Zeco Dev. Grp. v. First Mercury Ins. Co.

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ZECO DEVELOPMENT GROUP, LLC, DBA RIVER PIG SALOON, an Oregon limited liability company, individually and on behalf of all others similarly situated, Plaintiff, v. FIRST MERCURY INSURANCE COMPANY, a foreign corporation, Defendant.

No. 3:21-cv-406-SI

United States District Court, D. Oregon

February 14, 2022

Kyle A. Sturm and Nicholas A. Thede, Foreman Sturm & Thede llp, Nicholas A. Kahl, Nick Kahl llc, Of Attorneys for Plaintiff.

Kristin v. Gallagher and Daniel Pickett, Kennedys CMK llp Thomas Lether and Eric Jay Neal, Lether Law Group, Of Attorneys for Defendant.

OPINION AND ORDER

Michael H. Simon, District Judge.

Zeco Development Group, LLC (Zeco) brings this lawsuit against its insurer, First Mercury Insurance Company (First Mercury) challenging First Mercury's refusal to cover the loss of Zeco's intended use of its property resulting from Governor Kate Brown's executive orders enacted in response to the COVID-19 pandemic. Both parties agree that their dispute turns on the meaning of a phrase in Zeco's insurance policy (Policy) that requires the insured to have suffered “direct physical loss of or damage to” the covered property. Zeco contends that the phrase includes the insured's loss of its intended use of the covered property. First Mercury argues that the phrase requires dispossession of the property or some physical alteration to the property. First Mercury moves for summary judgment, arguing that the Policy does not cover Zeco's loss of its intended use of the property and even if it did, two exclusions under the Policy would apply. Zeco also moves to certify two questions to the Oregon Supreme Court. For the reasons below, the Court grants First Mercury's motion for summary judgment (ECF 21) and denies Zeco's motion to certify (ECF 27).

STANDARDS

A. Certified Question to the Oregon Supreme Court

The Oregon Supreme Court may answer a certified question of law from a United States District Court if the question “may be determinative of the cause pending in the certifying court and as to which it appears to the certifying court there is no controlling precedent in the decisions of the Supreme Court and the intermediate appellate courts of this state.” Or. Rev. Stat. (ORS) § 28.200. The Oregon Supreme Court requires that each certified question meet these criteria:

(1) The certification must come from a designated court; (2) the question must be one of law; (3) the applicable law must be Oregon law; (4) the question must be one that “may be determinative of the cause;” and (5) it must appear to the certifying court that there is no controlling precedent in the decisions of this court or the Oregon Court of Appeals.

W. Helicopter Servs., Inc. v. Rogerson Aircraft Corp., 311 Or. 361, 364 (1991) (quoting ORS § 28.200). Even if a question meets these five criteria, the decision to certify a question to a state supreme court “rests in the ‘sound discretion' of the district court.” Freyd v. Univ. of Or., 990 F.3d 1211, 1223 (9th Cir. 2021) (quoting In re Complaint of McLinn, 744 F.2d 677, 681 (9th Cir. 1984)). When a district court faces an unclear question of state law, “resort to the certification process is not obligatory.” Riordan v. State Farm Mut. Auto. Ins. Co., 589 F.3d 999, 1009 (9th Cir. 2009). Federal courts “regularly decide issues of state law without certifying questions to the state's highest court.” U.S. Bank, N.A., Tr. for Banc of Am. Funding Corp. Mortgage Pass-Through Certificates, Series 2005-F v. White Horse Estates Homeowners Ass'n, 987 F.3d 858, 867 (9th Cir. 2021).

B. Summary Judgment

A party is entitled to summary judgment if the “movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). The moving party has the burden of establishing the absence of a genuine dispute of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The court must view the evidence in the light most favorable to the non-movant and draw all reasonable inferences in the non-movant's favor. Clicks Billiards Inc. v. Sixshooters Inc., 251 F.3d 1252, 1257 (9th Cir. 2001). Although “[c]redibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the facts are jury functions, not those of a judge . . . ruling on a motion for summary judgment, ” the “mere existence of a scintilla of evidence in support of the plaintiff's position [is] insufficient . . . .” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 255 (1986). “Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no genuine issue for trial.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (citation and quotation marks omitted).

