Bullivant|Houser|Bailey PC

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DEFENDANT GREAT AMERICAN INSURANCE 

COMPANY'S AMENDED MOTION FOR SUMMARY 

JUDGMENT

Douglas G. Houser, OSB #600384

E-Mail: doug.houser@bullivant.com

Matthew E. Hedberg, OSB #081958

E-Mail: matt.hedberg@bullivant.com

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Attorneys for Defendant

UNITED STATES DISTRICT COURT

DISTRICT OF OREGON

MEDFORD DIVISION

OREGON SHAKESPEARE FESTIVAL 

ASSOCIATION, an Oregon non-profit 

corporation,

Plaintiff,

v.

GREAT AMERICAN INSURANCE 

COMPANY, an Ohio for-profit corporation,

Defendant.

Civil No.: 1:15-cv-01932

DEFENDANT GREAT AMERICAN 

INSURANCE COMPANY'S AMENDED 

MOTION FOR SUMMARY 

JUDGMENT

Oral Argument Requested
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JUDGMENT

Page i

TABLE OF CONTENTS

Page

I. CERTIFICATE OF COMPLIANCE .................................................................................... 1

II. MOTION.............................................................................................................................. 1

III. SUPPORTING MEMORANDUM OF LAW .................................................................... 1

A. Introduction ............................................................................................................. 1

B. Argument................................................................................................................. 2

1. OSF‘s Breach of Contract Cause of Action Must Fail: ............................... 2

(a) None of the four separate losses falls within the Policy‘s 

coverage grant for business income loss. ......................................... 2

(i) OSF fails to meet its initial burden of proving that 

suspension of operations occurred during a ―Period of 

Restoration.‖ ......................................................................... 3

(ii) Any suspension of business loss claimed by OSF was 

not caused by ―Direct Physical Loss of or Damage to 

Property.‖ .............................................................................. 6

(b) None of OSF‘s four alleged losses fall within the Policy‘s 

coverage grant for extra expense coverage. ..................................... 9

(c) None of OSF‘s four alleged losses were fortuitous........................ 11

(d) The Great American insurance Policy contains exclusions 

which bar these claims. .................................................................. 12

(i) Smog ................................................................................. 12

(ii) Delay, Loss of Use or Loss of Market................................ 13

(e) OSF‘s interpretation of the Policy contradicts public policy 

in Oregon........................................................................................ 14

2. Oregon Courts Do Not Recognize OSF‘s Second Cause of Action 

for Breach of an Implied Covenant of Good Faith and Fair Dealing ........ 15

(a) OSF‘s breach of the duty of good faith and fair dealing claim 

should be dismissed because there is no first-party tort 

liability available in this case. ........................................................ 16

(b) OSF‘s breach of the duty of good faith and fair dealing claim 

should be dismissed because it is duplicative. ............................... 17

(c) OSF‘s breach of the duty of good faith and fair dealing claim 

should be dismissed because Great American‘s actions in 

adjusting the losses were permitted by the contract of 

insurance......................................................................................... 18
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DEFENDANT GREAT AMERICAN INSURANCE 

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JUDGMENT

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3. OSF‘s first-party negligence claim is not actionable in Oregon................ 20

C. Conclusion............................................................................................................. 21

TABLE OF AUTHORITIES

Page(s)

CASES

Bennett v. Farmers Ins. Co.,

332 Or. 138, 26 P.3d 785 (2001) .............................................................................................16

Braun–Salinas v. Am. Family Ins. Grp.,

No. 3:13–CV–00264–AC, 2014 WL 1333731 (D. Or. Apr. 1, 2014) .....................................21

Employers’ Fire Ins. Co. v. Love It Ice Cream Co.,

64 Or. App. 784, 670 P.2d 160 (1983).....................................................................................20

Farmers Insurance Co. of Oregon v. Trutanich,

123 Or. App. 6, 858 P.2d 1332 (1993).......................................................................................7

Farris v. U.S. Fid. and Guar. Co.,

284 Or. 453, 587 P.2d 1015 (1978) .........................................................................................16

Georgetown Realty, Inc. v. Home Ins. Co.,

313 Or. 97, 831 P.2d 7 (1992) (en banc) .................................................................................20

Great N. Ins. Co. v. Benjamin Franklin Fed. S & L Ass’n,

793 F. Supp 259 (D. Or. 1990), aff’d, 953 F.2d 1387 (9th Cir. 1992)...................................6, 7

Keetch v. Mut. of Enumclaw Ins. Co.,

66 Wn. App. 208, 831 P.2d 784 (1992).....................................................................................4

Klamath Off-Project Water Users, Inc., 

237 Or. App. 434, 240 P.3d 94 (2010).....................................................................................18

Malbco Holdings, LLC v. AMCO Ins. Co.,

No. CV-08-585-ST, 2008 WL 5205202 (D. Or. 2008) ...........................................................17

Nat’l Warranty Ins. Co. v. Greenfield,

24 F. Supp. 2d 1096 (D.Or. 1998) ...........................................................................................14

Newman Myers Kreines Gross Harris, PC v. Great Northern Ins. Co.,

No. 13 Civ. 2177 (PAE), 2014 WL 1642906 (S.D. N.Y. April 24, 2014) ................................8

Retail Brand Alliance, Inc. v. Factory Mut. Ins. Co.,

489 F. Supp. 2d 326 (S.D. N.Y. 2007).......................................................................................4
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JUDGMENT

Page iii

Roundabout Theatre Co. v. Continental Casualty Co.,

302 A.D.2d 1, 751 N.Y.S.2d 4 (2002).......................................................................................8

Santilli v. State Farm,

278 Or. 53, 562 P.2d 965 (1977) .............................................................................................16

Schneider Equipment, Inc. v. Travelers Indem. Co. of Ill.,

No. CV 04-1482-HA, 2005 WL 1565006 (D. Or. June 29, 2005) ....................................13, 14

Uptown Heights Assocs. Ltd P’ship v. Seafirst Corp.,

320 Or. 638, 891 P.2d 639 (1995) .....................................................................................18, 19

Vail v. Country Mut. Ins. Co.,

No. 2:13-CV-02029-SU, 2015 WL 2207952 (D. Or. May 11, 2015)......................................20

ZRZ Realty Co. v. Beneficial Fire and Cas. Ins. Co.,

222 Or. App. 453, 194 P.3d 167 (2008).....................................................................................2

STATUTES

Or.Rev.Stat. § 746.230...................................................................................................................20

ORS 735.410..................................................................................................................................14

OTHER AUTHORITIES

Contracts, § 291 .............................................................................................................................11

Fed. R. Civ. P. 56.............................................................................................................................1

LR 7-1(a)(1)(A) ...............................................................................................................................1
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JUDGMENT

Page 1

I. CERTIFICATE OF COMPLIANCE

As required by LR 7-1(a)(1)(A), Defendant Great American Insurance Company‘s 

(―Great American‖) counsel has made good faith efforts to resolve this dispute and has 

conferred with Plaintiff Oregon Shakespeare Festival Association‘s (―OSF‖) counsel by 

telephone on January 19, 2016, regarding this Motion.

II. MOTION

Pursuant to Fed. R. Civ. P. 56, Great American moves the Court for an Order granting 

summary judgment against OSF‘s Complaint [Dkt. #1] and in favor of Great American.

III. SUPPORTING MEMORANDUM OF LAW

A. Introduction

OSF seeks coverage under a Great American property policy for alleged business 

income and extra expense losses it experienced after it voluntarily chose to cancel four 

separate performances on four separate dates at its outdoor theatre during July and August of 

2013. There is no business interruption or extra expense coverage available, however, 

because the undisputed facts show that the performances were cancelled solely due to air 

quality concerns, and that smoke from wildfires did not cause ―direct physical loss‖ or 

―damage‖ to covered property, as required for coverage under the Policy. Indeed, OSF does 

not seek coverage for any damage or necessary repairs to its buildings for any of these four 

separate losses. Nor was there any ―period of restoration‖ as required by the contract of 

insurance.

OSF also attempts to make new law in Oregon by asking this Court to recognize firstparty ―bad faith.‖ OSF‘s attempt to create ―bad faith‖ law in Oregon mirrors arguments that 
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have been consistently rejected by the Oregon appellate courts. Great American requests that 

this Court dismiss OSF‘s tort claims because they contradict established Oregon law.

B. Argument

1. OSF’s Breach of Contract Cause of Action Must Fail:

(a) None of the four separate losses falls within the Policy’s coverage 

grant for business income loss.

Determining whether insurance coverage exists is a two-step process under Oregon 

law. The insured has the burden of proof of first establishing that the loss falls within the 

scope of the policy‘s coverage grant.1 If the insured meets its initial burden, the insurer then 

bears the burden of establishing that the loss is excluded by specific language in the policy. 2

Here, OSF bears the initial burden of establishing that its alleged business income loss 

falls within the general grant of coverage. Subject to its terms, conditions, exclusions, and 

limitations, the Policy provides coverage for business income loss when the insured‘s 

business operations are suspended because of direct physical loss or damage to property:

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 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 be caused by or result 

from a Covered Cause of Loss.3

 

1

ZRZ Realty Co. v. Beneficial Fire and Cas. Ins. Co., 222 Or. App. 453, 465, 194 P.3d 167, 

174 (2008) (citations omitted). 

2

Id.

3

Insurance Policy (Dkt. # 1-2), at 75 of 292. 
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Thus, to prove coverage under the Policy, OSF must establish that it sustained a 

―suspension‖ of ―operations‖ caused by ―direct physical loss of or damage to property.‖ 

OSF cannot establish coverage under the Policy for a number of reasons. First, OSF 

did not suffer any ―direct physical loss of or damage to property‖; nor did it suspend 

operations during a ―period of restoration‖; thus coverage was never triggered under the 

Policy. As set forth in the Statement of Facts and in the discussion below, OSF cancelled the 

four separate performances solely due to health concerns related to air quality. OSF did not 

suffer any physical loss or damage to its property, it did not make any repairs to its property, 

and it is not seeking damages for the cost of any repairs.

(i) OSF fails to meet its initial burden of proving that 

suspension of operations occurred during a “Period of 

Restoration.”

Coverage for business income loss requires that operations be suspended during a 

―period of restoration.‖ The Policy, amended by endorsement, defines ―period of 

restoration,‖ in part, as:

[T]he period of time that:

a. Begins:

(1) at the time of direct physical loss or damage for 

Business Income Coverage; or

(2) immediately after the time of direct physical loss or 

damage for Extra Expense Coverage;

caused by or resulting from any Covered Cause of Loss at 

the described premises; and
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JUDGMENT

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b. Ends 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.4

Although Oregon courts have not directly ruled on the issue, court opinions regarding 

business income loss claims after the destruction of the World Trade Center in New York are 

informative. In the World Trade Center cases, many of the affected retail stores claimed that 

the ―period of restoration‖ should continue until the World Trade Center was rebuilt. The 

courts disagreed.5 The courts held that business interruption coverage requires business 

income losses arising out of the loss to ―property,‖ not merely ―the business.‖6 Likewise, in 

Keetch v. Mut. of Enumclaw Ins. Co.,

7

the Washington Court of Appeals in a Mount St. 

Helens volcanic eruption claim held, ―the purpose of business interruption insurance is to 

indemnify for loss due to inability to continue to use specified premises.‖

Here, there was no ―period of restoration‖ because OSF‘s property was not ―repaired, 

rebuilt or replaced,‖ nor did OSF move to a ―new permanent location.‖ In pre-suit 

communications, OSF argued that a ―period of restoration‖ occurred when its employees 

removed soot and ash from the hard plastic seats and concrete floor of the outdoor theatre. 

However, OSF‘s employees did not repair, rebuild, or replace the seats or floor as there was 

 

4

Insurance Policy (Dkt. # 1-2), at 85 and 108 of 292.

5

See, e.g., Retail Brand Alliance, Inc. v. Factory Mut. Ins. Co., 489 F. Supp. 2d 326, 332 

(S.D. N.Y. 2007) (collecting cases). 

6

Id. at 331.

7

66 Wn. App. 208, 211, 831 P.2d 784, 786 (1992).
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Page 5

no need to. Instead, they merely cleaned the seats and floor using rags and buckets of water.8 

The employees noted that the ash and soot ―clean[ed] up pretty easily so no lasting harm was 

done.‖9 Even if the work conducted by OSF‘s employees could somehow be interpreted to 

fall within the repair, rebuild, or replacement of ―property‖ requirement, the theater was fully 

cleaned prior to each evening‘s scheduled performance. Significantly:

 OSF stated that the four cancelled performances were scheduled to take place at 

8:00 p.m. at the outdoor theater.10 

 OSF employees testified that they cleaned up the soot and ash well before any 

scheduled performances each day, generally by mid-afternoon, and that OSF 

never had to cancel a performance as a result of clean-up.11

 According to OSF Custodial Supervisor, Dane Coefer, ―[w]e had enough staff to 

take care of [cleaning prior to the scheduled performances].‖12 

 OSF‘s Safety Manager, Janice Tacconi, stated that if the air quality had been 

better, OSF would have been in a position to hold performances each night.13 

 

8 Declaration of Jill Lee, Exhibit A (Rider EUO at 36:13-38:24); Exhibit B (Coefer EUO at 

26:17-23); Exhibit C (Campbell EUO at 10:19-11:12); Exhibit D (Delgado EUO at 12:5-17); 

Exhibit E (Cruz EUO at 9:9-12).

9 Lee Declaration, Exhibit F (Holden EUO at 25:21-26:7); Exhibit C (Campbell EUO at 

13:9-25).

10 Lee Declaration, Exhibit G (Wallace EUO 18:10-12).

11 Lee Declaration, Exhibit A (Rider EUO at 36:13-38:24); Exhibit D (Delgado EUO at 12:5-

17); Exhibit H (Faerber EUO at 18:1-25); Exhibit I (Resch EUO at 16:15-19).

12 Lee Declaration, Exhibit B (Coefer EUO at 29:12-30:13).

13 Lee Declaration, Exhibit J (Tacconi EUO at 32:2-25).
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 OSF‘s Executive Director, Cynthia Rider, provided a sworn statement that there 

were many days that soot and ash landed on the seats and floor in the outdoor 

theater, and OSF chose not to cancel the performance those evenings.14 

Because the theater was fully cleaned and available for the scheduled performances, 

there was no ―suspension‖ of ―operations‖ that occurred during a ―period of restoration‖ and, 

based on the undisputed facts, OSF cannot meet its burden to prove that operations were 

suspended during a ―period of restoration.‖

(ii) Any suspension of operations claimed by OSF was not 

caused by “Direct Physical Loss of or Damage to Property.”

The Policy requires that the suspension of operations be caused by the ―direct 

physical loss of or damage to property.‖ Case law from Oregon and other jurisdictions 

interprets this policy language to mean that ―physical loss‖ requires damage that renders the 

building uninhabitable or unusable. For the reasons set forth below, OSF has failed to meet 

OSF‘s burden to prove that it suffered ―direct physical loss of or damage to property.‖

In Great Northern Insurance Co. v. Benjamin Franklin Federal Savings & Loan 

Association, The Honorable Judge Owen Panner considered whether there was coverage for 

asbestos removal in a building.15 Judge Panner properly concluded that there was no 

coverage, stating that the ―building has remained physically intact and undamaged. The only 

loss is economic.‖16

 

14 Lee Declaration, Exhibit A (Rider EUO at 44:2-21).

15 793 F. Supp 259 (D. Or. 1990), aff’d, 953 F.2d 1387 (9th Cir. 1992).

16 Benjamin Franklin, 793 F. Supp at 263 (emphasis added). 
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JUDGMENT

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By contrast, in Farmers Insurance Co. of Oregon v. Trutanich,

17 the Oregon Court of 

Appeals ruled there was ―direct physical loss‖ to a home ―because the insured house had 

been physically damaged by the [methamphetamine] odor.‖18 Indeed, in Trutanich, the 

insured claimed the house needed to be decontaminated and restored.19 Here, OSF has not 

claimed any cost to remove pervasive smoke, as was the case in Trutanich. Instead, OSF 

claims a loss that is purely economic, as was the case in Benjamin Franklin, the asbestos 

case.20

The undisputed facts show that OSF did not suffer any direct physical loss or damage 

to its property, nor were any repairs made to its property.21 Notably, 14 of OSF‘s employees 

and managers testified in Examinations Under Oath regarding this matter and not a single 

employee or manager was able to identify any ―direct physical loss or damage‖ that resulted 

in cancellation of the four separate performances. To the contrary, OSF‘s employees and 

managers testified that the performances were cancelled solely due to poor ―air quality from 

surrounding forest fires.‖22

 

17 123 Or. App. 6, 858 P.2d 1332 (1993).

18 Trutanich, 123 Or. App. at 11, n.4, 858 P.2d at 1335.

19 Id. at 8, n. 2, 858 P.2d at 1334.

20 See, e.g., Lee Declaration, Exhibit A (Rider EUO at 47:18-21, 50:8-51:10); Exhibit K 

(Roos EUO at 62:5-63:19 (testifying that OSF‘s business interruption claim is solely based 

on economic loss)).

21 Lee Declaration, Exhibit A (Rider EUO at 47:18-21, 50:8-51:10); Exhibit K (Roos EUO at 

62:5-63:19).

22 Lee Declaration, Exhibit A (Rider EUO at 31:20-32:4); Exhibit L (Barry EUO at 11:18-

12:3); Exhibit K (Roos EUO at 30:6-13).
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JUDGMENT

Page 8

Other cases around the country support the conclusion that OSF did not sustain a 

―direct physical loss of or damage to property,‖ as required to trigger coverage for business 

income loss. In Roundabout Theatre Co. v. Continental Casualty Co.,

23 a small non-profit 

theatre in New York was forced to cancel performances when the theatre was rendered 

inaccessible to the public for several weeks by a municipal order closing the street for safety 

reasons. The appellate court in New York found Continental correctly denied coverage for 

the loss.24 The court ruled there was no ―direct physical loss or damage to the [insured‘s] 

property.‖25 The court found ―[t]he plain meaning of the words  ̳direct‘ and  ̳physical‘ 

narrows the scope of coverage and mandates the conclusion that losses resulting from off-site 

property damage do not constitute covered perils under the policy.‖26 

In another similar case, the federal district court in New York found no coverage for 

business income losses of a law firm after the utility provider preemptively shut off power 

during and after Hurricane Sandy.27 In that case, the court found that ―direct physical loss or 

damage‖ requires ―actual, demonstrable harm of some form to the premises itself, rather than 

forced closure of the premises for reasons exogenous to the premises themselves, or the 

adverse business consequences that flow from such closure.‖28 

 

23 302 A.D.2d 1, 6-7, 751 N.Y.S.2d 4 (2002).

24 Id.

25 Id.

26 Id. at 7.

27 Newman Myers Kreines Gross Harris, P.C. v. Great Northern Ins. Co., 17 F. Supp. 3d 323 

(S.D. N.Y. 2014).

28 Id. at 331.
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Here, OSF has not suffered any ―direct physical loss of or damage to property‖ under 

the Policy and has clearly failed to meet its initial burden of proving coverage under the 

Policy. Further, some of OSF‘s alleged damages do not arise from a ―suspension‖ at all. 

Approximately half of OSF‘s alleged economic losses arise from ―Canceled Orders on 

[Indoor] Non-Canceled Performances,‖ attributed to loss of sales resulting from potential 

customers who decided not to travel to Southern Oregon due to the fires.29

(b) None of OSF’s four alleged losses fall within the Policy’s coverage 

grant for extra expense coverage.

The Policy‘s Business Income (And Extra Expense) Coverage Form also provides 

coverage for ―extra expense,‖ which provides, in part:

a. Extra Expense Coverage is provided at the premises 

described in the Declarations only if the 

Declarations show that Business Income Coverage 

applies at that premises.

b. Extra Expense means necessary expenses you incur 

during the ―period of restoration‖ that you would not 

have incurred if there had been no direct physical 

loss or damage to property caused by or resulting 

from a Covered Cause of Loss. 

As discussed above, there was no ―direct physical loss or damage‖ to covered property and 

there was no ―period of restoration,‖ which means the extra expense coverage was not 

triggered. 

Even if extra expense coverage had been trigged by the policy, the work performed 

by OSF‘s employees did not result in any extra expenses to OSF. The outdoor theater floor 

 

29 Lee Declaration, Exhibit A (Rider EUO 39:13-40:1); Exhibit K (Roos EUO at 64:19 –

65:10); Exhibit M (OSF Business Interruption Insurance Claim Breakdown). 
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is made of concrete and the seats are made of hard resin plastic.30 OSF employees testified 

that they used rags and buckets of water to clean the seats and floor; no special chemicals or 

other cleaning equipment were needed.31

In addition to the lack of extra expense related to cleaning supplies, OSF did not pay 

any additional payroll expenses. Jerry Roos, OSF‘s Director of Finance and Administration, 

admitted that OSF employees were not paid overtime for the time spent cleaning the soot and 

ash.32 OSF‘s custodial employees confirmed Mr. Roos‘s testimony. The employees testified 

that it took them between 20 minutes and one hour each day to clean up the soot and ash.33 

Their schedules remained the same; rather their duties were slightly reallocated to deal with 

the soot and ash.34

OSF is not entitled to extra expense coverage under the Policy because: (1) there was 

no ―direct physical loss or damage‖ to covered property, nor a ―period of restoration‖ to 

trigger the coverage; and (2) even if coverage had been triggered, OSF did not suffer any 

extra expenses.

 

30 Lee Declaration, Exhibit B (Coefer EUO at 15:10-16:25); Exhibit N (photographs of Allen 

Elizabethan Theatre).

31 Lee Declaration, Exhibit A (Rider EUO at 36:13-38:24); Exhibit B (Coefer EUO at 26:17-

23); Exhibit C (Campbell EUO at 10:19-11:12); Exhibit D (Delgado EUO at 12:5-17); 

Exhibit E (Cruz EUO at 9:9-12).

32 Lee Declaration, Exhibit K (Roos EUO at 62:5-63:19); Exhibit D (Delgado EUO at 13:8-

25).

33 Lee Declaration, Exhibit C (Campbell EUO at 12:7-21); Exhibit O (Solis EUO at 16:4-22).

34 Lee Declaration, Exhibit C (Campbell EUO at 17:20-18:3); Exhibit O (Solis EUO at 

18:14-23); Exhibit E (Cruz EUO 7:17-22).
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JUDGMENT

Page 11

(c) None of OSF’s four alleged losses were fortuitous.

The Restatement of Contracts, §291, states: ―A fortuitous event . . . is an event which 

so far as the parties to the contract are aware, is dependent on chance.‖ As discussed below, 

insurance policies only provide coverage for fortuitous events.

In order to meet its initial burden of proving coverage under the Policy, OSF must 

prove that a fortuitous event caused ―direct physical loss of or damage to covered 

property . . . caused by or resulting from any covered cause of loss.‖ Here, however, OSF‘s 

loss became a ―certainty‖ when OSF made the voluntary decision to cancel the four separate 

performances.

Each evening, OSF‘s special committee analyzed detailed air quality criteria to 

determine whether to cancel the scheduled performance.35 As set forth in the Statement of 

Facts, none of the cancellation criteria relied upon by OSF included any reference to property 

damage, or any other ―direct physical loss or damage to property.‖

No federal, state, or local agency, or public authority of any kind, ordered the 

cancellation of the performances.36 Further, prior to cancellation, OSF was well aware that 

cancellation of the performances would have a significant financial impact.37

In breach of OSF‘s duty to mitigate damages and try to avoid losses, OSF made the 

conscious and deliberate decision to cancel four separate performances at its outdoor theater 

without confirming whether those cancellations would be covered by insurance, or whether 

any direct physical loss or damage to property occurred. Great American does not owe 

 

35 Lee Declaration, Exhibit P (Performance Cancellation Criteria). 

36 Lee Declaration, Exhibit A (Rider EUO at 29:9-30:5).

37 Lee Declaration, Exhibit F (Holden EUO at 14:9-15:7).
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coverage to OSF as a result of OSF‘s voluntary business decision for uncovered causes of 

loss.

(d) The Great American insurance Policy contains exclusions which 

bar these claims.

As discussed above, there should be no coverage for OSF‘s business income and extra 

expense claim because there is no ―period of restoration‖ and no ―direct physical loss of or 

damage to property.‖ Even if OSF could trigger coverage under the insuring agreement, 

there would be no coverage because each of the four losses is excluded by specific Policy 

language. Two exclusions apply:

(i) The exclusion for “smog” applies to any potential coverage.

The Policy provides, in relevant part:

B. Exclusions

* * * * *

2. We will not pay for loss or damage caused by or 

resulting from any of the following:

* * * * *

d. * * * * *

(3) smog;

* * * * *

The term ―smog‖ is not defined in the Policy. According to the Oxford Dictionary, 

the plain meaning of ―smog‖ is, ―fog or haze combined with smoke and other atmospheric 

pollutants.‖38 The Oxford Dictionary defines ―haze‖ as ―a slight obscuration of the lower 

 

38 http://www.oxforddictionaries.com/us/definition/american_english/smog; December 10, 

2015.
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atmosphere, typically caused by fine suspended particles.‖39 The Policy defines ―pollutants‖ 

as:

[A]ny solid, liquid, gaseous or thermal irritant or contaminant, 

including smoke, vapor, soot, fumes, acids, alkalis, chemicals 

and waste. Waste includes materials to be recycled, 

reconditioned or reclaimed.

