Aspen Lodging Group, LLC v. Affiliated Fm Insurance Company

NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
ASPEN LODGING GROUP, LLC; ASPEN
TENNESSEE, LLC; ASPEN MALLORY
HOLDINGS, LLC; DELUXE
RESTAURANT, LLC; ASPEN IMPERIAL,
LLC; VANCE HOTEL ASSOCIATES,
LLC; KS TACOMA HOTEL, LLC;
ROOSEVELT HOTEL OWNER, LLC;
THEODORE F&B, LLC; PORTLAND
GOVERNOR HOTEL ACQUISITION,
LLC; PORTLAND HOTEL, LLC;
DOSSIER F&B, LLC; HOTEL
AMBASSADOR NOLA, LLC; VILLA
PALM SPRINGS OWNER, LLC; 930
SANDY BAR, LLC,
Plaintiffs-Appellants,
and
VANCOUVER CLINIC INC., PS,
Plaintiff,
v.
AFFILIATED FM INSURANCE
COMPANY,
Defendant-Appellee.
No. 21-35472
D.C. No. 2:20-cv-01038-BJR
MEMORANDUM*
* This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
FILED
MAY 19 2023
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS

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Appeal from the United States District Court
for the Western District of Washington
Barbara Jacobs Rothstein, District Judge, Presiding
Submitted March 31, 2023**
Seattle, Washington
Before: NGUYEN and HURWITZ, Circuit Judges, and PREGERSON,*** District
Judge.
In this insurance coverage action, Aspen Lodging Group LLC seeks
reimbursement from Affiliated FM Insurance Company (“AFM”) for business losses
incurred at a hotel during the COVID-19 pandemic. Applying Washington law, the
district court granted AFM’s cross-motion for partial summary judgment. See
Nguyen v. Travelers Cas. Ins. Co. of Am., 541 F. Supp. 3d 1200, 1245 (W.D. Wash.
2021). We have jurisdiction under 28 U.S.C. § 1291. Reviewing the summary
judgment de novo, WildEarth Guardians v. Provencio, 923 F.3d 655, 664 (9th Cir.
2019), we affirm.
1. To establish coverage under Washington law, an “insured must show the
loss falls within the scope of the policy’s insured losses.” McDonald v. State Farm
Fire & