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

• Court: Washington Supreme Court
• Decided: August 25, 2022
• Docket: 100,211-4
• Status: Published

Opinion

NOTICE: SLIP OPINION (not the court’s final written decision)

The opinion that begins on the next page is a slip opinion. Slip opinions are the written opinions that are originally filed by the court. A slip opinion is not necessarily the court’s final written decision. Slip opinions can be changed by subsequent court orders. For example, a court may issue an order making substantive changes to a slip opinion or publishing for precedential purposes a previously “unpublished” opinion. Additionally, nonsubstantive edits (for style, grammar, citation, format, punctuation, etc.) are made before the opinions that have precedential value are published in the official reports of court decisions: the Washington Reports 2d and the Washington Appellate Reports. An opinion in the official reports replaces the slip opinion as the official opinion of the court. The slip opinion that begins on the next page is for a published opinion, and it has since been revised for publication in the printed official reports. The official text of the court’s opinion is found in the advance sheets and the bound volumes of the official reports. Also, an electronic version (intended to mirror the language found in the official reports) of the revised opinion can be found, free of charge, at this website: https://www.lexisnexis.com/clients/wareports. For more information about precedential (published) opinions, nonprecedential (unpublished) opinions, slip opinions, and the official reports, see https://www.courts.wa.gov/opinions and the information that is linked there. For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. FILE THIS OPINION WAS FILED FOR RECORD AT 8 A.M. ON IN CLERK’S OFFICE AUGUST 25, 2022 SUPREME COURT, STATE OF WASHINGTON AUGUST 25, 2022 ERIN L. LENNON SUPREME COURT CLERK

IN THE SUPREME COURT OF THE STATE OF WASHINGTON

HILL AND STOUT, PLLC, a ) Washington company, ) ) No. 100211-4 Appellant, ) v. ) En Banc ) MUTUAL OF ENUMCLAW ) INSURANCE COMPANY, a Filed: August 25, 2022 ) Washington insurance company, ) Respondent. ) )

WHITENER, J.—In early 2020, to help curtail the spread of COVID-19 1

(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

1 “COVID-19, a respiratory disease that can result in serious illness or death, is caused by the SARS-CoV-2 virus, which is a new strain of coronavirus that had not been previously identified in humans and can easily spread from person to person.” Proclamation 20-05, https://www.governor.wa.gov/sites/default/files/proclamations/20- 05%20Coronavirus%20%28final%29.pdf [https://perma.cc/TAF6-QNGB]. For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Hill and Stout v. Mutual of Enumclaw Insurance, No. 100211-4

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.

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.

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

2 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Hill and Stout v. Mutual of Enumclaw Insurance, No. 100211-4

applied and that the efficient proximate cause rule did not apply in this case. HS

appealed directly to this court.

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.

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

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

3 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Hill and Stout v. Mutual of Enumclaw Insurance, No. 100211-4

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.

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).

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,

4 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Hill and Stout v. Mutual of Enumclaw Insurance, No. 100211-4

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)”).

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].

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 5 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Hill and Stout v. Mutual of Enumclaw Insurance, No. 100211-4

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.

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 equipment supply chain in Washington State has been severely disrupted by the significant increased use of such equipment worldwide, such that there are now critical shortages of this equipment for health care workers. To curtail the spread of the COVID-19 pandemic in Washington State and to protect our health care workers as they provide health care services, it is necessary to immediately prohibit all hospitals, ambulatory surgery centers, and dental, orthodontic and endodontic offices in Washington State from providing health care services, procedures and surgeries that require personal protective equipment, which if delayed, are not anticipated to cause harm to the patient within the next three months.

This Proclamation was in effect until May 18, 2020. In the meantime, HS continued

to perform urgent dental procedures in both offices, as allowed under the

Proclamation during this time period. HS also had receptionists in the offices to be

able to answer calls from patients and reschedule appointments.

In April 2020, HS filed a complaint seeking declaratory judgment that the

applicable insurance policies cover HS’s “losses and expenses resulting from the

6 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Hill and Stout v. Mutual of Enumclaw Insurance, No. 100211-4

interruption of [its] business.” CP at 3. HS claimed that its “property sustained direct

physical loss or damage as a result of the proclamations and orders.” Id. at 2.

HS later amended the complaint to be a class action on its own behalf and

those similarly situated. MOE moved to dismiss under CR 12(b)(6), arguing that the

Proclamation did not result in loss of or damage to the covered property. Further,

MOE claimed that the virus exclusion excluded coverage for claims related to

COVID-19.

Judge Amini denied the motion to dismiss. In doing so, Judge Amini reasoned,

applying a plain and ordinary meaning to the disputed words, that “‘loss’” means

“‘destruction’, ‘ruin’, ‘deprivation’.” CP at 285. Applying the definition of

“deprivation,” she found that HS had alleged a “‘direct physical deprivation.’” Id.

She found the phrase “direct physical loss” to be ambiguous, and she found that

MOE’s argument that there must be a physical alteration to the property meant the

same as “damage.” If this were true, then one phrase would be “surplusage,” as the

court must give meaning to all language in the contract. Id. at 286. After the motion

to dismiss, the case was transferred to Judge Chung.

After the case was transferred, MOE filed a motion for judgment on the

pleadings, arguing that HS did not allege “‘direct physical loss of or damage’” to the

property and, in the alternative, that the virus exclusion applied. CP at 308. Judge

7 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Hill and Stout v. Mutual of Enumclaw Insurance, No. 100211-4

Chung denied the motion on procedural grounds without reaching the merits as MOE

had not filed an answer. 2 The case proceeded to discovery.

After discovery MOE moved for summary judgment. MOE alleged again that

the policy excludes coverage for losses related to a virus and for compliance with an

ordinance regulating the use of property. In addition, MOE alleged that there was no

coverage because there was no direct physical loss of property. Judge Chung granted

the motion, finding

that the coverage language requires some external force that causes alteration or direct physical change to the covered properties, the Court also finds that there is no coverage under the civil authority clause of the policy because that coverage is also premised on “when a covered cause of loss causes damage to property,” i.e., the same direct physical loss.

CP at 988. Further, the court rejected HS’s argument that a jury must decide whether

COVID-19 or the Proclamation were the efficient proximate cause of the loss. In

doing so, the court reasoned that the chain of causation was clear (that COVID-19

caused the governor to issue the Proclamation), and found “the [policy] language to

be excluding, and that it avoids the efficient proximate cause doctrine in this case.”

Id. at 989.

2 The motion or order denying the motion does not appear to be in the record, although the oral argument on the motion is an exhibit to the motion for summary judgment. 8 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Hill and Stout v. Mutual of Enumclaw Insurance, No. 100211-4

HS appealed the order granting summary judgment directly to this court, and

we retained the case for hearing and decision.3

ANALYSIS

Standard of Review

When reviewing a summary judgment order, “[w]e engage in the same inquiry

as the superior court.” Lakehaven Water & Sewer Dist. v. City of Federal Way, 195

Wn.2d 742, 752, 466 P.3d 213 (2020). “Summary judgment is appropriate when

there are no genuine issues of material fact and the moving party is entitled to

judgment as a matter of law.” Id. (citing CR 56(c)). “In reviewing a motion for

summary judgment, all facts and reasonable inferences are reviewed in the light most

favorable to the nonmoving party.” Dowler v. Clover Park Sch. Dist. No. 400, 172

Wn.2d 471, 485, 258 P.3d 676 (2011). “On review of an order granting or denying

a motion for summary judgment the appellate court will consider only evidence and

issues called to the attention of the trial court.”4 RAP 9.12.

3 There are eight amici briefs in this case. Six in support of appellants: National Independent Venue Association; the Tulalip Tribes of Washington and Tulalip Gaming Organization; Snoqualmie Indian Tribe; United Policyholders; Upper Skagit Indian Tribe, Muckleshoot Indian Tribe, and Professional Recreation Organization Inc.; and the Washington Hospitality Association. Two in support of Respondents: American Property Casualty Insurance Association and National Association of Mutual Insurance Companies; and Washington International Insurance Company. 4 There is much discussion in the amicus briefs on the issue of whether presence of COVID- 19 itself can cause physical alteration to a property such that the virus causes physical loss of or damage to the property. See, e.g., Br. of Amicus Curiae Nat’l Indep. Venue Ass’n in Supp. of Appellant at 4-26; Br. of Amicus Curiae Wash. Int’l Ins. Co. at 8-16. Because HS is not bringing its insurance claim under this theory of coverage we decline to consider this issue. 9 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Hill and Stout v. Mutual of Enumclaw Insurance, No. 100211-4