Jerry Roos testified at his EUO that smoke was ―extremely thick‖ and ―worse than‖ 

[smoggy]. It was bad. It was eerie.‖40 Mr. Roos identified 3 photographs showing smoke 

particles in the air during times relevant to OSF‘s claims.41

According to OSF, the atmosphere was obscured by fine ash and soot particles.42 

Haze combined with smoke from the wildfires falls directly within the plain meaning of 

smog. Thus, even if OSF was able to meet its initial burden of proving coverage under the 

Policy, such coverage is barred by the ―smog‖ exclusion.

(ii) The exclusion for “Delay, Loss of Use or Loss of Market” 

applies to any potential coverage.

The Policy specifically excludes ―loss or damage caused by or resulting 

from...[d]elay, loss of use or loss of market.‖ The Honorable Ancer Haggerty, speaking for 

the federal district court in Oregon, addressing an identical exclusion, explained that ―[t]he 

provision‘s use of the terms  ̳delay‘ and  ̳loss of market‘ in the same phrase as  ̳loss of use‘ 

indicates that the exclusion covers intangible economic losses, not the type of tangible, direct 

 

39 http://www.oxforddictionaries.com/us/definition/american_english/haze#haze__2; 

December 10, 2015.

40 Lee Declaration, Exhibit K (Roos EUO at 66:3-9).

41 Lee Declaration, Exhibit Q (Photographs showing smoke particles).

42 Lee Declaration, Exhibit F (Holden EUO at 20:7-23).
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damages resulting from direct physical loss at issue [in that case].‖43 The court gave as an 

example that ―loss of use‖ damages may refer to lost profits or diminution in value.

As set forth above, OSF did not suffer a direct physical loss from which it claims 

business income loss, and so there is no coverage under the policy. Even if this claim came 

within the policy‘s coverage grant, it would nevertheless be excluded. OSF‘s claimed losses 

result entirely from its voluntary decision to cancel four performances due to health concerns 

relating to poor air quality. As a result, OSF‘s alleged losses would be excluded under the 

―loss of use‖ exclusion.

(e) OSF’s interpretation of the Policy contradicts public policy in 

Oregon.

Oregon law provides that when ―admitted‖ Oregon insurers (such as Great American) 

do not provide a particular type of coverage, such coverage can be procured through a 

surplus lines insurer.44 Oregon courts have recognized that such surplus lines policies are 

only available when ―admitted‖ carriers do not provide such coverage.45 Also, see attached 

Declaration of Josephine M. Driscoll, former Insurance Commissioner of Oregon and past 

President of the National Association of Insurance Commissioners.46

 

43 Schneider Equipment, Inc. v. Travelers Indem. Co. of Ill., No. CV 04-1482-HA, 2005 WL 

1565006, at *9 (D. Or. June 29, 2005).

44 ORS 735.410.

45 See Nat’l Warranty Ins. Co. v. Greenfield, 24 F. Supp. 2d 1096, 1101 (D. Or. 1998) 

(noting, ―insurance is available from a non-admitted surplus lines carrier only when 

insurance is not available from an admitted carrier‖).

46 See Declaration of Josephine M. Driscoll.
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In Oregon, surplus lines carriers provide event cancellation coverage. OSF declined 

to purchase event cancellation insurance. And the Great American policy does not provide 

event cancellation coverage. Accordingly, a judicial finding that the Great American policy 

should cover an event cancellation loss would violate the public policy expressed in Oregon 

laws.

2. Oregon Courts Do Not Recognize OSF’s Second Cause of Action for 

Breach of an Implied Covenant of Good Faith and Fair Dealing.

OSF‘s Second Cause of Action is for ―Breach of the Implied Covenant of Good Faith 

and Fair Dealing‖ and generally alleges that Great American breached a covenant of good 

faith by denying the insurance claim, taking multiple Examinations Under Oath, and causing 

OSF to incur expenses in responding to document requests.

Summary judgment against the Second Cause of Action is appropriate for three 

reasons. First, Oregon law is clear that tort claims against an insurance company in the firstparty context are not permitted in Oregon. Second, the claim is duplicative of the breach of 

contract claim. And third, the actions Great American undertook to investigate OSF‘s claim 

were reasonable and expressly permitted by the insurance contract without any complaint or 

question from OSF until after the Examinations Under Oath were completed.
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(a) OSF’s breach of the duty of good faith and fair dealing claim 

should be dismissed because there is no first-party tort liability 

available in this case.

Oregon law does not allow for tort liability in the first-party context.47 In Farris v. 

U.S. Fid. and Guar. Co.,

48 the insured tendered defense of a lawsuit to its insurer. The 

insurer denied the claim without any justification and noted in the claim file ―let‘s bluff it out 

we can always buy out at a later date.‖ After the insured settled the underlying action, it sued 

its insurer. Despite the insurance company‘s egregious behavior, the Oregon Supreme Court 

concluded that the denial of coverage only constituted a breach of contract, not a tort action. 

