Board Of Regents Of Univ. Of Wa., V. Employers Insurance Company Of Wausau

• Court: Court of Appeals of Washington
• Decided: June 9, 2025
• Docket: 86493-9
• Status: Unpublished

Opinion

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

THE BOARD OF REGENTS OF THE No. 86493-9-I UNIVERSITY OF WASHINGTON, DIVISION ONE Respondent, UNPUBLISHED OPINION v.

EMPLOYERS INSURANCE COMPANY OF WAUSAU, A LIBERTY MUTUAL COMPANY,

Petitioner.

FELDMAN, J. — In Tulalip Tribes of Washington v. Lexington Insurance Co.,

__ Wn. App. 2d __, 566 P.3d 149 (2025), this court held that COVID-19 does not

trigger coverage under an “All Risk” policy that predicates coverage on “direct

physical loss or damage” to property. Because the trial court’s ruling in this matter

is contrary to Tulalip, we reverse and remand for dismissal.

The University of Washington (UW) obtained from Employers Insurance

Company of Wausau (Wausau) “All Risk” insurance coverage for several of its

properties. UW sought coverage after government orders relating to COVID-19

required temporary closures of those properties. The relevant policy provisions

predicate coverage on “direct physical loss or damage.” When Wausau denied

coverage based on those policy provisions, UW filed a complaint asserting claims No. 86493-9-I

for breach of contract, declaratory judgment, bad faith, and violations of the

Washington Consumer Protection Act, chapter 19.86 RCW (CPA), and

Washington Insurance Fair Conduct Act, RCW 48.30.015 (IFCA). Wausau filed a

CR 12(b)(6) motion to dismiss the claims based on the above policy provisions,

and the trial court denied that motion. Wausau then filed a motion for discretionary

review, which our commissioner granted.

We review the trial court’s ruling denying Wausau’s CR 12(b)(6) motion de

novo. Tulalip, 566 P.3d at 154. “‘A CR 12(b)(6) motion may be granted only where

there is not only an absence of facts set out in the Complaint to support a claim of

relief, but there is no hypothetical set of facts that could conceivably be raised by

the Complaint to support a legally sufficient claim.’” Id. (quoting Worthington v.

Westnet, 182 Wn.2d 500, 505, 341 P.3d 995 (2015)). Additionally, construction of

an insurance policy is a question of law. Queen City Farms, Inc. v. Cent. Nat’l Ins.

Co. of Omaha, 126 Wn.2d 50, 65, 882 P.2d 703 (1994). We examine the policy

“to determine whether under the plain meaning of the contract there is coverage.”

Kitsap County v. Allstate Ins. Co., 136 Wn.2d 567, 576, 964 P.2d 1173 (1998). If

the policy’s language is clear and unambiguous, we must enforce the policy as

written. Tulalip, 566 P.3d at 154. Also relevant here, “the insured bears the burden

of showing that coverage exists.” Id.

Thus, the issue before us in this appeal is whether UW has alleged the

required “direct physical loss or damage” to trigger coverage under the relevant

policies for the COVID-19-related losses at issue. We addressed a similar attempt

to obtain coverage for COVID-19-related losses in Tulalip. In that case, the trial

2 No. 86493-9-I

court granted the insurer’s CR 12(b)(6) motion to dismiss the insureds’ complaint

seeking to recover business losses caused by the government’s COVID-19 orders

based on an “All Risk” policy that, like the Wausau policies at issue here,

“predicated coverage on ‘direct physical loss or damage.’” 566 P.3d at 152. We

affirmed the dismissal and, in doing so, squarely addressed and rejected the same

three arguments that UW asserts in this appeal. We address each of those

arguments in turn.

First, UW argues it “sufficiently alleges ‘direct physical loss or damage’”

because “SARS-CoV-2 was present at the Properties at relevant times, causing

the formation of SARS-CoV-2 aerosols and fomites that damaged the Properties.”

