In a recent COVID-19 Washington State insurance bad faith case, Tulalip Tribes of Washington v. Lexington Ins. Co., Division I of the Washington Court of Appeals affirmed Washington's stance holding lost physical use of property due to government COVID-19 orders is not sufficient to establish direct physical loss coverage, rejecting the laws of other states that hold otherwise.
Background
In Tulalip Tribes of Washington v. Lexington Ins. Co., the Tulalip Tribes of Washington (Tribes) sought coverage under multiple primary and excess all-risk policies for business losses due to COVID-19 closures. Tulalip Tribes of Washington v. Lexington Ins. Co., 86115-8-I, 2025 WL 955713, at *1 (Wash. Ct. App. March 31, 2025). Like most all-risk policies, the Tribes' policies covered the risk of "direct physical loss or damage occurring during the period of this Policy." Id.
The applicable policies did not contain a virus exclusion. Id. Nevertheless, the Snohomish County trial court granted the Insurer's Motion to Dismiss under Washington Civil Rule (CR) 12 (b)(6), ruling that the policies did not cover the Tribes' claim because COVID-19 orders did not cause "direct physical loss or damage." While the trial court recognized the impact of the COVID-19 virus, it observed that nothing in the Tribes' complaint indicated that the virus caused "direct physical damage, that doesn't dissipate, that is permanent in nature." The Tribes appealed the dismissal, and a nonprofit policyholder group filed an amicus brief in support.
Government Orders Continue to Not Constitute Direct Physical Damage in Washington
In affirming the dismissal, the Court of Appeals relied heavily on the...
