structures,”. . . The Court concludes that COVID-19 does not cause direct physical damage to property as the term is used in the insurance policies.
Regarding the term “loss”, the Court concluded that when combined with ‘direct’ and ‘physical’, “’loss’ means that the alleged peril must set into motion events which cause inability to physically own or manipulate the property, such as theft or total destruction.” The Court further noted that interpreting the policy to require tangible dispossession is consistent with insurance law doctrine holding that all-risk policies are intended to cover damage to property rather than economic losses.
In regard to the applicability of the Virus exclusions, the Court first rejected the argument that there is somehow a distinction between a “virus” and a “pandemic.” The Court then addressed the Plaintiff Group’s efficient proximate cause argument, finding that under Washington law, the efficient proximate cause of the Business Income losses was not the governmental proclamations, but the virus itself. Finally, the Court rejected a regulatory estoppel argument, finding that it would not recognize a rule that the Washington Supreme Court has not adopted.
Honorable Barbara Rothstein’s Order, which can be accessed here, is amongst the most comprehensive in the nation, and is likely to serve as teaching material in law schools for years to come.
Lether Law Group represents The Dentists Insurance Company in the Germack matter, which was designated as a national class action for dentists impacted by COVID-19.
Lether Law Group is also currently representing several other insurers in COVID-19 business interruption litigation in state, federal, and tribal courts in Washington, Oregon, California, and Pennsylvania amongst others. If you would like to discuss or have any questions about COVID-19 business interruption claims and/or litigation, please feel free to contact our office.
COVID-19 Business Interruption Case Law: The Western District of Washington Denies Plaintiffs’ Motions to Certify Questions to the Washington State Supreme Court
In February of 2021, Plaintiffs in 10 consolidated cases before the United States District Court for the Western District of Washington, including in Germack v. The Dentists Insurance Company, Cause No. 2:20-cv-00616, filed motions to certify questions to the Washington State Supreme Court regarding business interruption coverage for losses arising from the COVID-19 pandemic. The Plaintiffs’ group specifically sought to certify the following questions:
Does being physically deprived of the ability to use covered property directly as a result of the Governor’s shut-down orders constitute a “direct physical loss of” such property?
Does Washington’s efficient proximate cause rule require a factual determination of the predominant cause of an individual business’s loss, before a virus (or other) exclusion may be applied to bar coverage?
On April 23, 2021, Plaintiffs’ motion was denied. The Court began by noting the Plaintiffs’ argument that “the Washington Supreme Court has not yet addressed the question of whether COVID-19 and its resulting business closures and limitations causes ‘direct physical loss’ to an insured property,” and that the Court should defer to the Supreme Court to determine the issue. The Court rejected Plaintiffs’ argument in whole, noting that at least five other federal courts addressing similar issues have considered certification to their respective state supreme courts and found certification to be unnecessary:
This Court has at its command all the tools necessary to reach its decision, including the extensive briefing provided by the numerous parties in the consolidated cases on both questions Plaintiffs seek to certify.
Additionally, the Court found “several other strong federal interests weigh against certification,” including the constitutional provisions for diversity for out-of-state parties, the number of putative class actions filed under the Class Action Fairness Act of 2005, and the unjustifiable delay and expense that would be incurred if certification was allowed. The Court ultimately denied Plaintiffs’ motion for certification, finding that Plaintiffs’ questions “do not present such unique and exceptional issues as to warrant certification.”
Lether Law Group represents The Dentists Insurance Company in the Germack matter, which is designated as a national class action for dentists impacted by COVID-19. TDIC’s Motion for Summary Judgment on the coverage issue is currently pending before the Court as is a Motion for Dismissal of the Class Allegations.
Lether Law Group is also currently representing several other insurers in COVID-19 business interruption litigation in state, federal, and tribal courts in Washington, Oregon, California, and Pennsylvania amongst others. If you would like to discuss or have any questions about COVID-19 business interruption claims and/or litigation, please feel free to contact our office.
The above article is an opinion based on various resources such as industry knowledge and is not to be construed as legal advice or to be used as such. If you require legal advice or would like to inquire further about the information contained in this article, please feel free to contact our office directly.
