Goodwill Indus. of Cent. Okla., Inc. v. Phila. Indem. Ins. Co.

• Decision Date: 21 December 2021
• Docket Number: No. 21-6045,21-6045
• Citation: 21 F.4th 704
• Parties: GOODWILL INDUSTRIES OF CENTRAL OKLAHOMA, INC., d/b/a Goodwill Career Pathways Institute, Plaintiff - Appellant, v. PHILADELPHIA INDEMNITY INSURANCE COMPANY, Defendant - Appellee. American Property Casualty Insurance Association ; National Association of Mutual Insurance Companies, Amici Curiae.
• Court: U.S. Court of Appeals — Tenth Circuit

21 F.4th 704

GOODWILL INDUSTRIES OF CENTRAL OKLAHOMA, INC., d/b/a Goodwill Career Pathways Institute, Plaintiff - Appellant,

v.PHILADELPHIA INDEMNITY INSURANCE COMPANY, Defendant - Appellee.

American Property Casualty Insurance Association ; National Association of Mutual Insurance Companies, Amici Curiae.

No. 21-6045

United States Court of Appeals, Tenth Circuit.

FILED December 21, 2021

Jim T. Priest, Oklahoma City, Oklahoma, for Plaintiff-Appellant.

Stephen E. Goldman, Robinson & Cole LLP, Hartford, Connecticut (Wystan M. Ackerman, Robinson & Cole LLP, Hartford, Connecticut; Phil R. Richards and Joy Tate, Richards & Connor, Tulsa, Oklahoma, with him on the briefs) for Defendant-Appellee.

Laura A. Foggan, Crowell & Morning LLP, Washington, D.C., filed an amicus curiae brief on behalf of Defendant-Appellee for the American Property Casualty Insurance Association and National Association of Mutual Insurance Companies.

Before TYMKOVICH, Chief Judge, MATHESON, and PHILLIPS, Circuit Judges.

MATHESON, Circuit Judge.

Goodwill Industries of Central Oklahoma, Inc., a nonprofit organization, provides community services and operates retail stores and donation centers in central Oklahoma. It suspended operations on March 25, 2020, to comply with state and local orders regarding the COVID-19 pandemic. After suffering losses due to the shutdown, Goodwill sued its insurer, Philadelphia Indemnity Insurance Company ("Philadelphia"), under its commercial lines policy. The policy provided coverage for "loss of Business Income" when the insured must suspend its operations due to "direct physical loss of or damage to" covered property. App., Vol. 2 at 459.

The district court granted Philadelphia's motion to dismiss. It concluded the policy did not cover Goodwill's loss and that the policy's Virus Exclusion barred coverage. Exercising jurisdiction under 28 U.S.C. § 1291, we affirm.

I. BACKGROUND

A. Factual History

On March 15, 2020, the Governor of Oklahoma issued an executive order declaring a state-wide emergency due to COVID-19. Under the order, businesses like Goodwill that were not part of the "critical infrastructure sector" had to close to the public beginning on March 25, 2020. App., Vol. 1 at 44. Mayors in Oklahoma City, Norman, Moore, Ardmore, Guthrie, Stillwater, and Midwest City also ordered nonessential businesses to suspend operations. In response to the state and local closure orders, Goodwill halted its operations and suffered financial losses as a result.

B. The Policy

Philadelphia insured Goodwill under a commercial lines policy effective from May 1, 2019 to May 1, 2020. Two key policy provisions governed the coverage issue here. First, the "Business Income" provision stated that "[Philadelphia] will pay for the actual loss of Business Income [Goodwill] sustain[s] due to the necessary ‘suspension’ of [Goodwill's] ‘operations’ during the ‘period of restoration.’ " App., Vol. 2 at 459. A "suspension" "must be caused by direct physical loss of or damage to property at [the covered] premises." Id. Second, the "Period of Restoration" clause provided that the restoration period begins "72 hours after the time of direct physical loss or damage ... caused by or resulting from any Covered Cause of Loss at the [covered] premises" and "[e]nds on the earlier of: (1) The date when the property at the described premises should be repaired, rebuilt or replaced with reasonable and similar quality; or (2) The date when business is resumed at a new permanent location." Id. at 467.

The policy also contained a Virus or Bacteria Exclusion. It stated that Philadelphia "will not pay for 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." Id. at 470.

C. Procedural History

In May 2020, Goodwill sued Philadelphia by filing a petition in the state district court of Cleveland County, Oklahoma. It sought a declaration that the policy "covers Goodwill's losses and expenses related to the state and local mandated closures of Goodwill's stores." App., Vol. 1 at 46. Philadelphia removed the case to the Western District of Oklahoma and moved to dismiss under Federal Rule of Civil Procedure 12(b)(6).¹

The district court granted Philadelphia's motion to dismiss on two grounds. First, it concluded that coverage for "a direct physical loss unambiguously requires a showing of tangible damage." Id. at 14. Because "Goodwill failed to allege it suffered any tangible damage," which at a minimum required that Goodwill "allege that a substance entered its premises or attached to its surfaces," the court determined Goodwill's claim was "subject to dismissal." Id. Second, the court held the policy's Virus Exclusion was valid and excluded coverage. Goodwill moved to alter or amend the judgment under Federal Rule of Civil Procedure 59(e), and the district court denied the motion.