The insureds in Tulalip similarly argued, “the presence of the COVID-19 virus

physically transformed the content of the air in any insured location where it was

present” by “filling the air with aerosolized [COVID]-19 virus” and creating

“fomites.” Id. at 157 (internal quotation marks omitted) (alteration in original). We

rejected this argument and held “the presence of the virus and/or fomites in the air

does not constitute direct physical loss or damage to [the insured’s] property.” Id.

at 161. The same reasoning and holding defeats UW’s corresponding argument.

Second, UW argues it “has alleged ‘direct physical loss or damage’

sufficient to trigger the policies’” because “there is an allegation that the presence

of COVID-19 caused a loss of functionality,” which satisfies the “‘loss of

functionality’ test” described in Hill & Stout, PLLC v. Mutual of Enumclaw Insurance

Co., 200 Wn.2d 208, 221-22, 515 P.3d 525 (2022), and Seattle Tunnel Partners v.

Great Lakes Reinsurance (UK) PLC, 200 Wn.2d 315, 339-43, 516 P.3d 796

3 No. 86493-9-I

(2022). We rejected a similar loss of functionality argument in Tulalip because,

“like the insured in Hill & Stout, the [insureds in Tulalip] maintained possession of

the property, the property was still functional and able to be used, and the

[insureds] were not prevented from entering the property.” 566 P.3d at 157-58.

We therefore held the insureds’ deprivation was “more akin to an abstract or

intangible loss, which is insufficient to establish direct physical loss or damage.”

Id. We also clarified that “under Seattle Tunnel Partners, the deprivation must still

be caused by a physical impact to the property.” Id. at 158. The same reasoning

and holding apply equally here because, as in Tulalip, UW’s allegations show it

suffered an abstract or intangible loss as opposed to a physical loss.

Third, UW argues “the spread of the SARS-CoV-2 coronavirus” and

resulting “contamination of the properties with the COVID-19 communicable

disease” are “sufficient to trigger coverage under the communicable disease

coverage endorsements” founds in three of its policies. The insureds in Tulalip

similarly “claim[ed] coverage under other provisions, including those providing

coverage for Extra Expense, Ingress/Egress, and Interruption by Civil Authority.”

Id. at 161. We rejected the argument because “‘physical loss or damage’ [was]

necessary to all of the [insureds’] claims for coverage under these additional

provisions.” Id. Like the additional provisions in Tulalip, the “communicable

disease coverage endorsements” in UW’s policies state that Wausau will pay for

decontamination costs and lost profits or earnings where “covered property . . . is

contaminated by a communicable disease as the direct result of a covered loss.”

The policies then define a “covered loss” as “[a] loss to covered property caused

4 No. 86493-9-I

by direct physical loss or damage insured by this Policy.” Thus, as in Tulalip, there

must be direct physical loss or damage to property for UW to obtain coverage

under the communicable disease coverage endorsements. Because UW has

failed to allege such loss or damage (for the reasons discussed above), the

communicable disease coverage endorsements do not apply.

In sum, we reject UW’s arguments regarding its entitlement to coverage

under the policies at issue for the same reasons set forth in Tulalip. UW’s breach

of contract and declaratory judgment claims fail on this basis. As a result, we need

not reach Wausau’s alternative ground for reversal, namely that the policies’

“contamination exclusion” precludes coverage for UW’s claimed losses. And

because UW fails to allege facts establishing coverage, its extra-contractual claims

for bad faith and violations of the CPA and IFCA also fail. See Tulalip, 566 P.3d

at 161 (affirming dismissal of “extracontractual claims of violation of the common

law duty of good faith and fair dealing, the CPA, and IFCA” because those claims

“turn on whether the Insurers properly denied the [insureds’] insurance claims”)

(internal quotation marks omitted). Because Tulalip is directly on point and fatal to

UW’s coverage arguments, we reverse and remand for dismissal.

WE CONCUR: