Court Opinion

ID: 9385890
Source: CourtListenerOpinion
Date Created: 2023-04-10 17:00:39.877339+00
Date Added: 2024-06-11T17:17:56.165726
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.
              Plaintiff-Appellant,        3:21-cv-00778-SB

 v.                                         ORDER
                                          CERTIFYING
FIREMAN'S FUND INSURANCE                  QUESTION TO
COMPANY, a California corporation,        THE OREGON
                                           SUPREME
              Defendant-Appellee.           COURT

                   Filed April 10, 2023

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

                          Order
2         THE OREGON CLINIC V. FIREMAN’S FUND INS. CO.

                          SUMMARY *

             Certification Order / Oregon Law

   The panel certified the following question to the Oregon
Supreme Court:
        Can the actual or potential presence of the
        COVID-19 virus on an insured’s premises
        constitute “direct physical loss or damage to
        property” for purposes of coverage under a
        commercial property insurance policy?

                           COUNSEL

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

*
 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 V. FIREMAN’S FUND INS. CO.       3

                          ORDER

    We respectfully ask the Oregon Supreme Court to
answer the certified question presented below, pursuant to
Oregon Revised Statutes § 28.200, because we have
concluded that resolution of this question of Oregon law
“may be determinative of the cause then pending in [this]
court,” and “[t]here is no controlling precedent” in the
decisions of the Oregon Supreme Court or the Oregon Court
of Appeals.
     This case involves an insured who sued for breach of
contract and for breach of the implied duty of good faith and
fair dealing when its insurer denied coverage for business
income losses that the insured incurred during the COVID-
19 pandemic. The insured alleged that the COVID-19 virus
was present on its premises and that state government
closure orders prevented it from fully making use of its
insured property due to infections and prohibitions on
elective medical procedures. The insured therefore sought
to recoup lost business income under several provisions of
its commercial property insurance policy that require “direct
physical loss or damage to property” to trigger coverage.
The insured alleged that it suffered “direct physical loss or
damage to property” because of COVID-19 and, in the
alternative, state government orders. The district court
dismissed the insured’s suit for failure to state a claim.
    The issue here is whether the insured’s allegations
regarding COVID-19 and the state government orders, if
taken as true, are sufficient to show “direct physical loss or
damage to property” under Oregon law.
4         THE OREGON CLINIC V. FIREMAN’S FUND INS. CO.

                               I.
    We offer the following statement of relevant facts, taken
from the Oregon Clinic’s complaint, and explanation of the
“nature of the controversy in which the question[] arose.”
Or. Rev. Stat. § 28.210(2). The Oregon Clinic, PC (Oregon
Clinic) is a medical provider with fifty-seven locations in
Portland. Before the pandemic, Oregon Clinic purchased a
commercial property insurance policy from Fireman’s Fund
that provides Oregon Clinic with coverage for business
income lost because of “direct physical loss or damage” to
its property. In addition to its commercial property policy,
Oregon Clinic purchased additional specialty coverages
from the Fireman’s Fund (together “the Policy”). The Policy
was effective at all times material to Oregon Clinic’s
COVID-19 allegations, including March 2020.
    Between March and November 2020, “approximately
twenty-two” of its “employees or patients . . . confirmed they
were infected with the [COVID-19] virus while they were
on [its] premises.” And, given the asymptomatic spread and
the large numbers of people that congregate near 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 the 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,” which
required Oregon Clinic to make “physical and other
changes” to its property and practices. Additionally, various
state government orders required Oregon Clinic to stop
performing non-urgent health care procedures and “had the
effect of restricting or eliminating the ability of . . . Oregon
         THE OREGON CLINIC V. FIREMAN’S FUND INS. CO.       5

