Hill & Stout, PLLC v. Mut. of Enumclaw Ins. Co.

515 P.3d 525

HILL AND STOUT, PLLC, a Washington company, Appellant,

v.MUTUAL OF ENUMCLAW INSURANCE COMPANY, a Washington insurance company, Respondent.

No. 100211-4

Supreme Court of Washington.

Argued: June 28, 2022

Filed: August 25, 2022

Mark A. Wilner, John Douglas Cadagan, Kasey D. Huebner, Gordon Tilden Thomas & Cordell LLP, 600 University St., Ste. 2915, Seattle, WA, 98101-4172, Benjamin Blystad Gould, Gabriel Ernest Verdugo, Nathan Lee Nanfelt, Jennifer Hill, Keller Rohrback LLP, 1201 3rd Ave., Ste. 3200, Seattle, WA, 98101-3052, for Appellant.

Steven P. Caplow, Stephen Michael Rummage, Davis Wright Tremaine LLP, 920 5th Ave., Ste, 3300, Seattle, WA, 98104-1610, Deborah L. Stein, Jeremy S. Smith, Daniel R. Adler, Mutual of Enumclaw, 333 South Grand Avenue, Los Angeles, CA, 90071-3197, for Respondent.

Jesus Miguel Palomares, Miller Nash LLP, 2801 Alaskan Way Ste. 300, Seattle, WA, 98121-1128, Seth H. Row, Miller Nash LLP, 111 Sw 5th Ave., Ste 3400, Portland, OR, 97204-3614, Joseph D. Jean, Benjamin D. Tievsky, Maria T. Galeno, Scott D. Greenspan, Pillsbury Winthrop Shaw Pittman LLP, 31 West 52nd Street, New York, NY, 10019, Janine M. Stanisz, Pillsbury Law, 31 West 52nd Street, New York, NY, 10019, for Amicus Curiae on behalf of United Policyholders.

Diana Siri Breaux, Summit Law Group, 315 5th Ave., S. Ste. 1000, Seattle, WA, 98104-2682, Rani Gupta, Richard Lee, Covington & Burling LLP, 3000 El Camino Real, 5 Palo Alto Sq., 10th Floor, Palo Alto, CA, 94306, for Amicus Curiae on behalf of National Independent Venue Assoc.

Arthur Washington Harrigan Jr., Harrigan Leyh Farmer & Thomsen LLP, 999 3rd Ave., Ste. 4400, Seattle, WA, 98104-4017, Tyler L. Farmer, Bryn Resser Pallesen, Harrigan Leyh Farmer & Thomsen LLP, 999 3rd Ave., Ste 4400, Seattle, WA, 98104-4022, David S. Hawkins, Upper Skagit Indian Tribe, 25944 Community Plaza Way, Sedro Woolley, WA, 98284-9721, Richard T. Beal, Eleanor Rose Lyon, Kristen Brennan Moran, Ashbaugh Beal LLP, 701 5th Ave., Ste. 4400, Seattle, WA, 98104-7031, for Amicus Curiae on behalf of Upper Skagit Indian Tribe.

Richard T. Beal, Eleanor Rose Lyon, Kristen Brennan Moran, Ashbaugh Beal LLP, 701 5th Ave., Ste. 4400, Seattle, WA, 98104-7031, for Amici Curiae on behalf of Muckleshoot Indian Tribe, Professional Recreation Org., Tulalip Tribes of Washington.

Anthony Todaro, Joseph Daniel Davison, DLA Piper LLP (US), 701 5th Ave., Ste. 6900, Seattle, WA, 98104-7029, for Amicus Curiae on behalf of Wa. International Insurance Company.

Jordan Anthony Hess, Laura Foggan, Rachel A. Jankowski, Crowell & Moring LLP, 1001 Pennsylvania Avenue, Nw, Washington, DC, 20004, Wystan Ackerman, Robinson & Cole LLP, 280 Trumbull Street, Hartford, CT, 06103, for Amici Curiae on behalf of American Property Casualty Insurance, National Assoc. of Mutual Insurance Companies.

James Richard Murray, Blank Rome LLP, 1825 Eye St., Nw, Washington, DC, 20006-5403, for Amicus Curiae on behalf of Washington Hospitality Association.

Rob Roy Smith, Bree Renee Black Horse, Kilpatrick Townsend & Stockton LLP, 1420 5th Ave., Ste. 3700, Seattle, WA, 98101-4089, for Amicus Curiae on behalf of Snoqualmie Indian Tribe.

WHITENER, J.

¶ 1 In early 2020, to help curtail the spread of COVID-19¹ (coronavirus disease 2019), Governor Inslee issued Proclamation 20-24 (Proclamation), https://www.governor.wa.gov/sites/default/files/20-24% 20COVID-19% 20non-urgent% 20medical% 20procedures% 20%28tmp%29.pdf?utm_medium=email & utm_source=govdelivery [https://perma.cc/BM69-Q3MY], prohibiting nonemergency dental care. This case concerns lost business income from the Proclamation and the interpretation of an insurance contract under which the insurance company covers lost business income for the "direct physical loss of or damage to Covered Property" and excludes coverage for loss or damage caused by a "virus." Clerk's Papers (CP) at 349, 365, 368.

¶ 2 Drs. Sarah Hill and Joseph Stout are dentists who operate two dental offices under their business Hill and Stout PLLC (HS). HS bought a property insurance policy from Mutual of Enumclaw Insurance Company (MOE) that covers business income lost due to "direct physical loss of or damage to" the properties. The policy also included a virus exclusion that reads MOE "will not pay for loss or damage caused directly or indirectly by" "[a]ny virus ... that induces or is capable of inducing physical distress, illness or disease." CP at 365, 368. HS sued MOE for coverage because of its inability to use its offices for nonemergency dental practice under the Proclamation and later amended to add a putative class action.

¶ 3 MOE moved to dismiss, arguing that HS failed to show a "direct physical loss of or damage to" the property and that the virus exclusion applied. The trial court denied the motion. After discovery, a different trial court judge granted summary judgment in favor of MOE, finding that "direct physical loss of or damage to property" is not ambiguous and does not cover the constructive loss of property under the Proclamation. In addition, the trial court held that the virus exclusion applied and that the efficient proximate cause rule did not apply in this case. HS appealed directly to this court.

¶ 4 We affirm the trial court order granting summary judgment in favor of MOE. It is unreasonable to read "direct physical loss of ... property" in a property insurance policy to include constructive loss of intended use of property. Such a loss is not "physical." Accordingly, the Proclamation did not trigger coverage under the policy.

¶ 5 In addition, although we need not reach it, we address the issue of efficient proximate cause as the parties have briefed the issue and it is likely to reoccur given the number of insurance cases associated with COVID-19. In the present case, we hold that there are no issues of material fact and that COVID-19 initiated the causal chain that led to the Proclamation and the cause of any alleged loss of use of the property. Because the causal chain was initiated by COVID-19, we hold that the virus exclusion applies to exclude coverage and that the efficient proximate cause rule does not mandate coverage.

FACTS AND PROCEDURAL HISTORY

¶ 6 HS operates two dental practices, one in Oak Harbor and one in Anacortes. HS purchased property insurance from MOE to cover both properties, one policy running from January 1, 2019 to December 31, 2019 and the other running from January 1, 2020 to December 31, 2020. Under "Section I – Property" of the applicable policy, HS has coverage for "direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss." CP at 57. The policy then goes on to list the types of buildings and items that are "Covered Property" under the contract, as well as "Property Not Covered." Id . at 57-58.

¶ 7 The policy also covers business interruption and loss of income and provides that MOE,

will pay for the actual loss of Business Income you sustain due to the necessary suspension of your ‘operations’ during the ‘period of restoration’. The suspension must be caused by direct physical loss of or damage to property at the described premises . The loss or damage must be caused by or result from a Covered Cause of Loss.

Id . at 62 (emphasis added).

¶ 8 In the Washington specific portion, as to exclusions, the policy is modified to read,

We will not pay for loss or damage caused by any of the excluded events described below. Loss or damage will be considered to have been caused by an excluded event if the occurrence of that event:

a. Directly and solely results in loss or damage; or

b. Initiates a sequence of events that results in loss or damage, regardless of the nature of any intermediate or final event in that sequence.

Id . at 110. The most pertinent exclusion to this case is the "Virus or Bacteria" exclusion, which excludes coverage for loss or damage due to "[a]ny virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease." Id . at 76. Virus exclusions, akin to the one in this case, came to fruition in the wake of the SARS (severe acute respiratory syndrome) virus outbreak in the early 2000s. See Erik S. Knutsen & Jeffrey W. Stempel, Infected Judgment: Problematic Rush to Conventional Wisdom and Insurance Coverage Denial in a Pandemic , 27 CONN. INS. L.J. 185, 196 (2020) ("the insurance industry had a virus and bacteria exclusion approved by regulators for inclusion in property insurance policies in 2006, in direct response to the SARS virus (though this exclusion is not featured in all property policies)").

¶ 9 In January 2020, Washington saw its first confirmed case of COVID-19. In the wake of the spread of COVID-19, Governor Inslee declared a state of emergency and issued multiple proclamations related to health, safety, and curtailing the spread of COVID-19. See, e.g. , Proclamation 20-05 (declaring a state of emergency on February 29, 2020), https://www.governor.wa.gov/sites/default/files/proclamations/20-05%20Coronavirus%20%28final%29.pdf [https://perma.cc/TAF6-QNGB].

¶ 10 On March 16, 2020, Drs. Hill and Stout decided that they would close their practice on March 18. CP at 511. On March 18, 2020, HS ceased all routine dental procedures. Id . Dr. Hill testified this was because

we knew that the governor was making proclamations and was trying to keep our state safe, and that there were—that there were more and more closures and strictures. We knew [the shutdown] was coming that [the governor] was going to close. And so we preemptively did it a day before.

CP at 490, 508. She also testified that the decision to close was because of the forthcoming proclamation and "uncertainty about coronavirus." Id . at 511.

¶ 11 On March 19, 2020, Governor Inslee issued the Proclamation, limiting the practice of dentistry to only emergency procedures. The Proclamation reads, in pertinent part,

WHEREAS, the health care personal protective

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