Interpretation of the Insurance Policy and “Direct Physical Loss of” Property

“We interpret insurance policy provisions as a matter of law.” Am. Best Food,

Inc. v. Alea London, Ltd., 168 Wn.2d 398, 404, 229 P.3d 693 (2010). “The insured

bears the burden of showing that coverage exists; the insurer, that an exclusion

applies.” Mut. of Enumclaw Ins. Co. v. T&G Constr., Inc., 165 Wn.2d 255, 268, 199

P.3d 376 (2008). We construe the policy as a whole “so that the court can give effect

to every clause in the policy.” Kitsap County v. Allstate Ins. Co., 136 Wn.2d 567,

575, 964 P.2d 1173 (1998). “When we construe the language of an insurance policy,

we give it the same construction that an ‘average person purchasing insurance’

would give the contract.” Woo v. Fireman’s Fund Ins. Co., 161 Wn.2d 43, 52, 164

P.3d 454 (2007) (quoting Roller v. Stonewall Ins. Co., 115 Wn.2d 679, 682, 801 P.2d

207 (1990), overruled on other grounds by Butzberger v. Foster, 151 Wn.2d 396, 89

P.3d 689 (2004) (plurality opinion)).

Undefined terms in an insurance contract are given their “‘plain, ordinary, and

popular meaning.’” Zhaoyun Xia v. ProBuilders Specialty Ins. Co. RRG, 188 Wn.2d

171, 182, 400 P.3d 1234 (2017) (quoting Key Tronic Corp. v. Aetna (CIGNA) Fire

Underwriters Ins. Co., 124 Wn.2d 618, 627, 881 P.2d 201 (1994)). “[I]f the policy

language is clear and unambiguous, we must enforce it as written; we may not

modify it or create ambiguity where none exists.” Quadrant Corp. v. Am. States Ins.

Co., 154 Wn.2d 165, 171, 110 P.3d 733 (2005). “We will hold that a clause is 10 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Hill and Stout v. Mutual of Enumclaw Insurance, No. 100211-4

ambiguous only ‘“when, on its face, it is fairly susceptible to two different

interpretations, both of which are reasonable.”’” Id. (quoting Weyerhaeuser Co. v.

Com. Union Ins. Co., 142 Wn.2d 654, 666, 15 P.3d 115 (2000) (quoting Am. Nat’l

Fire Ins. Co. v. B&L Trucking & Constr. Co., 134 Wn.2d 413, 427-28, 951 P.2d 250

(1998))). Any ambiguity in an insurance policy is construed in favor of the insured.

Vision One, LLC v. Phila. Indem. Ins. Co., 174 Wn.2d 501, 512, 276 P.3d 300

(2012). “[W]here multiple reasonable definitions of an undefined term in an

insurance policy exist . . . courts adopt the definition that most favors the insured.”

McLaughlin v. Travelers Com. Ins. Co., 196 Wn.2d 631, 642, 476 P.3d 1032 (2020).

The primary issue in this case is the interpretation of the phrase “direct

physical loss of or damage to Covered Property.” HS contends that “‘[d]irect

physical loss’ of property can reasonably be interpreted to include the loss of the

ability to use property or suffering the ‘deprivation’ of such property.” Br. of

Appellant at 17. Judge Amini agreed that this was a reasonable reading of the policy

and denied the motion to dismiss. CP at 285-86. However, at this point the court did

not have the benefit of discovery.

In contrast, MOE contends that coverage “requir[es] that something

physically happen to covered property, but as Hill & Stout itself admits, nothing

happened to its property.” Resp’t’s Br. at 10. Judge Chung, in granting summary

judgment, agreed, finding that the policy language is not ambiguous “because the

11 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Hill and Stout v. Mutual of Enumclaw Insurance, No. 100211-4

coverage language requires some external physical force that causes direct physical

change to the properties.” CP at 988. We agree with MOE and affirm the superior

court’s order granting summary judgment in favor of MOE.