In so holding, the Court distinguished between first-party and third-party insurance claims.

In Bennett v. Farmers Ins. Co.,

49 the Oregon Supreme Court expanded on the 

distinction between first-party and third- party claims. In Bennett, the insured argued that a 

special relationship existed—which allowed for tort liability against the insurance 

company—because Farmers had exerted more and more control over the insured‘s financial 

interests. The Court disagreed, emphasizing that the focus of the ―special relationship‖ was 

on the nature of the relationship, not the subject matter of the relationship. The court noted 

that a typical ―special relationship‖ is created when an insurance company undertakes to 

defend its insured and exerts complete control over the litigation. In a first-party context, 

however, an insurer‘s liability to its insured is limited to breach of contract claims.

 

47 See, e.g,. Santilli v. State Farm, 278 Or. 53, 562 P.2d 965 (1977); Farris v. U.S. Fid. and 

Guar. Co., 284 Or. 453, 587 P.2d 1015 (1978).

48 284 Or. 453, 587, P.2d 1015 (1978).

49 332 Or. 138, 26 P.3d 785 (2001).
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Even if a special relationship existed in a first-party context, which it does not in 

Oregon, mere denial of a claim is not enough to establish a breach of the duty of good faith 

and fair dealing. Summary judgment against OSF‘s first-party tort claim is appropriate.

(b) OSF’s breach of the duty of good faith and fair dealing claim 

should be dismissed because it is duplicative.

OSF‘s breach of the duty of good faith and fair dealing claim is duplicative of its 

claim for breach of contract. This Court was faced with a similar situation in Malbco 

Holdings, LLC v. AMCO Ins. Co.

50

 In Malbco, the plaintiff‘s first claim against the insurer 

was that it breached the relevant insurance policies by denying coverage.51 Like in this case, 

the Malbco plaintiff attempted to make an additional claim alleging that the defendants 

breached the duty of good faith and fair dealing. This Court granted the insurance company 

defendants summary judgment because there is no first-party tort claim available in Oregon:

As discussed above, Oregon does not recognize a tort claim 

against an insurer for breach of a duty of good faith and fair 

dealing. Instead, any claim for breach of good faith is 

incorporated into a breach of contract claim for failing to 

provide insurance coverage. Not being a separately cognizable 

claim under Oregon law, the Third Claim for breach of good 

faith and fair dealing is redundant and simply duplicates the 

First Claim by alleging a breach of contract. Accordingly, 

AMCO and Wausau are entitled to summary judgment against 

the Third Claim.52

Here, OSF‘s allegations in the breach of the duty of good faith claim all relate to the 

alleged breach of contract. There is no evidence to support any breach of a duty of good 

faith and fair dealing by Great American. Great American adjusted the loss pursuant to the 

 

50No. CV-08-585-ST, 2008 WL 5205202, at *11 (D. Or. 2008).

51 Id. at *6.

52 Id. at *11.
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terms, conditions, limitations, and exclusions of the insurance policy. OSF disagrees with 

the coverage determination, but mere disagreement is not actionable in tort. OSF seeks the 

exact same amount of damages that are being sought in the breach of contract claim. There 

is no evidence to support any alleged damages separate from those OSF alleges having arisen 

from the alleged breach of contract. The claim should be dismissed as duplicative of the 

breach of contract claim.

(c) OSF’s breach of the duty of good faith and fair dealing claim 

should be dismissed because Great American’s actions in adjusting 

the losses were permitted by the contract of insurance.

The implied duty of good faith does not ―operate in a vacuum,‖ but ―rather it focuses 

on the agreed common purpose and the justified expectations of the parties to the contract, 

both of which are intimately related to the parties‘ manifestation of their purposes and 

expectations in the express provisions of the contract.‖53 The duty of good faith serves to 

effectuate the objectively reasonable expectations of the parties.54 The duty cannot 

contradict an express contractual term, nor otherwise provide a remedy for an unpleasantly 

motivated act that is expressly permitted by the contract.55

In Uptown Heights Assocs. Ltd P’ship v. Seafirst Corp.,

56 the Oregon Supreme Court 

rejected a contractual duty of good faith and fair dealing claim based on the express terms of 

the contract between the parties despite the financial loss and damaged reputation suffered by 

 

53 Klamath Off-Project Water Users, Inc., 237 Or. App. 434, 445, 240 P.3d 94, 101 (2010) 

(internal citations omitted).

54 Id.

55 Id.

56 320 Or. 638, 891 P.2d 639 (1995).
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the plaintiff when defendant foreclosed on secured real estate. The court summarized the 

established principles governing a contractual duty of good faith claim:

[I]f a written contract between the parties expressly allows for a 

particular remedy by one of the parties, in the face of a specified 

breach, the parties' objectively ―reasonable expectations‖ under 

the contract include the invocation of that remedy in the face of 

that breach. The party invoking its express, written contractual 

rights does not, merely by so doing, violate its duty of good 

faith.57

OSF never complained about the number of Examinations Under Oath until long after 

the Examinations Under Oath were completed. OSF now alleges that Great American 

breached a duty of good faith and fair dealing by taking numerous Examinations Under Oath 

and requesting documents to support OSF‘s claim.58 OSF characterizes the requests, and 

Great American‘s motives for making the requests, in negative terms. But regardless of the 

adjective used to describe the actions OSF complains of, there is no dispute that Great 

American‘s actions were authorized by the insurance policy, which provides for taking 

Examinations Under Oath and requesting documentation from an insured to support its 

claim.59 Great American took the Examinations Under Oath of each of the OSF employees 

that OSF identified as having claim information.