Goodwill timely appealed (1) the order granting Philadelphia's motion to dismiss and (2) the order denying Goodwill's Rule 59(e) motion. Goodwill also moved to abate proceedings and certify questions to the Oklahoma Supreme Court related to the meaning of the term "direct physical loss of or damage to" and the applicability of the Virus Exclusion.

II. DISCUSSION

A. Standard of Review

"We review de novo the grant of a Rule 12(b)(6) motion to dismiss for failure to state a claim." Schell v. Chief Just. & Justs. of Okla. Supreme Ct. , 11 F.4th 1178, 1186 (10th Cir. 2021) (quotations omitted). "To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ).

We typically consider "only the contents of the complaint when ruling on a 12(b)(6) motion." Berneike v. CitiMortgage, Inc. , 708 F.3d 1141, 1146 (10th Cir. 2013). But we also will consider "documents incorporated by reference in the complaint [and] documents referred to in and central to the complaint, when no party disputes [their] authenticity." Id. (quotations omitted).

B. Oklahoma Law

In this diversity suit, the substantive law of Oklahoma applies. Edens v. The Netherlands Ins. Co. , 834 F.3d 1116, 1120 (10th Cir. 2016).

Under Oklahoma law, "[t]he interpretation of an insurance contract and whether it is ambiguous is determined by the court as a matter of law." Serra v. Estate of Broughton , 364 P.3d 637, 641 (Okla. 2015). "When [the policy's] terms are unambiguous and clear, the employed language is accorded its ordinary, plain meaning and enforced so as to carry out the parties' intentions." Bituminous Cas. Corp. v. Cowen Constr., Inc. , 55 P.3d 1030, 1033 (Okla. 2002) (emphasis removed). "The test for ambiguity is whether the language is susceptible to two interpretations on its face from the standpoint of a reasonably prudent lay person, not from that of a lawyer." Am. Econ. Ins. Co. v. Bogdahn , 89 P.3d 1051, 1054 (Okla. 2004) (quotations and alterations omitted). "[A] split in authority over whether a certain term is ambiguous will not, in itself, establish an ambiguity nor will the fact that the parties disagree." BP Am., Inc. v. State Auto Prop. & Cas. Ins. , 148 P.3d 832, 836 (Okla. 2005) (footnote omitted).

If, after application of these rules of construction, there is a "genuine ambiguity," courts construe the insurance contract in a way that is "most favorabl[e] to the insured and against the insurance carrier." Dodson v. St. Paul Ins. Co. , 812 P.2d 372, 377 (Okla. 1991). But "neither forced nor strained construction will be indulged, nor will any provision be taken out of context and narrowly focused upon to create and then construe an ambiguity so as to import a favorable consideration to either party than that expressed in the contract." Id. at 376.

C. Analysis

We affirm the district court's determination that (1) the policy's Business Income provision did not cover Goodwill's losses and (2) the Virus Exclusion applied.²

1. Business Income Coverage

Goodwill does not claim "damage to property," but it does claim it suffered a "direct physical loss of" property when it suspended operations in compliance with COVID shutdown orders. It did not. The Business Income provision unambiguously covered only losses stemming from physical alteration or tangible dispossession of property. Neither occurred here. The policy's Period of Restoration clause reinforces this conclusion. So do the decisions of every other circuit and the vast majority of district courts to address this issue.

a. Business Income Coverage Provision

The policy does not define "direct physical loss," and the Oklahoma Supreme Court has not construed this term. We may consult dictionaries to supply the words' common meanings. See Wiley v. Travelers Ins. Co. , 534 P.2d 1293, 1294 (Okla. 1974) ; Combs v. Shelter Mut. Ins. Co. , 551 F.3d 991, 997 (10th Cir. 2008) (applying Oklahoma law).³

Dictionary definitions inform us that "direct physical loss" encompasses only tangible destruction or deprivation of property. The Oxford English Dictionary Online (3d ed. 2021) defines

• "direct" as "[e]ffected or existing without intermediation or intervening agency; immediate";

• "physical" as "[o]f or relating to natural phenomena perceived through the senses (as opposed to the mind); ... natural; tangible, concrete"; and

• "loss" as "[p]erdition, ruin, destruction."

Webster's Third New International Dictionary (2002) defines

• "direct" as "marked by absence of an intervening agency, instrumentality, or influence: immediate";

• "physical" as "of or relating to natural or material things as opposed to things mental, moral, spiritual, or imaginary"; and

• "loss" as "failure to keep possession: deprivation" or "destruction, ruin, perdition."

Based on these definitions, a "direct physical loss" requires an immediate and...