PLAINTIFF’S MOTION FOR PARTIAL SUMMARY 

JUDGMENT AND MEMORANDUM IN SUPPORT THEREOF O:\9426002\0043c motion and memo for MSJ.doc

PARSONS FARNELL & GREIN, LLP

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Telephone (503) 222-1812 FAX: (503) 274-7979

MICHAEL E. FARNELL, OSB# 922996

E-mail: mfarnell@pfglaw.com

PARSONS FARNELL & GREIN, LLP

1030 SW Morrison Street

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Of Attorneys for Plaintiff

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.

Case No. 1:15-CV-01932-CL 

PLAINTIFF’S MOTION FOR PARTIAL

SUMMARY JUDGMENT AND 

MEMORANDUM IN SUPPORT

THEREOF

(ORAL ARGUMENT REQUESTED)
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PARSONS FARNELL & GREIN, LLP

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Table of Contents

Table of Authorities ...................................................................................................................... i

LR 7.1(a) CERTIFICATION........................................................................................................1

MOTION ........................................................................................................................................1

MEMORANDUM IN SUPPORT OF MOTION ........................................................................1

I. INTRODUCTION..................................................................................................1

II. FACTUAL STATEMENT....................................................................................4

III. THE INSURANCE POLICY................................................................................8

IV. APPLICABLE STANDARDS ............................................................................10

A. Summary Judgment Standard................................................................10

B. The Legal Standard Governing Interpretation of 

Insurance Policies.....................................................................................11

V. ARGUMENT........................................................................................................13

A. There is no dispute that OSF incurred a loss of business 

income due to a slowdown or cessation of its operations. ....................13

B. The smoke saturating the interior confines of the Elizabethan Theatre 

constitutes “physical loss or damage” to property................................14

1. The plain-language interpretation of the phrase “physical loss 

or damage” indisputably means any injury or harm to a 

natural or material thing, such as the theater...........................14

2. Decisional case law from Oregon and across the 

country likewise concludes that gases, odors,

and particles constitute “physical loss or damage”

to property. ...................................................................................15

3. Even assuming that Great American could advance 

a reasonable alternative interpretation of “physical 

loss or damage” to property, thereby rendering 

the phrase ambiguous, Oregon’s rules of policy interpretation 

dictate that the ambiguity be 

resolved in favor of OSF..............................................................21
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C. Further, the plain terms of definition of “period of restoration” 

include the time it took for the smoke inside the Elizabethan 

Theatre to dissipate..................................................................................22

VI. CONCLUSION ....................................................................................................24

Certificate of Compliance.............................................................................................................. i
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Table of Authorities

Cases

Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986)........................................................................10

Celotex Corp. v. Catrett, 477 U.S. 317 (1986) ..............................................................................10, 11

Columbiaknit, Inc. v. Affiliated FM Ins. Co., 1999 WL 619100 (D. Oregon August 4, 1999)............17

Cooper v. Travelers Ind. Co., 2002 WL 32775680 (N.D. Cal.) ..........................................................21

Essex v. BloomSouth Flooring Corp., 562 F.3d 399 (1st Cir. 2009)...................................................19

Farmers Ins. Co. v. Trutanich, 123 Or. App. 6, 858 P.2d 1332 (1993)...................................17, 18, 23

Gregory Packaging, Inc. v. Travelers Property Cas. Co., 2014 WL 6675934 

(D.N.J., Nov. 25, 2014)......................................................................................................20, 21, 23, 26

Groshong v. Mut. of Enumclaw Ins. Co., 329 Or. 303, 985 P.2d 1284 (1999)....................................12

Hoffman Constr. Co. v. Fred S. James & Co. of Or., 

313 Or. 464, 836 P.2d 703 (1992)..................................................................................4, 12, 13, 24, 27

Konell Constr. & Demolition Corp. v. Valiant Ins. Co., 2006 WL 1360956 (D Or)...........................13

Land v. West Coast Life Ins. Co., 201 Or. 397, 270 P.2d 154 (1954)..................................................14

Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986)...........................................11

Matzner v. Seaco Ins. Co., 1998 WL 566658 (Mass. Super. Aug. 12, 1998)......................................19

Mellin v. N. Sec. Ins. Co., Inc., 167 N.H. 544 (2015) (Apr. 24, 2015) ................................................22

Motorists Mutual Ins. Co. v. Hardinger, 131 F. App’x 823 (3rd Cir. 2005).......................................19

Mut. of Enumclaw Ins. Co. v. Rohde, 170 Or. App. 574, 13 P.3d 1006 (2000)...................................12

N. Pac. Ins. Co. v. Am. Mfrs. Mut. Ins. Co., 200 Or. App. 473, 115 P.3d 970 (2005).........................12

North Pacific Ins. Co. v. Hamilton, 332 Or. 20, 22 P.3d 739 (2001).............................................12, 14

Playboy Enters., Inc. v. Welles, 279 F.3d 796 (9th Cir. 2002) ............................................................11

Port Authority of New York and New Jersey v. Affiliated FM, 311 F.3d 226 (3d Cir. 2002)..............20

Prudential Property & Casualty Ins. Co. v. Lillard-Roberts, 2002 WL 31495830 (D. Or.)...............18

Schlamm Stone & Dolan LLP v. Seneca Ins. Co., 2005 WL 600021 (NY Sup.).....................21, 22, 23

Sentinel Management Co. v. New Hampshire Ins. Co., 563 N.W.2d 296 (Minn. 1997).....................19

Stack Metallurgical Services Inc. v. Travelers Ind. Co. of Connecticut,

2007 WL 464715 (D. Or.)..............................................................................................................18, 26

Villiarimo v. Aloha Island Air. Inc., 281 F.3d 1054 (9th Cir. 2002)....................................................11

Western Fire Ins. Co. v. First Presbyterian Church, 165 Colo. 34, 437 P.2d 52 (Colo. 1968)...........19

White Mountain Communities Hosp. Inc. v. Hartford Cas.,

2015 WL 1755372 (D. Ariz. 2015)..........................................................................................22, 23, 26

Other Authorities

Webster's Third New Int.’l, Dictionary 1338 (unabridged ed. 1993) ..................................................14

Webster's Third New Int.’l, Dictionary 1706 (unabridged ed. 1993) ..................................................14

Webster's Third New Int.’l, Dictionary 1923 (unabridged ed. 1993) ..................................................22

Rules

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

Rule 56(e).............................................................................................................................................10
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LR 7.1(a) CERTIFICATION

Counsel for Plaintiff, Oregon Shakespeare Festival Association (“OSF”), and 

counsel for Defendant, Great American Insurance Company (“Great American”), 

conferred by telephone regarding this motion, but were unable to resolve their dispute.

MOTION

OSF incurred significant losses as a result of wildfires in 2013 that triggered the 

business income coverage in its policy with Great American. These wildfires ultimately 

forced the cancellation of four performances because of a toxic brew of heavy wildfire 

smoke that inundated OSF’s Elizabethan Theatre. The cancellations in turn resulted in 

lost business income. 

Pursuant to Fed. R. Civ. P. 56, OSF now moves the Court for partial summary 

judgment in its favor on each the following three issues, only: (1) a ruling that OSF 

suffered loss of business income; (2) a ruling that the smoke inside the Elizabethan 

Theatre constituted “physical loss or damage” to property; and (3) a ruling that “period of 

restoration” includes the time it took for the smoke to dissipate. 

The total amount of OSF’s loss and its resulting damages are not at issue in the 

instant motion. Those are genuine issues of material fact for the jury. 

MEMORANDUM IN SUPPORT OF MOTION

I. INTRODUCTION

This is an insurance coverage dispute arising out of Great American’s wrongful 

refusal to pay insurance benefits. In late July and early August 2013, Ashland was 

besieged by the confluence of multiple, out-of-control wildfires. The interior of OSF’s 
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Elizabethan Theatre was filled with smoke and the theater’s seating, HVAC, lighting and 

electronic systems were coated with a layer of ash and soot. 

An intolerable combination of fine particulate matter, carbon monoxide and 

nitrogen dioxide left OSF with no choice but to cancel four performances in OSF’s 

Elizabethan Theatre. Indeed, EPA guidance strongly recommended the performances be 

cancelled. The consequent loss of business revenue arising from these cancelled 

performances is precisely the sort of loss Great American agreed to cover. That it has

refused to do so is a disappointment to this nonprofit corporation. 

The plain terms of Great American’s policy provide that the insuring agreement is 

triggered if there is (a) any loss of business income due to a slowdown or cessation of 

OSF’s operations caused by (b) “physical loss or damage” to property at the premises (c) 

until that loss or damage is restored, referred to as the “period of restoration” (and, by 

virtue of Great American’s extended business income coverage, until business returns to 

levels had there not been any loss or damage). Notably, the policy places no limitation 

on what property in the theater must sustain “physical loss or damage,” and Great 

American chose not to define the terms “physical,” “loss,” or “damage” within the policy.

Great American nevertheless takes the position that it will never have an

obligation to pay because the air inside the Elizabethan Theatre cannot be the subject of 

“physical loss or damage.” Great American contends that air, however toxic, cannot be 

damaged. Thus, according to Great American, the undisputed fact that smoke permeated 
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the theater does not constitute “physical loss or damage” to property at the premises. 

And, according to Great American, because there is no “physical loss or damage” to 

property, no covered loss could result. 

The defects in Great American’s coverage position are clear. First, for Great 

American to refer to “air,” standing alone, is misleading. It is the fact that the interior 

space of the theater was damaged by smoke that matters. The “physical loss or damage” 

occurred when the smoke saturated the inside of the theater. If, for example, mustard gas 

completely filled a house, one would not deny that the house had been damaged. It

strains credibility to claim, as Great American does here, that the house in that example 

was not damaged when the mustard gas was dropped inside. It is the same thing here; the 

space inside the theater, and the air that occupied that space, was damaged. And that is 

exactly what cases across the country have held. See, e.g.,Gregory Packaging, Inc. v. 

Travelers Property Cas. Co., 2014 WL 6675934 (D.N.J., Nov. 25, 2014) (finding that a 

release of ammonia “physically transformed the air” within the facility such that until the 

gas dissipated there was direct “physical loss or damage” to the plant for purposes of 

business income coverage).

The indisputable facts therefore trigger Great American’s coverage obligation. 

Critically, indeed dispositively for purposes of this motion OSF’s reading of the policy 

language does not have to be right; it only has to be reasonable. Accordingly, assuming 

Great American could somehow offer a reasonable competing interpretation of its 

business income insuring agreement, that would merely result in an ambiguity, which as 

a matter of law is resolved in favor of the insured every time. Hoffman Constr. Co. v. 
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Fred S. James & Co. of Or., 313 Or. 464, 469-71, 836 P.2d 703 (1992) (finding that if 

multiple interpretations are reasonable the provision is ambiguous, but that the insured 

need only offer a single reasonable interpretation to prevail). Here, OSF’s interpretation 

is not just reasonable; decisional law from Oregon and across the country again clearly 

establishes that poor air quality alone constitutes direct physical loss and/or damage to 

property. Those cases also clearly establish that the “period of restoration” includes the 

time it takes for smoke, gas, or vapor to dissipate from, as here, the interior of a building. 