BACKGROUND

There are no disputed material facts. Zeco is an Oregon limited liability company that owns and operates two taverns known as River Pig Saloon, which are in Portland and Bend, Oregon. Zeco obtained an all-risk commercial property insurance policy that covered both River Pig Saloon locations from October 2019 to October 2020. The Policy's Business Income and Extra Expenses coverages apply only if the insured suffered “direct physical loss of or damage to” the covered property. ECF 22-3, at 128. The Policy also includes a Virus Exclusion, which excludes from coverage any “loss or damage caused by or resulting from any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease, ” and an Acts or Decisions Exclusion, which excludes from coverage damage caused by “[a]cts or decisions . . . of any person, group, organization or governmental body.” ECF 22-3, at 113, 117.

Beginning March 17, 2020, Governor Brown issued a series of executive orders that prohibited in-person dining at restaurants, bars, and other food and drink establishments. Governor Brown's executive orders permitted those establishments to remain open for take-out and drive-through services. In compliance with those orders, Zeco closed its taverns for in-person dining.

DISCUSSION

A. Certified Question to the Oregon Supreme Court

After the parties fully briefed First Mercury's motion for summary judgment, Zeco moved to certify the following two questions to the Oregon Supreme Court:

(1) If the primary physical use of an insured's covered property has been directly prohibited, does such direct prohibition constitute a “direct physical loss” within the meaning of a property insurance policy that includes ISO forms CP 00 10 10 12, CP 10 30 09 17, and CP 00 30 10 12?

(2) Where an insured's loss has multiple causes, one or more of which the insurance policy covers and one or more of which it excludes from coverage, does Oregon law require a factual determination of the predominant or “efficient proximate cause” of the loss before an insurance company can properly deny coverage?

Zeco contends this Court should certify because the Oregon appellate courts have not provided definitive resolution to the precise questions presented. For the reasons explained below, however, Oregon appellate courts have offered sufficient guidance suggesting that the Oregon Supreme Court would conclude that the plain meaning of “direct physical loss of or damage to” property requires dispossession or physical alteration to the property. See Wyo. Sawmills, Inc. v. Trans. Ins. Co., 282 Or. 401 (1978); Farmers Ins. Co. of Or. v. Trutanich, 123 Or.App. 6 (1993). Considering that guidance, the fact that the Oregon courts have not answered the precise question presented here does not warrant certification.

Additionally, because the parties agree that Zeco was not dispossessed of its property and that the property was not physically altered, Zeco's second question relating to whether the Policy's Virus Exclusion applies is not determinative of the cause. See W. Helicopter Servs., 311 Or. at 364; see also Stollenwerk v. Tri-W. Health Care All., 254 Fed.Appx. 664, 668-69 (9th Cir. 2007) (declining to certify because, considering the court's analysis of other issues, the state supreme court's “answer to the legal question on which Plaintiffs seek certification would not affect our disposition of this case”). Thus, the Court declines to certify either question to the Oregon Supreme Court.

B. Summary Judgment

The parties agree that the primary legal question before the Court is whether Zeco's closure of its taverns for in-person dining amounts to a “direct physical loss of or damage to” that property under the Policy. If it does not, then the Court must grant First Mercury's motion for summary judgment. If the closures do constitute a “direct physical loss of or damage to” the property, the Court must then determine whether the Virus Exclusion or Acts or Decision Exclusion applies.

1. Oregon Rules of Insurance Policy Construction

The interpretation of an insurance policy is a question of law and the Court's task is to determine the parties' intentions. Hoffman Constr. Co. v. Fred S. James & Co., 313 Or. 464, 469 (1992). “We determine the intention of the parties based on the terms and conditions of the insurance policy, ” id., as interpreted from the perspective of the “ordinary purchaser of insurance.” Totten v. N.Y. Life Ins. Co., 298 Or. 765, 771, (1985); see also Hunters Ridge Condo. Ass'n v. Sherwood Crossing, LLC, 285 Or.App. 416, 422 (2017) (stating that the terms of an insurance policy are to be interpreted according to the understanding of an ordinary purchaser of insurance); Boly v. Paul Revere Life Ins. Co., 238 Or.App. 702, 708-09, rev. den., 350 Or. 130 (2011) (noting that the meaning of a term in an insurance policy that is not defined in the policy is to be determined based on...