A Washington state trial court denied the insurer's motion to dismiss the insured's business interruption and civil authority claims arising from COVID-19. Hill and Stout PLLC v. Mutual of Enumclaw Ins. Co., No. 20-2-0725-1 (Wash. Super. Ct. Nov. 13, 2020). The case is here.
Plaintiff Hill and Stout PLLC (H&S) was a dental practice with offices in two locations. H&S had a Business Owner's policy with Mutual covering equipment and supplies used in the business. The policy required H&S to show that a loss of income was related to "direct physical loss of or damage to" the covered property.
On March 19, 2020, government orders prohibited medical professionals, including dentists, from performing non-emergency routine procedures due to the coranavirus. No COVID-19 was detected at H&S's offices. H&S submitted a claim to Mutual for business interruption and civil authority coverage, but the claim was denied.
H&S brought suit. Mutual argued H&S failed to allege "direct physical loss" under the policy. H&S argued that the terms "direct physical loss of" or "damage to" the covered property were ambiguous. Further, H&S suffered a direct physical loss of covered property when the dental offices and dental equipment could not be used for their intended use. Given the government orders, there was also a triable issue as to H&S's access to the property by reason of property damage occurring at locations other than their business.
The court noted that the policy did not define "direct physical loss," loss of" or "damage to." The policy language used "or" to separate the "direct physical loss of" and "damage to," providing for an alternative means of coverage. The dictionary definition for "loss" included "deprivation." The court found that H&S's position that the dental practice had a "direct physical deprivation" of its property when they were unable to see patients and practice dentistry was a reasonable interpretation of the policy.
While there was no factual allegation of physical alteration of the property, "physical loss of" provided an alternative basis for coverage. Otherwise the policy would use one or the other term and not both. The fact that both terms were included in the coverage provision showed that the drafters of the policy meant the term "physical loss of" to mean something other than "damage to." Mutual's argument that gave the same exact meaning to both terms contradicted and ignored the clear intent of the policy.
The court therefore found that the phrase "physical loss of" was ambiguous because it was fairly susceptible of two reasonable interpretations. The motion to dismiss was denied.