At bottom, OSF’s business was interrupted due to smoke damage in the 

Elizabethan Theatre, which engulfed the property. Therefore, while the full amount of 

OSF’s loss and its resulting damages are genuine issues of material fact for the jury, there 

is no disputed question of material fact that: 

(1) OSF suffered at least some loss of business income when it cancelled 

performances; 

(2) The smoke inside the Elizabethan Theatre constitutes “physical loss or 

damage” to property; and 

(3) The “period of restoration” includes the time it took for the smoke to dissipate.

OSF now moves for partial summary judgment on each of these issues.

II. FACTUAL STATEMENT

In late July and early August 2013, Ashland was inundated by smoke from nearby 

wildfires.1

 This smoke filled the interior of OSF’s Elizabethan Theatre, coating its 

 1 Declaration of Michael E. Farnell (“Farnell Decl.) at Exhibit A (Roos EUO at 20:8-25; 

and 28:7-16)
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interior with a layer of ash and soot, including the seating, HVAC, lighting and electronic 

systems.2

 

OSF was ultimately forced to cancel four performances because of the very 

unhealthy levels of toxic smoke inside the theater: July 30, 2013, July 31, 2013, August 

1, 2013, and August 7, 2013.3 The cancellations in turn resulted in approximately 

$373,470 in lost ticket sales and concessions.4

 OSF also incurred roughly $7,651 in extra 

expenses to minimize the slowdown of its operations.5

 These extra expenses included the 

cost to relocate performances to Ashland High School.6

 It also included the cost to 

change air filters three or four times over a period during which they would have 

normally been changed only once.

7

 OSF further incurred the cost of materials to remove 

the ash and soot from the theater’s seats, walkways, stage, lighting and sound 

equipment.8

 

OSF’s Elizabethan Theatre is styled after London's 1599 Fortune Theatre insofar 

as it is walled and partially enclosed, but without a complete roof.9

 On the night of each 

cancelled performance, OSF’s executive director, Cynthia Rider, consulted a committee

 2 Farnell Decl. at Exhibit B (Tacconi EUO at 32:2-24), Exhibit C (Rider EUO at 38:6-

25); Exhibit D (Resch EUO at 10:11-22); and Exhibit E (Taylor EUO at 17:6-12).

3 Farnell Decl. at Exhibit C (Rider EUO at 11:18-25; 12:1-4; 25:2-6; and 33:14-18), 

Exhibit A (Roos EUO at Exhibit 4 – Cancellation Criteria); and Exhibit F (4/28/14 

correspondence at pages 4-7).

4 Farnell Decl., Exhibit A (Roos EUO at Exhibit 2 – Proof of Loss).

5 Id. 6 Id. 7 Farnell Decl. at Exhibit D (Resch EUO at 10:15-25; 11:1-21; and 12:1-5).

8 Farnell Decl. at Exhibit E (Taylor EUO at 17:6-12; 20:4-9; and 22:11-17) and Exhibit G 

(Wallace EUO at 26:1-23).
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(of which she was the chairperson) comprised of a total of eight OSF employees and 

managers.10 The committee met at 6:15-6:30 p.m. to determine whether the smoke inside

the Elizabethan Theatre required cancellation.11 Decisions were announced by 7:00 p.m. 

prior to each performance.12 EPA air quality guidance strongly recommended that these 

shows be cancelled.13 The air quality inside the theater was considered “very unhealthy” 

under EPA guidance.14 

With respect to each of the cancelled performances, it is uncontroverted that the 

toxic brew of wildfire smoke inside the physical boundaries of the theater necessitated 

the cancellations.15 For example, OSF’s safety director, Jan Tacconi, testified as follows:

Q: Did you yourself ever see any physical loss or damage to any 

property owned by Oregon Shakespeare Festival that you felt was 

caused by any wildfires in the summer of 20l3?"

A: Okay. Certainly because the Elizabethan theater is not enclosed, 

and we cannot control the air quality, we had a significant loss of air 

quality in that arena.16

Likewise, Cynthia Rider testified that the air inside the Elizabethan Theatre was 

damaged, stating:

 9 Farnell Decl., Exhibit A (Roos EUO at Exhibit 12B – Photo); Exhibit B (Tacconi EUO 

at 32:2-24); and https://en.wikipedia.org/wiki/Oregon_Shakespeare_Festival. 10 Exhibit A (Roos EUO at Exhibit 4 – Cancellation Criteria); and Exhibit C (Rider EUO 

at 17:9-25; 18:1-25; and 25:2-16).

11 Id.

12 Id.

13 Farnell Decl. at Exhibit F (4/28/14 correspondence at pages 4-7); Exhibit B (Tacconi 

EUO at 32:2-24), Exhibit C (Rider EUO at 38:6-25); Exhibit D (Resch EUO at 10:11-

22); and Exhibit E (Taylor EUO at 17:6-12).

14 Id. 

15 Farnell Decl. at Exhibit C (Rider EUO at 11:18-25; 12:1-4; 25:2-6; and 33:14-18), 

Exhibit A (Roos EUO at Exhibit 4 – Cancellation Criteria); and Exhibit F (4/28/14 

correspondence at pages 4-7).
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Q: Okay. Did you ever observe any physical loss or damage to any 

OSF property from the smoke or forest fires?

A: Well, the damage was to the facility itself, meaning it was 

unusable in certain times versus like the seats didn't fall apart; you 

didn't have anywhere to sit.

Q: Nothing was broken, nothing had to be repaired?

A: Was anything repaired. I think most of the stuff was cleaned.