Clinic to use its facilities.” The pandemic and government
orders negatively impacted Oregon Clinic’s business
income. For example, by mid-March 2020, Oregon Clinic’s
patient visits dropped from 1,800 to 300 daily patient visits.
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.
    On or around March 17, 2020, Oregon Clinic sought and
was denied coverage from Fireman’s Fund. In response,
Oregon Clinic sued Fireman’s Fund in the United States
District Court of Oregon seeking a declaration of coverage
and alleging claims for breach of contract and the breach of
the implied duty of good faith and fair dealing for no less
than $20,647,000. Oregon Clinic asserted coverage under
ten Policy provisions, each of which expressly requires
“direct physical loss or damage” to property. The Policy
does not define “direct physical loss or damage.”
    In its complaint, Oregon Clinic alleged its insured
locations suffered direct physical loss or damage to property
as a result of COVID-19 and, in the alternative, the
government orders. Oregon Clinic included over 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 leave to amend. Oregon Clinic, PC v.
Fireman’s Fund Ins. Co., No. 3:21-CV-00778-SB, 2021 WL
6        THE OREGON CLINIC V. FIREMAN’S FUND INS. CO.

5921370, at *1 (D. Or. Dec. 15, 2021). 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 the courts held “neither COVID-19 nor the
governmental orders associated with it cause or constitute
property loss or damage for purposes of insurance
coverage.” Id. at *4 & n.5 (internal quotation marks and
citation omitted). Based on these cases, the district court
concluded Oregon Clinic did not plausibly allege that either
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.” Id. at *8. Rather,
the district court determined Oregon Clinic’s alleged losses
were purely economic. Id. at *9.
                             II.
    Because Oregon law governs interpretation of the policy
and the Oregon Supreme Court has not yet considered the
issue, “we must determine what result [the Oregon Supreme
Court] would reach based on state appellate court opinions,
statutes and treatises.” Mudpie, Inc. v. Travelers Cas. Ins.
Co. of Am., 15 F.4th 885, 889 (9th Cir. 2021) (quoting Diaz
v. Kubler Corp., 785 F.3d 1326, 1329 (9th Cir. 2015)). “We
will ordinarily accept the decision of an intermediate
appellate court as the controlling interpretation of state law.”
Id. (quoting Tomlin v. Boeing Co., 650 F.2d 1065, 1069 n.7
(9th Cir. 1981)). Here, however, no intermediate appellate
court has interpreted “direct physical loss or property” as it
pertains to COVID-19 and a commercial property insurance
policy.
         THE OREGON CLINIC V. FIREMAN’S FUND INS. CO.         7

    Though the Oregon Supreme Court has not interpreted
the phrase at issue, it has interpreted the word “physical” in
the context of a liability insurance policy and determined
that the policy excluded coverage for consequential or
intangible damages. See Wy. Sawmills, Inc. v. Transp. Ins.,
578 P.2d 1253, 1256 (Or. 1978). In Wyoming Sawmills, a
lumber manufacturer sold a lumber company defective studs
that were used in a building. 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. Id. The policy defined property damage as
“physical injury . . . to tangible property.” Id. at 1256.
    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 that the lumber
manufacturer was not entitled to coverage under the policy
because it did not show “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 later distinguished
Wyoming Sawmills when interpreting the phrase “direct
physical loss” in an all-risk homeowner’s policy. See
Farmers Ins. Co. v. Trutanich, 858 P.2d 1332, 1335 (1993).
In Trutanich, the Oregon Court of Appeals construed an all-
risk homeowner’s policy to find that a pervasive odor was a
“direct physical loss.” Id. at 1335. There, the policyholder’s
tenant had covertly constructed a methamphetamine lab in
8        THE OREGON CLINIC V. FIREMAN’S FUND INS. CO.

