Court Opinion

ID: 9412483
Source: CourtListenerOpinion
Date Created: 2023-07-31 17:01:17.00024+00
Date Added: 2024-06-11T16:41:26.484765
License: Public Domain

FOR PUBLICATION

   UNITED STATES COURT OF APPEALS
        FOR THE NINTH CIRCUIT

THE OREGON CLINIC, PC, an                  No. 22-35047
Oregon professional corporation,
                                          D.C. No. 3:21-cv-
               Plaintiff-Appellant,          00778-SB

 v.
                                             OPINION
FIREMAN’S FUND INSURANCE
COMPANY, a California corporation,

               Defendant-Appellee.

        Appeal from the United States District Court
                  for the District of Oregon
      Stacie F. Beckerman, Magistrate Judge, Presiding

          Argued and Submitted February 9, 2023
            Submission Vacated April 10, 2023
               Resubmitted July 25, 2023
                    Portland, Oregon

                    Filed July 31, 2023

 Before: Mary H. Murguia, Chief Judge, and Danielle J.
       Forrest and Jennifer Sung, Circuit Judges.

              Opinion by Chief Judge Murguia
2      THE OREGON CLINIC, PC. V. FIREMAN’S FUND INS. CO.

                          SUMMARY *

           Diversity/COVID-19 Business Losses

     The panel affirmed the district court’s dismissal for
failure to state a claim of medical provider Oregon Clinic’s
complaint alleging that its insurer, Fireman’s Fund
Insurance Company, improperly denied coverage for losses
it sustained because of the COVID-19 pandemic.
     The insurance policy provided Oregon Clinic with
coverage for reduction of business income only if its insured
property suffered “direct physical loss or damage.” Oregon
Clinic alleged that it suffered “direct physical loss or
damage” because of the COVID-19 pandemic and related
governmental orders that prevented it from fully making use
of its insured property. Fireman’s Fund denied coverage and
Oregon Clinic sued, asserting claims for breach of contract
and breach of the implied duty of good faith and fair dealing.
    The panel certified to the Oregon Supreme Court the
interpretation of “direct physical loss or damage” under
Oregon law and stayed proceedings. The Oregon Supreme
Court declined the certification request. The panel held that
the Oregon Supreme Court would interpret “direct physical
loss or damage” to require physical alteration of property,
consistent with the interpretation reached by most courts
nationwide. Because Oregon Clinic failed to state a claim
under this interpretation, and because amendment would be
futile, the panel affirmed the district court’s judgment.

*
 This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
      THE OREGON CLINIC, PC. V. FIREMAN’S FUND INS. CO.   3

                        COUNSEL

Seth H. Row (argued), Iván Resendiz Gutierrez, and Katelyn
J. Fulton, Miller Nash LLP, Portland, Oregon; Jodi S. Green,
Miller Nash LLP, Long Beach, California; for Plaintiff-
Appellant.
Brett D. Solberg (argued), DLA Piper LLP (US), Houston,
Texas; Joseph D. Davison and Anthony Todaro, DLA Piper
LLP (US), Seattle, Washington; for Defendant-Appellee.
James M. Davis, Perkins Coie LLP, Seattle, Washington;
Bradley H. Dlatt, Perkins Coie LLP, Chicago, Illinois;
Stephen M. Feldman, Perkins Coie LLP, Portland, Oregon;
for Amicus Curiae United Policyholders.

                        OPINION

MURGUIA, Chief Circuit Judge:

     This appeal arises out of a commercial property
insurance policy (“Policy”) that Oregon Clinic, P.C.
(“Oregon Clinic”) purchased from Fireman’s Fund
Insurance Company (“Fireman’s Fund”). The Policy
provides Oregon Clinic, a medical provider with more than
fifty locations in Oregon, with coverage for reduction of
business income only if its insured property suffers “direct
physical loss or damage.” In March 2020, after the COVID-
19 pandemic began, Oregon Clinic, like hundreds of other
insured businesses nationwide, sought coverage under its
Policy. It alleged that it suffered “direct physical loss or
damage” because of the COVID-19 pandemic and related
4      THE OREGON CLINIC, PC. V. FIREMAN’S FUND INS. CO.

governmental orders that prevented it from fully making use
of its insured property. Fireman’s Fund denied coverage.
    Oregon Clinic then sued Fireman’s Fund in the United
States District Court for the District of Oregon, asserting
claims for breach of contract and breach of the implied duty
of good faith and fair dealing. As most courts nationwide
have done when faced with similar complaints, the District
Court dismissed with prejudice Oregon Clinic’s complaint
under Federal Rule of Civil Procedure 12(b)(6). Oregon
Clinic timely appealed. At Oregon Clinic’s request, we
certified to the Oregon Supreme Court the interpretation of
“direct physical loss or damage” under Oregon law and
stayed proceedings. The Oregon Supreme Court declined
our certification request.
    We reassume jurisdiction pursuant to 28 U.S.C. § 1291
and conclude that the Oregon Supreme Court would interpret
“direct physical loss or damage” to require physical
alteration of property, consistent with the interpretation
reached by most courts nationwide. Because Oregon Clinic
fails to state a claim under this interpretation, and because
amendment would be futile, we affirm the District Court’s
judgment.
                              I.
    “[W]e accept the factual allegations of the complaint as
true and construe them in the light most favorable to [Oregon
Clinic].” Mudpie, Inc. v. Travelers Cas. Ins. Co. of Am., 15
F.4th 885, 889 (9th Cir. 2021) (first alteration in original)
(citations omitted).
    Oregon Clinic is a medical provider with fifty-seven
locations in the Portland, Oregon metro area. Like it did to
most businesses, the COVID-19 pandemic severely
       THE OREGON CLINIC, PC. V. FIREMAN’S FUND INS. CO.   5

impacted Oregon Clinic. As alleged in Oregon Clinic’s
complaint, between March and November 2020,
“approximately twenty-two” of Oregon Clinic’s “employees
or patients . . . confirmed they were infected with the
[COVID-19] virus while they were on [its] premises.” And,
given the virus’s asymptomatic spread and the large number
of people who congregate in Oregon Clinic’s offices, it is
“statistically certain or near-certain that the [COVID-19]
virus was continuously dispersed into the air and on physical
surfaces and other property in, on, and within 1,000 feet of
[t]he Oregon Clinic’s offices, in early March 2020, and
thereafter.” Accordingly, “[t]he continuous dispersal of the
[COVID-19] virus into the air and onto physical surfaces and
other property rendered . . . Oregon Clinic’s cleaning
practices ineffective . . . , requiring physical and other
changes” to its property and practices. Making matters
worse for Oregon Clinic’s business operations, Oregon
Governor Kate Brown issued a series of orders that required
Oregon Clinic, and all other health clinics, to stop
performing non-urgent healthcare procedures. These orders
restricted or eliminated Oregon Clinic’s ability to use its
facilities.
    The pandemic and governmental orders had a
detrimental effect on Oregon Clinic’s business income. For
example, by mid-March 2020, Oregon Clinic’s daily patient
visits had dropped from over 1,800 to as low as 300. Oregon
Clinic was also forced to spend money on “purchas[ing] and
alter[ing] business personal property” to “minimize the
suspension” of its operations and “preserve and protect” its
property. Oregon Clinic’s “net revenue[] dropped by
$20,170,000” while it completed these changes.
   Before the pandemic, Oregon Clinic purchased a
commercial property insurance policy from Fireman’s Fund
6      THE OREGON CLINIC, PC. V. FIREMAN’S FUND INS. CO.

that provides Oregon Clinic with coverage for business
income lost because of “direct physical loss or damage” to
its property. As part of the Policy, Oregon Clinic also
purchased additional specialty coverages from Fireman’s
Fund. The Policy was effective at all times material to
Oregon Clinic’s COVID-19 allegations, including in March
2020. Of major import here, coverage under each Policy
provision expressly requires “direct physical loss or
damage” to property. The Policy, however, does not define
“direct physical loss or damage.”
    On or about March 17, 2020, Oregon Clinic provided
timely written notice to Fireman’s Fund of its insurance
coverage claims related to COVID-19 and the governmental
orders. Fireman’s Fund performed a limited investigation of
Oregon Clinic’s claim and concluded that there was no
“direct physical loss or damage to property at Oregon
Clinic’s locations or within 1,000 feet of such locations,” as
required by the Policy. On or about May 13, 2020,
Fireman’s Fund denied coverage.
    In response, Oregon Clinic sued Fireman’s Fund in the
United States District Court for the District of Oregon,
seeking a declaration of coverage and alleging claims for
breach of contract and breach of the implied duty of good
faith and fair dealing. Oregon Clinic asserted coverage
under ten Policy provisions: (1) Property Coverage; (2)
Business Income and Extra Expense Coverage; (3) Business
Access Coverage; (4) Civil Authority Coverage; (5)
Dependent Property Coverage; (6) Expediting Expense
Coverage; (7) Extended Business Income and Extra Expense
Coverage; (8) Communicable Disease Coverage; (9)
Ordinance or Law Coverage; and (10) Loss Adjustment
Expense Coverage.
       THE OREGON CLINIC, PC. V. FIREMAN’S FUND INS. CO.     7

    In its complaint, Oregon Clinic alleged that its insured
locations suffered direct physical loss or damage to property
because of COVID-19 and, in the alternative, the
governmental orders. Oregon Clinic also included more
than ten pages of allegations in its complaint about the nature
of COVID-19. For example, Oregon Clinic alleged that
COVID-19 is caused by a highly contagious virus that
causes illness and death in humans, is spread by
asymptomatic carriers, survives for up to twenty-eight days
on a variety of surfaces, and cannot be eliminated from
property by routine cleaning.
    The District Court granted Fireman’s Fund’s motion to
dismiss without granting Oregon Clinic leave to amend. The
District Court relied on a long line of cases from district
courts in the Ninth Circuit, including the District Court of
Oregon, and from federal appellate courts, including the
Ninth Circuit, in which courts held that “neither COVID-19
nor the governmental orders associated with it cause or
constitute property loss or damage for purposes of insurance
coverage.” Out W. Rest. Grp. Inc. v. Affiliated FM Ins. Co.,
527 F. Supp. 3d 1142, 1148 (N.D. Cal. 2021), aff’d and
remanded, No. 21-15585, 2022 WL 4007998 (9th Cir. Sept.
2, 2022). Persuaded by this authority, the District Court
concluded that Oregon Clinic did not plausibly allege that
COVID-19 or the governmental orders caused “direct
physical loss or damage” to its property because Oregon
Clinic did not allege its property had been damaged in a
manner that required it to “suspend operations to conduct
repairs or replace any insured property.” Rather, the District
Court determined Oregon Clinic’s alleged losses were
purely economic.
   Oregon Clinic timely appealed the District Court’s order.
Oregon Clinic also filed a separate motion asking this Panel
8      THE OREGON CLINIC, PC. V. FIREMAN’S FUND INS. CO.

to certify several questions to the Oregon Supreme Court on
the definition of the phrase “direct physical loss or damage”
to property. We granted the certification request after
hearing oral argument in this case and stayed the
proceedings pending a response from the Oregon Supreme
Court. The Oregon Supreme Court declined our request.
                              II.
                              A.
   We review de novo the District Court’s order granting a
motion to dismiss for failure to state a claim under Federal
Rule of Civil Procedure 12(b)(6). Mudpie, 15 F.4th at 889.
     We have diversity jurisdiction over this dispute and must
apply Oregon law to interpret the Policy. Alexander Mfg.,
Inc. Emp. Stock Ownership Plan & Tr. v. Ill. Union Ins. Co.,
560 F.3d 984, 986 (9th Cir. 2009). Under Oregon Law,
“[t]he interpretation of an insurance policy is a question of
law,” which is reviewed de novo. N. Pac. Ins. Co. v.
Hamilton, 22 P.3d 739, 741 (Or. 2001). When an insurance
policy does not define the phrase in question, as is the case
here, we must “first consider whether the phrase in question
has a plain meaning.” Holloway v. Rep. Indem. Co. of Am.,
147 P.3d 329, 333 (Or. 2006). If it does, we apply that
meaning and conduct no further analysis. Id. But if the
phrase has more than one plausible interpretation, we
“examine the phrase in light of ‘the particular context in
which that [phrase] is used in the policy and the broader
context of the policy as a whole.’” Id. at 333–34 (citation
omitted) (alteration in original). If ambiguity remains, then
it is “resolved against the insurance company.” Id. at 334
(citation omitted).
       THE OREGON CLINIC, PC. V. FIREMAN’S FUND INS. CO.   9

    “When interpreting state law, we are bound to follow the
decisions of the state’s highest court, and when the state
supreme court has not spoken on an issue, we must
determine what result the court would reach based on state
appellate court opinions, statutes and treatises.” Mudpie, 15
F.4th at 889 (citation omitted). “We will ordinarily accept
the decision of an intermediate appellate court as the
controlling interpretation of state law, unless we find
convincing evidence that the state’s supreme court likely
would not follow it.” Id. (cleaned up).
                              B.
    The outcome of Oregon Clinic’s suit hinges on the
meaning of “direct physical loss or damage” in the Policy.
The Parties dispute whether Oregon Clinic adequately
alleged a “direct physical loss or damage” to property under
the Policy, and they offer competing interpretations of that
phrase. Fireman’s Fund contends that “[t]o establish direct
physical loss or damage to property, an insured must have
suffered a distinct, demonstrable physical alteration to
property that requires repair or replacement.” Oregon
Clinic, on the other hand, argues “loss” and “damage” mean
different things, and that “loss” can mean “the impairment
and loss of the functional use of insured property for its
intended purpose (as medical clinics) due to the Coronavirus
and/or the governmental orders.” In other words, Oregon
Clinic argues that it need not allege “physical alteration to
property” to adequately allege a “direct physical loss or
damage” to property under the Policy. A plain reading of
the Policy as a whole, Oregon caselaw, and a plethora of
state and federal appellate decisions in COVID-19 insurance
cases, including our decision in Mudpie, support Fireman’s
Fund’s position.
10     THE OREGON CLINIC, PC. V. FIREMAN’S FUND INS. CO.

    Though the Oregon Supreme Court has not interpreted
the phrase “direct physical loss or damage,” the Oregon
Supreme Court and Oregon Court of Appeals have
interpreted similar coverage provisions. Most notably, in
Wyoming Sawmills, Inc. v. Transportation Insurance Co.,
the Oregon Supreme Court interpreted the word “physical”
in the context of a liability insurance policy and determined
the policy excluded coverage for consequential or intangible
damages. 578 P.2d 1253, 1256 (Or. 1978).
    In Wyoming Sawmills, a lumber manufacturer sold
defective studs to a lumber company for the construction of
buildings. Id. at 1254–55. The lumber manufacturer settled
with the lumber company by covering the labor expenses
involved in replacing the defective studs. Id. at 1255. The
lumber manufacturer then sought to recover the cost of the
labor expenses under its general liability insurance policy.
Id. The policy defined property damage as “physical
injury . . . to tangible property.” Id. at 1256 (alteration in
original).
    In interpreting the policy, the Oregon Supreme Court
determined that “[t]he inclusion of [the] word [‘physical’]
negates any possibility that the policy was intended to
include ‘consequential or intangible damage,’ such as
depreciation in value, within the term ‘property damage.’”
Id. The Court therefore concluded the lumber manufacturer
was not entitled to coverage under the policy because it did
not show that “any physical damage was caused to the rest
of the building by the defective studs and that the labor cost
was for the rectification of any such damage.” Id.
    The Oregon Court of Appeals’ decision in Farmers
Insurance Co. of Oregon v. Trutanich—on which Oregon
Clinic relies for support—is also instructive. 858 P.2d 1332
       THE OREGON CLINIC, PC. V. FIREMAN’S FUND INS. CO.     11

(Or. 1993). In Trutanich, the policyholder rented his house
to a tenant who covertly constructed a methamphetamine lab
in the basement. Id. at 1334. The court rejected the insurer’s
argument that the residual methamphetamine odor was not
physical and that the cost of removing it was not a “direct
physical loss.” Id. at 1335. The court held instead that the
“odor was ‘physical,’ because it damaged the house.” Id.
    The Oregon Court of Appeals determined Wyoming
Sawmills was distinguishable because the policyholder in
Trutanich was not requesting coverage for consequential
damages that did not physically damage the insured
property. See id. at 1335. Instead, in Trutanich, “[t]here
[was] evidence that the house was ‘physically damaged by
the odor that persisted in it,” and that “[t]he cost of removing
that odor was a direct rectification of that problem.” Id.
    The Trutanich court also relied on Western Fire
Insurance Co. v. First Presbyterian Church, 437 P.2d 52
(Colo. 1968) (en banc), a Colorado Supreme Court decision
involving an insurance policy provision that covered
physical loss. In Western Fire, a church had to close its
building because of contamination and damage from
gasoline and corresponding vapors. Id. at 36. The Trutanich
court explained that Western Fire “expressly rejected . . .
that the loss was simply a ‘loss of use,’ and held that it was
‘a direct physical loss’ within the meaning of the policy.”
Trutanich, 858 P.2d at 1336 (quoting Western Fire, 437 P.2d
at 52). The Oregon Court of Appeals therefore “[s]imilarly”
concluded      that   the    “cost    of     removing      the
[methamphetamine] odor [was] a direct physical loss.” Id.
    Trutanich provides us with three useful guiding
principles. First, it acknowledges a distinction between
“loss of use” and “direct physical loss.” See id. at 1335−36.
12     THE OREGON CLINIC, PC. V. FIREMAN’S FUND INS. CO.

Second, and contrary to Oregon Clinic’s position, Trutanich
signals that some sort of physical damage is required to
trigger coverage under a “direct physical loss” provision.
See id. Third, it emphasizes that costs associated with
removal or repair of physical damage are indicative of a
“direct physical loss.” See id.
    Together, Trutanich and Wyoming Sawmills suggest the
Oregon Supreme Court would interpret the phrase “direct
physical loss or damage” as requiring some physical
alteration or damage to property such that “loss of use” is
insufficient to trigger coverage under the Policy. Indeed, as
the District of Oregon pertinently noted when tasked with
interpreting the same phrase, “[h]ere, like the policies in
Wyoming Sawmills and Farmers Insurance, the inclusion of
the word ‘physical’ confers the plain meaning that any ‘loss
of or damage to’ the property must be physical in nature.”
Zeco Dev. Grp., LLC v. First Mercury Ins. Co., No. 3:21-
CV-406-SI, 2022 WL 444400, at *4 (D. Or. Feb. 14, 2022);
see also Great N. Ins. Co. v. Benjamin Franklin Fed. Sav. &
Loan Ass’n, No. 90-35654, 1992 WL 16749, at *1 (9th Cir.
1992) (affirming Oregon district court’s interpretation of
“direct physical loss” based on Wyoming Sawmills and
concluding that “consequential loss caused by the necessity
of cleaning up the asbestos” is not “direct physical loss”).
Contrary to Oregon Clinic’s position, loss of only the
intended use of the property—as opposed to a total
dispossession of the property—is not a “direct physical
loss.” Zeco, 2022 WL 444400, at *4.
                              C.
   Our conclusion that the Oregon Supreme Court would
construe the phrase “direct physical loss or damage” as
requiring an insured to allege physical alteration of its
        THE OREGON CLINIC, PC. V. FIREMAN’S FUND INS. CO.             13

property is also consistent with the conclusion reached in
more than 800 cases nationwide, including decisions from
the federal courts of appeal and state supreme courts. 1 See
Mudpie, 15 F.4th at 892 (“Our conclusion that California
courts would construe the phrase ‘physical loss of or damage
to’ as requiring an insured to allege physical alteration of its
property is consistent with conclusions reached by other
courts.”); see also Q Clothier New Orleans, LLC v. Twin
City Fire Ins. Co., 29 F.4th 252, 258 (5th Cir. 2022) (“The
Louisiana Supreme Court has not opined on [the meaning of
“direct physical loss or damage to property”], but other
courts have interpreted similar language. And we find these
other courts’ analyses persuasive here.”).
    Moreover, we have recently affirmed the dismissal of a
similar complaint under California law. Mudpie, 15 F.4th at
893. In Mudpie, a children’s store operator brought a
putative class action against an insurer alleging that it had
suffered “direct physical loss of or damage to property”

1
  See Covid Coverage Litigation Tracker, University of Pennsylvania
School of Law, https://cclt.law.upenn.edu/ [https://perma.cc/B994-
JXHP] (Showing that, as of May 25, 2023, 819 suits raising similar
claims to Oregon Clinic have been dismissed with prejudice by federal
and state courts).
  Oregon Clinic argues most of these cases relied on the same
“discredited ‘Couch on Insurance’ treatise”—10A Couch on Insurance
§ 148:46 (3d ed. 2021)—to support the coverage requirement of
“physical alteration.” Oregon Clinic believes this treatise is now
discredited because the “lead author” has “retreated” from this position
“in no less than three published articles.” That is an overstatement. The
lead author, Steven Plitt, has since updated the treatise, which remains
consistent on its position that “intangible” losses are excluded from the
“direct physical loss or damage” requirement. See 10A Couch on
Insurance § 148:46 (3d ed. Supp. 2023). And, needless to say, the
articles that Oregon Clinic cites are not binding law.
14      THE OREGON CLINIC, PC. V. FIREMAN’S FUND INS. CO.

because of California’s shelter-in-place orders. Id. at 887–
89. We determined that California law requires “physical
alteration of property” to obtain coverage under the policy.
Id. at 892. Because the plaintiff had not alleged any actual
“physical alteration” of its property, we affirmed the
dismissal of the plaintiff’s complaint. Id. at 892–93. 2
    We also concluded that interpreting the phrase “direct
physical loss or damage to” property as requiring physical
alteration of property was consistent with other provisions of
the policy in Mudpie. Id. at 892. Similar provisions are also
present here. For example, like the policy in Mudpie, the
Policy here provides coverage for “the actual loss of
business income and necessary extra expense . . .
sustaine[d] due to the necessary suspension of . . . operations
during the period of restoration arising from direct physical
loss or damage to property[.]” The Policy defines “period of
restoration” as ending on “[t]he date when such property . . .
should be repaired, rebuilt, or replaced with reasonable
speed and like kind and quality[,]” or “[t]he date when
business is resumed at a new permanent location.” When
interpreting the same phrase under California law in Mudpie,
we concluded that the same definition of “period of
restoration” “suggests the Policy contemplates providing
coverage only if there are physical alterations to the
property.” Mudpie, 15 F.4th at 892. To conclude otherwise

2
  Since our decision in Mudpie, we have certified the interpretation of
“direct physical loss of or damage to property” to the California Supreme
Court because the California intermediate appellate courts subsequently
split on this issue. See Another Planet Ent., LLC v. Vigilant Ins. Co., 56
F.4th 730, 731 (9th Cir. 2022). The California Supreme Court granted
the certification request, but it has yet to issue a decision. See Another
Planet Ent. v. Vigilant Ins. Co., No. S277893 (Cal. 2023).
        THE OREGON CLINIC, PC. V. FIREMAN’S FUND INS. CO.                15

“would render the              ‘period      of    restoration’      clause
superfluous.” Id.
    Most federal courts of appeal presented with similar
COVID-19 insurance disputes have dismissed the
complaints for the same reason: the plaintiffs failed to allege
that COVID-19 physically alters the insured property. 3
Indeed, the Fifth and Seventh Circuits have affirmed
dismissals of COVID-19 complaints made against
Fireman’s Fund, the same defendant in this case, based on
the same policy language. In Circle Block Partners, LLC v.
Fireman’s Fund Insurance Co., a hotel operator alleged
COVID-19 caused its insured property to suffer “direct
physical loss or damage” because “SARS-CoV-2 particles

3
  See, e.g., Santo’s Italian Café LLC v. Acuity Ins. Co., 15 F.4th 398,
401–03 (6th Cir. 2021) (applying Ohio law and explaining that “[e]ven
when called ‘all-risk’ policies, as these policies sometimes are, they still
cover only risks that lead to tangible ‘physical’ loss or damages,” and
noting that all-risk “policies do not typically apply to losses caused by
government regulation”); Gilreath Family & Cosmetic Dentistry, Inc. v.
Cincinnati Ins. Co., No. 21-11046, 2021 WL 3870697, at *1–3 (11th Cir.
Aug. 31, 2021) (applying Georgia law and noting that the policy
provisions applied “only if the events alleged here—the COVID-19
pandemic and related shelter-in-place order—caused direct ‘accidental
physical loss’ or ‘damage’ to the [covered] property,” explaining that
“there must be ‘an actual change in insured property’ that either makes
the property ‘unsatisfactory for future use’ or requires ‘that repairs be
made,’” holding that the insured failed to state a claim, and noting that
the court could not “see how the presence of [viral] particles would cause
physical damage or loss to the property” (citation omitted)); Oral
Surgeons, P.C. v. Cincinnati Ins. Co., 2 F.4th 1141, 1143–45 (8th Cir.
2021) (applying Iowa law and considering whether the pandemic and
government orders resulted in “accidental physical loss or accidental
physical damage” to business property, interpreting the policy to require
direct physical loss or physical damage, and concluding that “there must
be some physicality to the loss or damage of property—e.g., a physical
alteration, physical contamination, or physical destruction”).
16     THE OREGON CLINIC, PC. V. FIREMAN’S FUND INS. CO.

physically altered and damaged [its property] by adding
material matter (dangerous viral particles) to the surfaces
that was not there before.” 44 F.4th 1014, 1022 (7th Cir.
2022). The Seventh Circuit affirmed the dismissal of the
complaint, noting the plaintiff’s “broad definition would
seem to extend coverage to any situation where ‘material
matter’ is added to a surface,” even a “sneeze.” Id. at 1023.
    In PS Business Management, LLC v. Fireman’s Fund
Insurance Co., the plaintiffs argued, like Oregon Clinic does
here, that their “claim for coverage survives because they’ve
alleged that their property was physically damaged by
COVID-19.” No. 21-30723, 2022 WL 2462065, at *3 (5th
Cir. July 6, 2022). Specifically, the plaintiffs—business
consulting professionals—alleged they “lost valuable
merchandise, business records, and the property of certain
clients as a result of COVID-19 contamination.” Id. The
Fifth Circuit affirmed dismissal of the complaint, adopting
the Sixth Circuit’s observation that COVID-19 is “a virus
that injures people, not property.” Id. (quoting Santo’s
Italian Café, 15 F.4th at 403). We agree and conclude the
same here.
                              D.
    Applying the interpretation of “direct physical loss or
damage” we predict the Oregon Supreme Court would
adopt, we conclude that Oregon Clinic has not adequately
alleged its property suffered such loss or damage.
    Indeed, Oregon Clinic does not allege its property was
lost or damaged by the virus in a manner that required it to
conduct repairs or replace its property to rectify such
damage. Instead, Oregon Clinic argues it is enough that it
alleged that (1) COVID-19 “particles infiltrate air systems,
transforming the properties into dangerous super-spreading
        THE OREGON CLINIC, PC. V. FIREMAN’S FUND INS. CO.              17

viral incubators,” and (2) “the only meaningful way to
prevent the constant reintroduction of the virus and
recontamination of the insured properties was to make
physical changes to the office space, close for periods of
time, and limit the use of the space.”
    But these are purely consequential damages. For
example, the insured in Trutanich prevailed because he had
shown the house was “‘physically damaged’ by the odor that
persisted in it,” and that “[t]he cost of removing that odor
was a direct rectification of the problem.” Trutanich, 858
P.2d at 1336. Oregon Clinic, however, does not adequately
allege that any of its insured property was “physically
damaged” by the virus, or that the cost of removing the virus
would have directly rectified the problem.
    To be sure, Oregon Clinic argues that it did allege
COVID-19 was present and caused physical damage in
numerous ways. 4 But its allegations are conclusory. Oregon
Clinic merely alleged COVID-19 caused it to suffer physical
damage without explaining how COVID-19 caused such
damage or whether replacement of physically lost or
damaged property was necessary.            These conclusory
allegations, without more, are insufficient to defeat a motion

4
  Oregon Clinic also relies on Oregon Shakespeare Festival Association
v. Great American Insurance Co., which held that wildfire smoke caused
damage to “air,” to argue that its allegations that COVID-19 airborne
particles were in its property are sufficient to recover under the Policy.
No. 1:15-cv-01932, 2016 WL 3267247, at *5–6 (D. Or. Jun. 7, 2016),
vacated on other grounds 2017 WL 1034203 (D. Or. Mar. 6, 2017). But
Oregon Shakespeare does not help Oregon Clinic because the Policy
here explicitly excludes “air.”
18      THE OREGON CLINIC, PC. V. FIREMAN’S FUND INS. CO.

to dismiss. See Pareto v. F.D.I.C., 139 F.3d 696, 699 (9th
Cir. 1998). 5
    In sum, Oregon Clinic’s alleged consequential damages
are not covered by the Policy. We therefore affirm the
district court’s dismissal of Oregon Clinic’s complaint. 6
                                   III.
    We also conclude the district court correctly dismissed
Oregon Clinic’s complaint without leave to amend. “We
review for abuse of discretion a district court’s decision to
dismiss with prejudice.” Ecological Rights. Found. v. Pac.
Gas & Elec. Co., 713 F.3d 502, 507 (9th Cir. 2013) (citation
omitted). “If a complaint is dismissed for failure to state a
claim, leave to amend should be granted unless the court
determines that the allegation of other facts consistent with
the challenged pleading could not possibly cure the
deficiency.” Schreiber Distrib. Co. v. Serv-Well Furniture
Co., 806 F.2d 1393, 1401 (9th Cir. 1986).
    Oregon Clinic argues the District Court abused its
discretion by denying it leave to amend its complaint
because it believes its factual allegations are valid and
sufficient, and if necessary, Oregon Clinic could amend to
add additional facts. But, as noted above, Oregon Clinic’s
allegations depend on an incorrect interpretation of the
phrase “direct physical loss or damage.” Accordingly, no

5
  Oregon Clinic’s argument that its complaint is especially unsuited for
dismissal because it “is rooted in science” is unpersuasive. Conclusory
allegations are insufficient whether or not they are rooted in science.
6
  Because we hold that Oregon Clinic’s interpretation of “direct physical
loss or damage” is incorrect, and that it failed to allege that its property
suffered a “direct physical loss or damage” under the proper
interpretation, we do not address Oregon Clinic’s other arguments.
      THE OREGON CLINIC, PC. V. FIREMAN’S FUND INS. CO.   19

additional facts or allegations could cure the deficiency in
Oregon Clinic’s current complaint. And Oregon Clinic has
not proposed any new allegations that would address the
problems identified by the District Court.
    Because amendment would be futile, we conclude the
District Court did not abuse its discretion and affirm the
dismissal of Oregon Clinic’s complaint without leave to
amend. See, e.g., Circle Block Partners, 44 F.4th at 1023
(affirming dismissal without leave to amend of a complaint
raising similar allegations against the same defendant here,
under the same policy, because the court “fail[ed]” to see
how [the plaintiff] could cure the deficiencies in its
complaint”).
   AFFIRMED.