Q: Once cleaned, the condition was cured?

A: No, because the damage to the air was still there. The function --

that was still there.

Q: I'm talking about the property.

A: The physical property.

Q The physical property was okay and was cured, but the air didn't 

get changed?

A: Right. You could clean the seats but you couldn't change --

Q: The air?

A: the damage to the air.17

Similarly, OSF’s production director testified that poor air quality resulted in the 

cancellations:

Q: On every occasion when a cancellation would occur physically, 

not the air quality [emphasis added] but just physical conditions 

within the theater excluding the air [emphasis added], so we are 

talking about property, the building itself or chairs or whatever 

property there are in the theater, it was ready to go but the air quality 

wasn't ready to go. Is that a fair way to describe it?

A: Yeah. And the people running the show weren’t ready to go.

Q: Because of health concerns?

A: Because of the air quality.18

As a result of these cancellations and the extra expenses incurred to minimize lost 

revenue, OSF immediately submitted a claim to Great American under the business 

income and extra expense provisions of its insurance policy.19 Over the next two years, 

 16 Farnell Decl. at Exhibit B (Tacconi EUO at 32:2-10). 17 Farnell Decl. at Exhibit C (Rider EUO at 38:6-24).

18 Farnell Decl. at Exhibit H (Holden EUO at 17:13-23).

19 Farnell Decl. at Exhibit I (10/15/13 GAIC denial letter).
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Great American not only failed to conduct a full and complete investigation of the claim, 

it intentionally disregarded strong and substantial evidence that the presence of smoke

inside the space of the theater constituted “physical loss or damage.”20

Great American also repeatedly violated minimum standards of claims handling 

conduct. Indeed, Great American refused to reconsider its denial while at the same time 

demanding ever increasing amounts of information from OSF.21 Great American 

ultimately required examinations under oath of 14 (fourteen) separate OSF personnel.22 

And yet Great American denied the claim in 2015 based on the same factual issue it 

relied on to deny the claim in 2013.23 Great American needlessly wasted OSF’s time and 

money, forcing OSF to jump through countless hoops under a constant threat that OSF’s 

“failure to cooperate” would become the new basis for denial.24 

III. THE INSURANCE POLICY

OSF is the named insured under a policy of property and casualty insurance issued 

by Great American bearing policy number PAC 804-95-53-05, which was effective 

between January 1, 2013, and January 1, 2014 (the “Policy”).25 Subject to certain 

 20 Farnell Decl. at Exhibit I (10/15/13 GAIC denial letter); Exhibit F (4/28/14 

correspondence at pages 4-7); Exhibit J (5/13/14 GAIC denial letter); and Exhibit K 

(8/8/14 correspondence).

21 Farnell Decl. at Exhibit L (5/14/15 correspondence) and Exhibit M (5/19/15 

correspondence).

22 Farnell Decl. at N (Group Exhibit – EUO caption pages).

23 Farnell Decl. at Exhibit I (10/15/13 GAIC denial letter); and Exhibit O (8/10/15 GAIC 

denial letter). 24 Farnell Decl. at Exhibit L (5/14/15 correspondence) and Exhibit M (5/19/15 

correspondence).

25 Complaint [Dkt. No. 1], Ex A., Policy.
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exclusions not pertinent here, the Policy insures OSF against “physical loss or damage” 

incurred during the policy period, including:

***[T]he 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 

Declaration 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.26

Business Income means the:

a. Net Income (Net Profit or Loss before income taxes) that would 

have been earned or incurred; and

b. continuing normal operating expenses incurred, including 

payroll.27

Importantly, “suspension” is not a complete shutdown; rather the Policy provides instead 

that “suspension” means “the slowdown or cessation of your business activities....”28 

The Policy further defines “period of restoration” as the period beginning at the time of 

physical loss or damage and ending when the property is restored.29 

But business income coverage does not stop as soon as the “period of restoration” 

ends. Instead, Great American’s Extended Business Income provision provides coverage 

for OSF’s business income losses until its operations return to the level which would 

 26 Complaint [Dkt. No. 1], Ex A., Policy, 76.

27 Id.

28 Complaint [Dkt. No. 1], Ex A., Policy, 86.

29 Complaint [Dkt. No. 1], Ex A., Policy, 85, and, as amended by endorsement at 108.
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generate the amount of business income that would have existed had there been no 

physical loss or damage.30 

Further, the Signature Property Broadening Endorsement provides an additional 

$100,000 in business income coverage, subject to the same business income insuring 

agreement set forth above.31 This includes an additional 90 days of coverage for business 

income losses until business returns to a level that would have existed if there had been 

no physical loss or damage.32

IV. APPLICABLE STANDARDS 

A. Summary Judgment Standard 

In determining whether summary judgment is appropriate, a court must look at the 

record and any inferences to be drawn from it in the light most favorable to the party 

opposing the motion. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). The 

moving party “bears the initial responsibility of informing the district court of the basis 

for its motion,” and must identify “those portions of [the record] which it believes 

demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 

477 U.S. 317, 323 (1986). If the moving party satisfies its burden, Rule 56(e) requires 

the party opposing the motion to respond by submitting evidentiary materials that 

designate “specific facts showing that there is a genuine issue for trial.” Matsushita Elec. 

Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).