the basement. Id. at 1334. The court rejected the insurer’s
argument that the residual methamphetamine odor and the
cost of removing it was not a “physical” loss, finding that the
“odor was ‘physical’ because it damaged the house.” Id.
The court found Wyoming Sawmills distinguishable because
the plaintiff in Trutanich was not requesting coverage for
consequential damages that did not physically damage the
insured property. Id. at 1335. Instead, in Trutanich there
was evidence that the house was “‘physically damaged’ by
the odor that persisted in it” and “[t]he cost of removing that
odor was a direct rectification of that problem.” Id.
    The above two cases appear to be the only Oregon state
court cases that offer guidance as to how the Oregon
Supreme Court would interpret the phrase “direct physical
loss or damage.” For this reason, most of the federal district
courts in Oregon tasked with interpreting the phrase “direct
physical loss or damage,” including the district court here,
have relied on Wyoming Sawmills and Trutanich. See, e.g.,
Dakota Ventures, LLC v. Or. Mut. Ins. Co., 553 F. Supp. 3d
848, 858 (D. Or. 2021); Nari Suda LLC v. Or. Mut. Ins. Co.,
558 F. Supp. 3d 1017, 1027 (D. Or. 2021), appeal filed No.
21- 35846 (9th Cir. Oct. 7, 2021).
    However, no Oregon appellate court, state statute, or
treatise has yet interpreted the phrase “direct physical loss or
damage” in the context of a commercial property insurance
policy dispute involving COVID-19 allegations. Therefore,
we find it prudent to allow the Oregon Supreme Court to do
so in this instance. Particularly, certifying this question of
unresolved state law is appropriate because the answer “may
be determinative of the cause then pending in [this] court . .
. .” Or. Rev. Stat. § 28.200. Indeed, if Oregon Clinic’s
allegations of the presence or potential presence of the
COVID-19 virus are sufficient to show “direct physical loss
         THE OREGON CLINIC V. FIREMAN’S FUND INS. CO.        9

or damage to property,” the district court erred in dismissing
Oregon Clinic’s complaint for failure to state a claim, and
we would remand to the district court for further
proceedings. Alternatively, if Oregon Clinic’s COVID-19
allegations are not sufficient to show “direct physical loss or
damage to property,” we would affirm the district court.
                           III.
    In light of the foregoing discussion, and because the
answer to this question “may be determinative of the cause
then pending in [this] court,” Or. Rev. Stat. §28.200, we
respectfully certify to the Oregon Supreme Court the
following question:

       Can the actual or potential presence of the
       COVID-19 virus on an insured’s premises
       constitute “direct physical loss or damage to
       property” for purposes of coverage under a
       commercial property insurance policy?

    We do not intend our framing of this question to restrict
the Oregon Supreme Court’s consideration of any issues that
it determines are relevant. If the Oregon Supreme Court
decides to consider the certified question, it may in its
discretion reformulate the question. Broad v. Mannesmann
Anlagenbau AG, 196 F.3d 1075, 1076 (9th Cir. 1999).
    The clerk of our court is hereby ordered to transmit to the
Oregon Supreme Court, under official seal of the United
States Court of Appeals for the Ninth Circuit, a copy of this
order and all relevant briefs and excerpts of record, along
with a certificate of service on the parties. Or. Rev. Stat. §
28.215; Or. R. App. P. 12.20.
10       THE OREGON CLINIC V. FIREMAN’S FUND INS. CO.

    Further proceedings in our court are stayed pending the
Oregon Supreme Court’s decision on whether it will accept
review, and if so, receipt of the answer to the certified
question. This case is withdrawn from submission until
further order from this court. The Clerk is directed to
administratively close this docket, pending further order.
    The panel will resume control and jurisdiction over the
certified question upon receiving an answer to the certified
question or upon the Oregon Supreme Court’s decision to
decline certification. Within 10 days after the Oregon
Supreme Court decides whether or not to accept the certified
question, the parties shall file a joint report informing this
court of the decision. If the Oregon Supreme Court accepts
the certified question, the parties shall file a joint status
report every six months after the date of the acceptance, or
more frequently if circumstances warrant.
     QUESTION CERTIFIED; PROCEEDINGS STAYED.

       /s/ Mary H. Murguia
       Chief Judge Mary H. Murguia
       U.S. Court of Appeals for the Ninth Circuit