All of the key terms in this policy are undefined, so we look to their dictionary

definitions. “Physical” is defined as “of or belonging to all created existences in

nature” and “of or relating to natural or material things as opposed to things mental,

moral, spiritual, or imaginary.” WEBSTER’S THIRD NEW INTERNATIONAL

DICTIONARY 1706 (2002). “Loss” is defined most pertinently as “the act or fact of

losing : failure to keep possession : DEPRIVATION” and “the state or fact of being

destroyed or placed beyond recovery.” Id. at 1338. It follows that a “physical loss of

. . . property” is a property that has been physically destroyed or that one is deprived

of in that the property is no longer physically in their possession.

HS contends that “whatever else ‘direct physical loss’ can also mean, it must

include a physical deprivation of property that immediately results from some non-

excluded cause.” Br. of Appellant at 18. We agree. However, HS goes on to say,

“HS showed this occurred: it was physically deprived of the use of its business

property as an immediate result of Governor Inslee’s proclamations.” Id. (emphasis

added).

“Deprive” is defined as “to take away : REMOVE, DESTROY,” “to take

something away from,” and “to keep from the possession, enjoyment, or use of

12 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Hill and Stout v. Mutual of Enumclaw Insurance, No. 100211-4

something.” WEBSTER’S, supra, at 606. HS’s argument has some merit because there

is an aspect of “deprive” that is “to keep from the use,” but this phrase must be

looked at in the context of the policy language. Substituting “to keep from the use”

the pertinent language would read, “direct physical keeping from the use of

property.” HS is correct that it was kept from using its property as it intended.

However, it is not reasonable to say that the Proclamation physically kept HS from

using its property, especially when HS was using its property.

Accordingly, under the facts of this case we hold that the claim for loss of

intended use and loss of business income is not a physical loss of property. HS was

still able to physically use the property at issue. The property was in HS’s possession,

the property was still functional and able to be used, and HS was not prevented from

entering the property. Under the Proclamation, HS was not able to use the property

in the way that it wanted, but this alleged “loss” is not “physical.” It is more akin to

an abstract or intangible loss than a “physical” one.

HS urges this court to apply a “loss of functionality test” instead of requiring

that there be a physical alteration to the property. Br. of Appellant at 40. HS relies

on Port Authority of New York & New Jersey v. Affiliated FM Insurance Co., 311

F.3d 226, 231 (3d Cir. 2002), which concerned insurance coverage for asbestos

contamination. The United States Court of Appeals for the Third Circuit agreed with

the district court that

13 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Hill and Stout v. Mutual of Enumclaw Insurance, No. 100211-4

“physical loss or damage” occurs only if an actual release of asbestos fibers from asbestos containing materials has resulted in contamination of the property such that its function is nearly eliminated or destroyed, or the structure is made useless or uninhabitable, or if there exists an imminent threat of the release of a quantity of asbestos fibers that would cause such loss of utility. The mere presence of asbestos, or the general threat of future damage from that presence, lacks the distinct and demonstrable character necessary for first-party insurance coverage.

Id. at 236 (emphasis added). Without evidence of an “‘imminent threat of asbestos

contamination’” there could be no coverage. Id.; see also W. Fire Ins. Co. v. First

Presbyterian Church, 165 Colo. 34, 437 P.2d 52 (1968) (holding coverage for direct

physical loss triggered under “loss of use” when authorities ordered a building be

closed because gasoline fumes inside the structure made the use of the building

unsafe); Murray v. State Farm Fire & Cas. Co., 203 W. Va. 477, 493, 509 S.E.2d 1

(1998) (holding plaintiffs suffered a “‘direct physical loss’” when “all three of the

plaintiffs’ homes became unsafe for habitation, and therefore suffered real damage

when it became clear that rocks and boulders could come crashing down [on the

homes] at any time.”). Our Court of Appeals, Division Two, has similarly found

coverage for vandalism for the residue and vapors from a methamphetamine lab in

a rental property even though it caused “no visible damage.” Graff v. Allstate Ins.