Great American‘s actions in investigating OSF‘s insurance claim and requesting 

information from OSF were expressly permitted by the contract of insurance. OSF‘s claim 

for the breach of the implied duty of good faith and fair dealing should be dismissed.

 

57 Id. at 643, 891 P2d at 644.

58 Complaint (Dkt. #1), at 7-8.

59 Insurance Policy (Dkt. # 1-4), at 226 of 292.
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3. OSF’s first-party negligence claim is not actionable in Oregon.

A May 2015 decision written by the United States District Court for the District of 

Oregon granting an insurance company summary judgment against negligence per se claims 

provides the analysis for why OSF‘s negligence claim should be dismissed.

In Vail v. Country Mut. Ins. Co.,

60 the court cited the ―well-established‖ law in 

Oregon that ―tort remedies are not available in the context of an insurance dispute unless the 

defendant was subject to a standard of care independent of the terms of the underlying 

contract, such as where a special relationship exists.‖61 And in the first-party context, there 

is not a special relationship to support a tort claim: ―[A]n insurer‘s bad faith refusal to pay 

policy benefits to its insured sounds in contract and is not an actionable tort in Oregon.‖62

The court rejected the argument that the Oregon Unfair Claims Settlement Practice 

Act, which OSF attempts to rely on in this case, creates a standard of care that can support a 

first-party tort claim against an insurance company:

Further, contrary to plaintiffs' assertion, Or.Rev.Stat. § 746.230 

does not create an independent duty of care. ―While a statute 

can provide a basis in law for liability, Oregon courts disfavor 

judicial establishment of a civil cause of action based on 

statute.‖ Plaintiffs have not identified any authority holding that 

Or.Rev.Stat. § 746.230 creates an independent duty of care, 

despite being afforded the additional opportunity to do so at oral 

argument. In fact, numerous Oregon courts, including the 

Oregon Supreme Court, have explicitly rejected this argument.63

 

60 No. 2:13-CV-02029-SU, 2015 WL 2207952 (D. Or. May 11, 2015).

61 Id. at 8 (citing Georgetown Realty, Inc. v. Home Ins. Co., 313 Or. 97, 106, 831 P.2d 7 

(1992) (en banc)).

62 Employers’ Fire Ins. Co. v. Love It Ice Cream Co., 64 Or. App. 784, 791, 670 P.2d 160, 

165 (1983).

63 Id. 3 (citations and internal quotations omitted).
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The District of Oregon has consistently held that ―[b]ased on clearly established state 

law and the deference this court must show to the rulings of the Oregon courts, [ORS] 

746.230 does not create a standard of care independent of the terms of the policies.‖64 

Accordingly, this Court should grant summary judgment against OSF‘s Third Cause of 

Action for Negligence.

C. Conclusion

OSF‘s arguments presented by this case are not unique, and have been dealt with and 

rejected numerous times by courts interpreting Oregon law. An insurance policy that 

provides property coverage requires fortuitous ―direct physical loss‖ or ―damage‖ to covered 

property in order to initially trigger possible coverage provided by the policy. Even if OSF 

could prove the existence of direct physical loss or damage to covered property, OSF still 

could not prevail because its nonfortuitous, voluntary decision to cancel four performances 

was unrelated to any direct physical loss or damage. The cause of OSF‘s loss was OSF‘s 

voluntary decision to cancel performances because of unhealthy air quality conditions, not

because of any alleged physical loss or damage. 

OSF attempts to treat Great American‘s property policy as a health insurance policy 

that provides coverage for cancelled performances on account of hazardous air quality. 

Great American wrote a property policy, not an air or event cancellation policy. It would be 

contrary to the clear language of the insurance contract and against the public policy of 

Oregon to interpret the Great American policy to provide coverage for this claim.

 

64 Braun–Salinas v. Am. Family Ins. Grp., No. 3:13–CV–00264–AC, 2014 WL 1333731, *8 

(D. Or. Apr. 1, 2014).
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OSF also asks this court to do what the Oregon Supreme Court has consistently been 

unwilling to do: permit an extra-contractual tort claim against a first-party insurer. The 

well-established Oregon law on these points should lead this Court to grant Great 

American‘s Motion for Summary Judgment in its entirety and dismiss OSF‘s lawsuit.

DATED: February 22, 2016

Respectfully Submitted,

BULLIVANT HOUSER BAILEY PC

By s/ Douglas G. Houser

Douglas G. Houser, OSB #600384

Matthew E. Hedberg, OSB #081958

Telephone: 503.228.6351

Attorneys for Defendant, Great American Insurance 

Company

15907188.1