The federal district court predicted that business interruption caused by smoke from a nearby wildfire would be covered under Oregon law. Oregon Shakespeare Festival Assoc. v. Great Am. Ins.. Co., 2016 U.S. Dist. LEXIS 74450 (D. Ore. June 7, 2016).
The insured operated the Shakespeare Festival in three venues, one of which was an open-air, partially enclosed structure. During the summer of 2013, smoke from several different wildfires was present in the area. The fires caused smoke, soot, and ash to accumulate on the seats and concrete ground of the open-air theater. Consequently, the insured canceled a total of four separate evening performances due to health concerns from the poor air quality caused by the wildfire smoke. The air quality on the nights during which performances were cancelled ranged from "very unhealthy" to "unhealthy" conditions.
During July and August 2013, if a committee of the insured determined that the air quality rating was "unhealthy to hazardous," the performance would be cancelled. The four performances were cancelled based upon the committee's decision. No federal, state, local agency or public authority of any kind ordered cancellation of the performances due to air quality concerns. Further, the theater did not suffer any permanent or structural damage.
The policy provided coverage for business income as follows:
We 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 premises.
Coverage was denied and the insured sued. The insurer moved for summary judgment. The parties agreed that the theater was "covered property," but they disputed whether the smoke that filled the open-air facility constituted "direct physical loss or damage." The policy did not define "direct physical loss or damage."
It was undisputed that the interior of the building had to be cleaned, the air filters had to be changed multiple times, and smoke in the air within the theater had to dissipate before business could resume. The insurer claimed that the period of time during which operations had to be suspended could not be considered "restoration" because no structural repairs were necessary. The court found no such limitations within the policy, however. Adding the word "structural" to the provision to exclude the air within the building was beyond the plain meaning of the term "direct physical loss of or damage to property."
The court also noted that the exclusions advanced by the insurer were not applicable. Based upon the text and context of the policy, it was not reasonable to exclude wildfire smoke from policy coverage.