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.