Co., 113 Wn. App. 799, 806, 54 P.3d 1266 (2002).

We agree with HS that there are likely cases in which there is no physical

alteration to the property but there is a direct physical loss under a theory of loss of

functionality. However, this case is not one of them. Under a loss of functionality 14 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Hill and Stout v. Mutual of Enumclaw Insurance, No. 100211-4

test HS’s claim also fails because there is no physical loss of functionality to the

property. Contrary to the cases cited in HS’s brief, in this case, there was no alleged

imminent danger to the property, no contamination with a problematic substance,

and nothing that physically prevented use of the property or rendered it useless; nor

were the dental offices rendered unsafe or uninhabitable because of a dangerous

physical condition. Accordingly, the Proclamation did not physically cause a loss of

functionality of the property because it continued to be functional.

Furthermore, although Washington courts have not examined this phrase in

relation to COVID-19 proclamations, our courts have recognized that in order to

recover under a property insurance policy for physical loss of or damage to the

property, something physically must happen to the property. In Wolstein v. Yorkshire

Insurance Co., 97 Wn. App. 201, 211, 985 P.2d 400 (1999), Division One of the

Court of Appeals, looked at a hull risk policy that covered “‘all risks of physical loss

of or damage to the Vessel.’” The court held that “the insured object must sustain

actual damage or be physically lost to invoke hull risks coverage.” Id. at 212.

Therefore, a delay in the construction of the boat was not covered because the boat

was not damaged or lost. Id.

Similarly, in Fujii v. State Farm Fire & Casualty Co., 71 Wn. App. 248, 250,

857 P.2d 1051 (1993), Division One of the Court of Appeals, looked at a policy that

covered “‘accidental direct physical loss.’” It was undisputed that there was “no

15 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Hill and Stout v. Mutual of Enumclaw Insurance, No. 100211-4

discernible physical damage to the dwelling during the effective period of the

policy.” Id. Relying on Villella v. Public Employees Mutual Insurance Co., 106

Wn.2d 806, 808, 725 P.2d 957 (1986), the court held that “because the covered

dwelling did not sustain a direct physical loss during the effective period of the

policy, the trial court correctly granted summary judgment to State Farm.” Fujii, 71

Wn. App. at 251.

Relying on these cases, the Western District of Washington recently examined

multiple consolidated COVID-19 related insurance policy claims and granted

multiple insurers’ dispositive motions, all evaluated under FRCP 12(b)-(c). Nguyen

v. Travelers Cas. Ins. Co. of Am., 541 F. Supp. 3d 1200 (W.D. Wash. 2021). In

Nguyen, Judge Rothstein acknowledged in her order that Washington superior

courts, including Judge Amini’s order in the present case,5 held that the language

“direct physical loss of or damage to” is ambiguous and must be construed in favor

of the insureds. Id. at 1219 (citing Perry St. Brewing Co. v. Mut. of Enumclaw Ins.

Co., No. 20-2-02212-32, 2020 WL 7258116 (Wash. Super. Ct. Nov. 23, 2020); Hill

and Stout PLLC v. Mut. of Enumclaw Ins. Co., No. 20-2-07925-1 SEA, 2020 WL

6784271, at *1 (Wash. Super. Ct. Nov. 13, 2020)). Nonetheless, Judge Rothstein

disagreed, reasoning that

5 Nguyen came out before Judge Chung’s order granting summary judgment in favor of MOE. 16 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Hill and Stout v. Mutual of Enumclaw Insurance, No. 100211-4

“loss of” is best understood[6] as no longer being able to own or control the property in question. When combined with “direct” and “physical” the Court determines that, in its common usage, “loss” means that the alleged peril must set in motion events which cause the inability to physically own or manipulate the property, such as theft or total destruction.

Id. at 1216. She also found that “in arguing that direct physical loss covers loss of

income in these circumstances, Plaintiffs conflate physical loss with non-physical

loss of use.” Id. at 1217. She ultimately “join[ed] the numerous courts across the

country that have held that COVID-19 does not trigger direct physical loss or

damage.” Id. at 1218. Specifically relying on Villella, Fujii, and Wolstein, she

concluded that those cases focused on the physicality of the losses at issue and

required physical consequence. Id. at 1219-20. Accordingly, “the Court finds that

these precedents are useful indicators that the Washington Supreme Court would

decide that the term ‘physical loss’ requires dispossession of property.” Id. at 1220.

We agree with Judge Rothstein’s conclusion as to “direct physical loss.”

While there may be some flexibility to a physical alteration requirement under a loss

of functionality test, even under a loss of functionality test there must be some

physical effect on the property that is not found in the present case. As Judge

Rothstein notes, it appears that the strong, if not unanimous, consensus around the

6 While we agree with Judge Rothstein’s overall conclusion about “direct physical loss,” we disagree with the reference to the “best understood” definition of loss. Under Washington insurance law the definition need not be the best, it must only be reasonable. 17 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Hill and Stout v. Mutual of Enumclaw Insurance, No. 100211-4

country is that COVID-19 and related government closures do not amount to “direct

physical loss of property.” See, e.g., Verveine Corp. v. Strathmore Ins. Co., 184

N.E.3d 1266, 1275-76 (Mass. 2022) (collecting cases and holding, under a similar

insurance law structure to Washington, that “the COVID-19 orders standing alone

cannot possibly constitute ‘direct physical loss of or damage to’ property, for the

same reason that loss of legal title or other government restrictions cannot

themselves physically alter property”); see also Resp’t’s Statement of Additional

Auths. at 1-3 (collecting out of state COVID-19 cases with holdings favorable to

MOE).

HS urges this court to be wary of out of state COVID-19 insurance cases as

Washington insurance law can be different and strongly favors the insured in ways

that other jurisdictions may not. While we must keep in mind any differences in

Washington law, the national consensus is that COVID-19 and related governmental

orders do not cause physical loss of or damage to a property and do not trigger

coverage under similar policy language. This national consensus does not decide the

present case for us but, instead, adds persuasive authority to bolster our ultimate

conclusion.

This interpretation of “direct physical loss” is also consistent with other

provisions in the policy. HS seeks lost business income for the suspension of

operations, which is covered during a “period of restoration” when the suspension is

18 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Hill and Stout v. Mutual of Enumclaw Insurance, No. 100211-4

due to “direct physical loss of or damage to property.” “Period of restoration” under

the policy begins “72 hours after the time of direct physical loss or damage for

Business Income Coverage” and “[e]nds on the earlier of: (a) The date when the

property at the described premises should be repaired, rebuilt or replaced with

reasonable speed and similar quality; or (b) The date when business is resumed at a

new permanent location.” CP at 381-82 (emphasis added). If there were no physical

changes or danger in regard to the property, there would be nothing to repair, rebuild,

or replace.

Ultimately, “direct physical loss of” modifies “property.” The average person

purchasing a property insurance policy would take this to mean that the property

must be directly physically lost to trigger coverage. HS makes no allegations of any

direct physical loss of the property, only the loss of its intended use of the property.

This is not covered under the plain language of the policy. Any ambiguity in the

policy is only to the extent that this phrase could mean the property is completely

physically destroyed, is no longer physically in the insured’s possession, or the

insured is physically incapable of using the property. None of these definitions of

loss allow for recovery under the facts of this case. Thus, we hold that the loss of use

due to the Proclamation did not trigger coverage.7

7 HS also contends that the civil authority coverage was triggered under the policy. Br. of Appellant at 57. In the statement of grounds for direct review, HS mentions civil authority 19 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Hill and Stout v. Mutual of Enumclaw Insurance, No. 100211-4

Efficient Proximate Cause and the Virus Exclusion Although we need not examine the issue of efficient proximate cause and the

virus exclusion in this case given our resolution as to the first issue, because it is

fully briefed and this issue will likely repeat in other cases regarding the

interpretation of similar insurance policies, we address the issue of the virus

exclusion. We strictly construe exclusions against the insurer. Am. Best Food, 168

Wn.2d at 406.

“The efficient proximate cause rule applies only where two or more

independent forces operate to cause the loss.” Kish v. Ins. Co. of N. Am., 125 Wn.2d

164, 170, 883 P.2d 308 (1994). Traditionally, “[t]he efficient proximate cause rule

states that where a peril specifically insured against sets other causes into motion

which, in an unbroken sequence, produce the result for which recovery is sought, the

loss is covered, even though other events within the chain of causation are excluded

from coverage.” McDonald v. State Farm Fire & Cas. Co., 119 Wn.2d 724, 731,

837 P.2d 1000 (1992). “‘Stated in another fashion, where an insured risk itself sets

into operation a chain of causation in which the last step may have been an excepted

risk, the excepted risk will not defeat recovery.’” Id. (quoting Villella, 106 Wn.2d at

815).

coverage in a footnote but did not adequately raise this as an issue. See RAP 4.2(c)(2). Therefore, we decline to consider this theory of coverage.

20 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Hill and Stout v. Mutual of Enumclaw Insurance, No. 100211-4

“The opposite proposition, however, is not a rule of law. When an excluded

peril sets in motion a causal chain that includes covered perils, the efficient

proximate cause rule does not mandate exclusion of the loss.” Vision One, 174

Wn.2d at 519. However, “[w]e have left open the possibility that an insurer may

draft policy language to deny coverage when an excluded peril initiates an unbroken

causal chain.” Id. at 520 (emphasis added). “It is perfectly acceptable for insurers to

write exclusions that deny coverage when an excluded occurrence initiates the causal

chain and is itself either the sole proximate cause or the efficient proximate cause of

the loss.” Xia, 188 Wn.2d at 183.

Accordingly, the efficient proximate cause rule applies to mandate coverage

when an initial covered peril sets a causal chain in motion and that causal chain

includes later excluded perils. It does not apply to mandate coverage when an initial

uncovered peril sets a causal chain in motion that includes covered and/or uncovered

losses. See also Findlay v. United Pac. Ins. Co., 129 Wn.2d 368, 380, 917 P.2d 116,

122 (1996) (“If the efficient proximate cause, the cause that triggers other causes to

result in a loss, is a specifically named, unambiguous excluded peril in the policy,

we will not mandate coverage.” (emphasis added)). Nor does it mandate exclusion

when the causal chain is initiated by an excluded peril.

The determination of the efficient proximate cause of loss is a question of fact

for the fact finder. Vision One, 174 Wn.2d at 520. “[I]t is only when the facts are

21 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Hill and Stout v. Mutual of Enumclaw Insurance, No. 100211-4

undisputed and the inferences therefrom are plain and incapable of reasonable doubt

or difference of opinion that it may be a question of law for the court.” Graham v.

Pub. Emps. Mut. Ins. Co., 98 Wn.2d 533, 539, 656 P.2d 1077 (1983).

HS contends that there is an issue of material fact such that a jury must decide

whether COVID-19 or the Proclamation 8 is the predominating cause of the losses.

Br. of Appellant at 60. In contrast, MOE contends that the efficient proximate cause

rule does not apply here where there are not two “independent” causes of loss and,

if it does, then the efficient proximate cause is COVID-19 as it caused the governor

to issue the proclamations. Resp’t’s Br. at 55-56. We agree with MOE.

In the present case the causal chain is clear: COVID-19 is unique 9 and

Governor Inslee issued the Proclamation because of it. HS closed their dental

business because of concerns about both COVID-19 and the Proclamation, but that

decision was made before the Proclamation. The decision was informed by concerns

8 We assume for the purposes of full analysis of efficient proximate cause that loss from the Proclamation is a covered peril. However, as indicated under our resolution of the first issue, the losses from the Proclamation do not trigger coverage in this case. 9 COVID-19 and the ongoing pandemic has resulted in unprecedented and widespread government mandated shutdowns and regulations around the world, including curfews; travel restrictions; limitations on work and business in countless industries; various mask, vaccination, and isolation mandates; among others. See, e.g., Caroline Kantis et al., UPDATED: Timeline of the Coronavirus, THINK GLOBAL HEALTH (detailed timeline of coronavirus, various governmental restrictions, and vaccine progress), https://www.thinkglobalhealth.org/article/updated-timeline- coronavirus (last visited August 18, 2022). There have been more that 6 million confirmed deaths worldwide, with over 1 million confirmed deaths in the United States. WHO Coronavirus (COVID- 19) Dashboard, World Health Organization (interactive world map graphic that lists confirmed cases and confirmed deaths worldwide and by county), https://covid19.who.int/ (last visited August 18, 2022). 22 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Hill and Stout v. Mutual of Enumclaw Insurance, No. 100211-4