 30 Complaint [Dkt. No. 1], Ex A., Policy, 77-78, and 129-130.

31 Complaint [Dkt. No. 1], Ex A., Policy, 129-130.

32 Complaint [Dkt. No. 1], Ex A., Policy, 129-130.
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Summary judgment is not proper if material factual issues exist for trial. Celotex 

Corp., 477 U.S. at 323. The court cannot weigh the evidence or determine the truth and 

must construe the evidence in the light most favorable to the nonmoving party. Playboy 

Enters., Inc. v. Welles, 279 F.3d 796, 800 (9th Cir. 2002). An issue of fact is genuine “if 

the evidence is such that a reasonable jury could return a verdict for the nonmoving 

party.” Villiarimo v. Aloha Island Air. Inc., 281 F.3d 1054, 1061 (9th Cir. 2002) (citation 

omitted).

B. The Legal Standard Governing Interpretation of Insurance Policies

Oregon law on the interpretation of insurance policies is clear:

The interpretation of an insurance policy is a question of law. A court's 

goal in interpreting a policy is to determine the intent of the parties. Intent 

is determined by looking to the terms and conditions of the policy. The 

policy “must be viewed by its four corners and considered as a whole.” All 

parts and clauses of the policy must be construed to determine if and how 

far one clause is modified, limited or controlled by others.

North Pacific Ins. Co. v. Hamilton, 332 Or. 20, 24, 22 P.3d 739 (2001) (citations 

omitted). 

Insurance policies are construed from “the perspective of the ‘ordinary purchaser 

of insurance.’” N. Pac. Ins. Co. v. Am. Mfrs. Mut. Ins. Co., 200 Or. App. 473, 478, 115 

P.3d 970 (2005). Undefined policy terms are generally given their ordinary and common 

meaning. Mut. of Enumclaw Ins. Co. v. Rohde, 170 Or. App. 574, 579, 13 P.3d 1006 

(2000). Where policy terms are unambiguous, they are enforced as written. Groshong v. 

Mut. of Enumclaw Ins. Co., 329 Or. 303, 308, 985 P.2d 1284 (1999). 

/ / /
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PARSONS FARNELL & GREIN, LLP

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However, where policy terms are susceptible to more than one interpretation, 

Oregon courts resort to a series of analytical steps to resolve the interpretative dispute. 

Hoffman Constr. Co. v. Fred S. James & Co. of Or., 313 Or. 464, 469-71, 836 P.2d 703 

(1992). Courts first determine whether the competing interpretations are plausible when 

viewed in isolation. Id. If they are, courts next view the competing interpretations in 

light of the immediate context of the policy language and in the broad context of the 

policy as a whole. Id. If only one interpretation continues to be reasonable after 

contextual review, that interpretation controls. Id. If, however, both interpretations 

continue to be reasonable, the policy language is deemed legally ambiguous and is 

construed in favor of coverage for the insured. Id. In other words, the insurer prevails by 

demonstrating that its interpretation is the only reasonable one and the policy cannot be 

read any other way. Conversely, if the insured offers a single reasonable interpretation, 

that interpretation controls, irrespective of any other reasonable interpretations offered by 

the insurer. See Konell Constr. & Demolition Corp. v. Valiant Ins. Co., 2006 WL 

1360956, at *4 (D Or) (holding that the insured’s interpretation need only pass a 

minimum threshold of reasonableness to prevail, regardless of whether it is the “better of 

the two”). 

Within this framework, other interpretive principles are at play, as well. Under 

Oregon law, the policy is given “a liberal construction as favorable to the insured as in 

good conscience will be permitted, and every reasonable intendment will be allowed in 

support of a view that will protect the insured and defeat a forfeiture.” Land v. West 

Coast Life Ins. Co., 201 Or. 397, 401, 270 P.2d 154 (1954). Because insurers have 
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unfettered power to draft policy language as they see fit, courts burden them with the 

consequences of poor drafting. E.g., N. Pac. Ins. Co. v. Hamilton, 332 Or. 20, 29, 22 

P.3d 739 (2001) (“It is the insurers’ burden to draft exclusions and limitations that are 

clear” and “the court does not permit the party who drafted the term or phrase to benefit 

from the obscurity”).

V. ARGUMENT

As noted, the terms of the business income insuring agreement are triggered by 

any (1) loss of business income due to a slowdown or cessation of OSF’s operations 

caused by (2) “physical loss or damage” to property (3) during the period that such loss 

or damage is restored (and, by virtue of Great American’s extended business income 

coverage, until business returns to levels had there not been any loss or damage). Here, 

each of those elements is satisfied as a matter of law. 

A. There is no dispute that OSF incurred a loss of business income 

due to a slowdown or cessation of its operations.

There is no question of disputed fact that OSF lost business income when it 

cancelled the four performances at issue. Not even Great American can deny there was a 

slowdown or cessation of OSF’s operations. None of those shows went forward. And 

OSF refunded the tickets for those cancelled performances, at a minimum. As a result, 

and whatever other disputes may exist, there is no disputed question of material fact that 

OSF incurred at least some measure of lost business income as result of slowdown or 

cessation of its operations because of the cancellations on July 30, 2013, July 31, 2013, 

August 1, 2013, and August 7, 2013.
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B. The smoke saturating the interior confines of the Elizabethan 

Theatre constitutes “physical loss or damage” to property.

1. The plain-language interpretation of the phrase “physical 

loss or damage” indisputably means any injury or harm to a 

natural or material thing, such as the theater. 

The Policy does not define the term “physical loss.” Nor does it define the term 

“damage.” Under Oregon’s rules of policy interpretation that means the phrase “physical 

loss or damage” to property must be given its ordinary and common meaning. 

A plain-language, common meaning interpretation of “physical loss or damage” 

requires application of the rules of grammar. The word “physical” precedes the words 

“loss or damage.” A descriptive word that precedes a noun modifies that noun. As such, 

“physical” describes the type of loss that is covered. And “physical” means “of or 

belonging to all created existence; relating to or in accordance with the laws of nature; of 

or relating to natural or material things as opposed to things mental, moral, or spiritual.” 

Webster's Third New Int.’l, Dictionary 1706 (unabridged ed. 1993).

33 

Based upon these definitions, the “physical” aspect of the loss or damage must be 

to a “natural or material” thing. Correspondingly, “loss” refers to the “state or act of 

being destroyed or placed beyond recovery” or the “amount of an insured’s financial 

detriment due to the occurrence of a stipulated event...” Webster's Third New Int.’l, 

Dictionary 1338 (unabridged ed. 1993). At the same time, “damage” means “loss due to 

injury; injury or harm to person, property, or reputation.” 

 33 Gonzales v. Farmers Ins. Co. of Oregon, 210 Or. App. 54, 60, 150 P.3d 20 (2006) 

(recognizing that Oregon courts refer to dictionary definitions when looking for the 
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Taken together, the plain meaning of “physical loss or damage” to property is 

therefore any injury or harm to a natural or material thing. Here, that is precisely what 

occurred. The fine particulate matter, carbon monoxide and nitrogen dioxide that made 

up the smoke physically transformed the air within the interior confines of the theater. 

That interior space, and the air that occupied that space, was therefore damaged. And 

that is clearly injury or harm to a natural or material thing; the theater, including all of the 

air inside the theater. Great American also cannot realistically claim that it did not 

understand that smoke itself could be the subject of a covered loss. Its own policy 

excludes coverage for “smoke, vapor or gas from agricultural smudging or industrial 

operations.”34 In this case, there is no agricultural smudging or industrial operations that 

could otherwise potentially trigger the exclusion. But it is clear that if Great American 

meant to exclude coverage for all smoke, it could easily have done so. The above plainlanguage review demonstrates that Great American’s policy language is unambiguous 

and that the wildfire smoke permeating the Elizabethan Theatre constitutes “physical loss 

or damage” to property as a matter of law. 

2. Decisional case law from Oregon and across the county

likewise concludes that gases, odors, and particles 

constitute “physical loss or damage” to property.

As above, Oregon clearly holds that vapors and gases, such as the toxic brew of 

wildfire smoke that filled the interior space of the Elizabethan Theatre, have a material 

 

ordinary meaning of undefined terms in insurance policies just as the “ordinary purchaser 

of insurance” would do in seeking to understand such an undefined term). 

34 Complaint [Dkt. No. 1], Ex A., Policy, at 92.
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existence that can cause damage. See Martin v. Reynolds Metals Co., 221 Or. 86, 89-91, 

342 P.2d 790 (1960) (fluoride compounds from aluminum plant consisting of gases, 

fumes, and particulates, invisible to naked eye, constitute “physical intrusion”); and 

Davis v. Georgia Pacific, 251 Or. 239, 243, 445 P.2d 481 (1968) (“fumes, gases, smoke, 

and odors” constitute “direct physical invasion”). 

Oregon law also recognizes that smoke, odor, or gas invading a building 

constitutes “physical loss or damage” to that building. See Farmers Ins. Co. v. Trutanich, 

123 Or. App. 6, 11, 858 P.2d 1332 (1993) (concluding that “the odor produced by [a] 

methamphetamine lab had infiltrated the house” and as such there was “evidence that the 

house was physically damaged by the odor that persisted in it” constituting a “direct 

physical loss.”); Columbiaknit, Inc. v. Affiliated FM Ins. Co., 1999 WL 619100 at *6-7, 

(D. Oregon August 4, 1999) (unpublished) (noting that physical damage to property can 

be demonstrated by presence of strong pervasive, persistent or noxious odor). 

For example, in Trutanich the claim involved a house with methamphetamine 

odor, the persistence of which the court deemed “physical” damage. More specifically, 

the court found that the property was physically damaged by the odor inside the house, 

alone. That is not surprising. Damage can occur, even if not observed by the naked eye. 

See also Prudential Property & Casualty Ins. Co. v. Lillard-Roberts, 2002 WL 31495830 

(D. Or.) (citing Trutanich with approval and finding that physical damage can occur at 

the molecular level and can be undetectable).

Likewise, the Oregon District Court has held that microscopic or suspended 

material constitutes physical loss or damage to property. Stack Metallurgical Services 
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Inc. v. Travelers Ind. Co. of Connecticut, 2007 WL 464715 (D. Or.) (Holding that 

“[t]hough the terms ‘direct physical loss’ and ‘physical damage’” are not defined in the 

Policy, it “was only logical to conclude” that the physical change to the air inside the 

furnace because of lead particles is a “direct physical loss of or damage to” the furnace).

The results elsewhere are no different. As discussed below, it is widely 

recognized that smoke, gases, and particulates that fill the interior of a building, and the 

air occupied by that space, constitute “physical loss or damage” to property. See, e.g.,

Matzner v. Seaco Ins. Co., 1998 WL 566658, *3 (Mass. Super. Aug. 12, 1998) (finding 

that the presence of carbon monoxide contamination inside a structure constitutes direct 

physical loss); Western Fire Ins. Co. v. First Presbyterian Church, 165 Colo. 34, 39, 437 

P.2d 52 (Colo. 1968) (determining that direct physical loss had occurred after receiving 

evidence of extensive accumulation of gasoline around and under a church building that 

rendered premises uninhabitable, even though the fuel was below explosion levels); 

Essex v. BloomSouth Flooring Corp., 562 F.3d 399, 406 (1st Cir. 2009) (under 

Massachusetts law, unpleasant odor constitutes physical injury to property); Motorists 

Mutual Ins. Co. v. Hardinger, 131 F. App’x 823, 825-27 (3rd Cir. 2005) (under 

Pennsylvania law, contamination of well water constitutes “direct physical loss” to the 

insured house supplied by the well); Sentinel Management Co. v. New Hampshire Ins. 

Co., 563 N.W.2d 296 (Minn. 1997) (holding that asbestos contamination of apartment 

buildings constituted “direct physical loss” under all-risk policy, even though asbestos 

contamination did not result in injury to physical structure of building itself); Port 

Authority of New York and New Jersey v. Affiliated FM, 311 F.3d 226 (3d Cir. 2002)
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(finding that the presence of large quantities of asbestos in the air of a building was 

physical damage). 

For example, in Gregory Packaging, Inc. v. Travelers Property Cas. Co., 2014 

WL 6675934 (D.N.J., Nov. 25, 2014), the court determined that an ammonia release 

“physically transformed the air” within the facility until the gas dissipated and thereby 

inflicted direct physical loss or damage to the plant. The court explained that it was 

undisputed “that the ammonia release . . . rendered Gregory Packaging’s facility 

physically unfit for normal human occupancy and continued use until the ammonia was 

sufficiently dissipated.” Further stating:

Before the ammonia discharge, the facility was in a satisfactory state 

for human occupancy and continued build-out, but after the 

ammonia discharge its state was unsatisfactory and required 

remediation. The Court finds that Gregory Packaging would be 

entitled to partial summary judgment that the ammonia discharge 

caused “physical loss of or damage to” its facility under Georgia law 

because there is no genuine dispute that the ammonia released 

physically changed the facility’s condition to an unsatisfactory state 

needing repair.

Id. at * 7. 

Similarly, in Cooper v. Travelers Ind. Co., 2002 WL 32775680 (N.D. Cal.), a well 

serving the insured’s restaurant became contaminated with E. coli, forcing the restaurant 

to close. The insured sought business income coverage under a form almost identical to 

the one at issue here. In subsequent coverage litigation the court found that the closure 

was a necessary suspension of operations that resulted from direct physical damage to the 

property at the insured premises. If a court is not going to question that E. Coli in the 
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water supply is “physical loss or damage” to property, how is smoke that fills the interior 

space of a theater not also “physical loss or damage” to property? 

Likewise, Schlamm Stone & Dolan LLP v. Seneca Ins. Co., 2005 WL 600021 (NY 

Sup.) involved an insured law firm near the World Trade Center during the September 

11, 2001 attacks. The law firm claimed that the dust, soot and smoke from the World 

Trade Center in its office caused a suspension of operations and sought business income 

coverage from its insurer. As Great American does here, the insurer in Schlamm Stone

claimed that the presence of particles in the office did not constitute physical loss or 

damage. The court disagreed, finding instead that “the presence of noxious particles, 

both in the air and on the surfaces of the plaintiff’s premises, would constitute property 

damage under the terms of the policy.” Id. 

Mellin v. N. Sec. Ins. Co., Inc., 167 N.H. 544 (2015) (Apr. 24, 2015) is also 

instructive. There, the insureds owned a condo that they rented to various tenants. 

Shortly after renting the upstairs unit, a tenant moved out complaining of a cat urine odor 

which had come through an open plumbing chase from the downstairs unit where another 

tenant owned multiple cats. The insureds sought coverage under their homeowner’s 

insurance policy due to the “direct physical loss” caused by the cat urine odor. The 

insurer said coverage did not apply because the smell did not constitute a “physical loss.” 

The trial court agreed with the insurer but the New Hampshire Supreme Court reversed 

the decision, finding in favor of the insureds. It held that “physical loss” to property need 

not be limited to changes that could be seen or touched, but could also include changes 

perceived by smell. Id. at 548. 
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Even in cases ultimately finding no business income coverage, courts reason that 

the presence of smoke from wildfires can constitute physical loss or damage to property. 

For example, in White Mountain Communities Hosp. Inc. v. Hartford Cas., 2015 WL 

1755372 (D. Ariz. 2015), the insurer paid the hospital’s business income loss during the 

period that smoke from nearby wildfire’s permeated the building. The insured 

nevertheless sought additional business income after the smoke had cleared. The court 

declined to find further coverage because there was no evidence that there was any smoke 

inside the building that required the hospital to turn away patients. Id. at *2. But the 

necessary implication of the court’s reasoning is that, like OSF’s patrons, if there had 

been smoke in the building that required patients to be turned away there would be 

sufficient physical loss or damage to trigger business income coverage. Not to mention 

the insurer’s recognition that smoke can constitute “physical loss or damage” to property 

by initially paying the claim. 

Here, like the odor in Trutanich, the gas in Gregory Packaging, and the ash 

particulates in Schlamm Stone, the presence of very unhealthful levels of smoke that 

filled the space inside the Elizabethan Theatre, and the air that occupied that space,

undeniably constitutes “physical loss or damage” to property. Ultimately, that was not 

the only physical loss or damage to property. However, even if it were the only physical 

loss or damage to property, case law clearly holds that smoke filling the inside of a 

building is exactly the type of loss or damage sufficient to satisfy the physical loss or 

damage to property requirement. Therefore, there should be no reasonable disputed 

question of material fact that OSF is entitled to partial summary judgment that the 
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wildfire smoke permeating the Elizabethan Theatre constituted “physical loss or damage”

to property.

3. Even assuming that Great American could advance a 

reasonable alternative interpretation of “physical loss or 

damage” to property, thereby rendering the phrase 

ambiguous, Oregon’s rules of policy interpretation dictate 

that the ambiguity be resolved in favor of OSF.