about COVID-19, which led to many other proclamations limiting activities in the

state. Accordingly, this is a case where the excluded peril initiates a sequence with,

for the purposes of analysis, a covered peril. It is not mandated that the exclusion

apply, and the efficient proximate cause also does not apply to mandate coverage.

Importantly, a policy cannot contract around the efficient proximate cause

rule, i.e., it cannot contract to exclude coverage for excluded perils within a causal

chain initially started by a covered peril. Key Tronic, 124 Wn.2d at 625-26. Contrary

to HS’s assertion, MOE does not do so because it does not exclude coverage when

the causal chain is initiated by an initial covered peril. See Br. of Appellants at 65-

66.

The language in the main text of the policy reads, “We will not pay for loss

or damage caused directly or indirectly by any of the following. Such loss or damage

is excluded regardless of any other cause or event that contributes concurrently or

in any sequence to the loss.” CP at 73 (emphasis added). This would be an example

of contracting around the efficient proximate cause rule. However, the policy also

includes a specific “Washington Changes” section under which the exclusionary

language is replaced, presumably to ensure it does not contract around the efficient

proximate cause rule. It reads,

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:

23 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Hill and Stout v. Mutual of Enumclaw Insurance, No. 100211-4

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.

CP at 110 (emphasis added).

This exclusionary language thus appears to contract with the efficient

proximate cause rule in mind, excluding coverage when an exclusion is the only

cause of loss or initiates the chain of causation of the loss. And we have left open

that insurers can contract to say that coverage is excluded for a causal chain initiated

by an excluded peril. The exclusionary language in the policy does just that.

Nonetheless HS contends that it is an issue of fact which cause predominates,

COVID-19 or the Proclamation. We have remanded for determination of material

facts as to the efficient proximate cause of a loss when the causal chain was unclear,

not, such as here, when the causal chain is clear. For example, in Graham, the court

looked at the eruption of Mount St. Helens and the resulting mudslides that destroyed

homes. 98 Wn.2d at 534. The policies at issue generally excluded coverage for earth

movement but covered earth movement because of an “explosion.” Id. at 535. We

held that it was a question for the jury whether the eruption was an “explosion” such

that earth movement would be covered and, if so, whether the explosion caused the

resulting mudflows such that the explosion was the efficient proximate cause. Id at

539. Accordingly, where there is a question of fact as to which peril initiated the

24 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Hill and Stout v. Mutual of Enumclaw Insurance, No. 100211-4

chain of causation, or whether a peril initiated the chain of causation, the case should

be remanded for fact-finding.

This is not such a case. In the present case there is no reasonable question as

to whether COVID-19 caused the governor to issue the Proclamation. There is no

issue of material fact needed to determine that COVID-19, an excluded peril,

initiated the causal chain in this case and that the policy excludes the causal chain of

losses initiated by an excluded peril. As the causal chain is initiated by an excluded

peril, the efficient proximate cause rule does not apply to mandate coverage, and,

under the language of this policy, the virus exclusion applies.

CONCLUSION

We affirm the Superior Court’s order granting summary judgment in favor of

MOE. HS has not demonstrated that it has suffered any “direct physical loss of or

damage to” its dental offices. Deprivation of the full intended use of the property is

not sufficient to trigger coverage under this clause as nothing “physical” has

happened to the covered property. In addition, we hold that the efficient proximate

cause rule does not mandate coverage in this case because the causal chain leading

to the alleged loss was initiated by an excluded peril, COVID-19, and the policy

excludes the causal chain of losses initiated by an excluded peril.

25 For the current opinion, go to https://www.lexisnexis.com/clients/wareports/. Hill and Stout v. Mutual of Enumclaw Insurance, No. 100211-4

WE CONCUR.

Okrent, J.P.T.