At the very least, there is ambiguity regarding whether “physical loss or damage” 

to property includes smoke in the interior space of a building, which must be interpreted 

by Oregon courts in favor of coverage. Where OSF offers even a single reasonable 

interpretation of the disputed provision, that interpretation controls. Hoffman Constr. Co. 

v. Fred S. James & Co. of Or., 313 Or. 464, 469-71, 836 P.2d 703 (1992). And, as 

above, an interpretation that smoke filling the inside of the Elizabethan Theatre 

constitutes “physical loss or damage” to property is not just reasonable, it is precisely 

what Oregon courts, as well as courts across the country construing the phrase, have 

concluded. That renders irrelevant any contrary contention by Great American. There is 

simply no universe in which Great American can realistically claim that the only possible 

interpretation of “physical loss or damage” to property excludes the smoke inside the

interior space of the Elizabethan Theatre. 

Therefore, again, while the amount of OSF’s loss and its resulting damages are 

genuine issues of material fact for the jury, there can be no disputed question of material

fact that the smoke permeating the interior space of the Elizabethan Theatre was 

“physical loss or damage” to property. OSF is entitled to partial summary judgment on 

that issue accordingly. 
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C. Further, the plain terms of definition of “period of restoration” 

include the time it took for the smoke inside the Elizabethan 

Theatre to dissipate. 

The definition “period of restoration” says that it begins “at the time of direct 

physical loss or damage for Business Income Coverage” and ends “when the property at 

the described premises should be repaired, rebuilt or replaced with reasonable speed and 

similar quality.”

As above, there was “physical loss or damage” to property at the time smoke 

permeated the interior of the Elizabethan Theatre. And the plain meaning of “repair” is 

“to restore to a sound or healthy state” or “the state of being in good or sound condition.” 

Webster's Third New Int.’l, Dictionary 1923 (unabridged ed. 1993). A plain-language,

common sense interpretation of the definition of “period of restoration” therefore refers 

to any period of time between the infiltration of smoke into the building and the time the 

interior of the theater returns to a sound or healthy state. That, by definition, is the time it 

took for the smoke to dissipate. There is no reasonable dispute that the theater simply 

could not have been restored in time to avoid the cancellations. Thus, OSF is entitled to 

partial summary judgment finding that the “period of restoration” includes the time it 

took for the smoke in the theater to dissipate under the plain terms of the Policy. 

Likewise, construing the period of restoration to include the time it takes for the 

smoke to dissipate is not just a reasonable interpretation, it is precisely what courts in 

similar circumstances have concluded. As Gregory Packaging makes clear, the time it 

takes for gas or, in this case, smoke, to dissipate constitutes the “period of restoration.” 

Gregory Packaging, 2014 WL 6675934. *7-8. In fact, as the foregoing cases 
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demonstrate, the “period of restoration” necessarily includes the time required for the 

odor, particulate matter, or contaminant to no longer be present in the building. The

“period of restoration” also includes any period of time the theater was physically 

dysfunctional due to the smoke. That has already been answered as a matter of law. See

Stack Metallurgical Services Inc. v. Travelers Ind. Co. of Connecticut, 2770 WL 464715 

(D. Or.) (finding that a furnace contaminated with lead particles was not restored until it 

could be used for that which it was principally intended); see also White Mountain 

Communities Hosp. Inc. v. Hartford Cas., 2015 WL 1755372 (D. Ariz. 2015), supra, 

(reasoning that if smoke contamination had rendered the hospital physically 

dysfunctional, there could be business income coverage for the lost revenue resulting 

from turning away patients). 

Any attempt by Great American to claim otherwise has no merit. Even assuming 

it could, and “period of restoration” is considered ambiguous, this Court must defer to 

OSF’s construction of the definition. As the foregoing cases demonstrate, particularly 

Gregory Packaging, construing “period of restoration” to mean the period of time it takes 

for the smoke to dissipate is not unreasonable. And where OSF offers even a single 

reasonable interpretation of a provision deemed ambiguous, that interpretation controls. 

Hoffman Constr. Co. v. Fred S. James & Co. of Or., 313 Or. 464, 469-71, 836 P.2d 703 

(1992). That effectively renders irrelevant any claim by Great American may have that 

the “period of restoration” cannot include the time it takes for the smoke to dissipate. 

OSF is therefore entitled to partial summary judgment on the issue.
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VI. CONCLUSION

Wherefore, for all the foregoing reasons, as well as those advanced at oral 

argument and in any subsequent briefing, OSF respectfully requests that this Court enter 

partial summary judgment in its favor finding that (1) OSF suffered a business income

loss; (2) the smoke inside the Elizabethan Theatre constitutes “physical loss or damage” 

to property; and (3) the “period of restoration” includes the time it took for the smoke to 

dissipate; as well as grant OSF (4) all other and further relief that the Court deems just 

and appropriate. 

Dated this 22nd day of January, 2016 

s/ Michael E. Farnell

Michael E. Farnell, OSB # 922996

E-mail Address: mfarnell@pfglaw.com

PARSONS FARNELL & GREIN, LLP

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Of Attorneys for Plaintiff
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Certificate of Compliance

This brief complies with the applicable word-count limitation under LR 7-2(b) 

because it contains 6,440 words, including headings, footnotes, and quotations, but 

excluding the caption, table of contents, table of authorities, signature block, exhibits, and 

certificates of counsel.

Dated this 22nd day of January, 2016 

 

s/ Michael E. Farnell

Michael E. Farnell, OSB # 922996

E-mail Address: mfarnell@pfglaw.com

PARSONS FARNELL & GREIN, LLP

1030 SW Portland, Oregon 97205

Telephone: (503) 222-1812

Facsimile: (503) 274-7979

Of Attorneys for Plaintiff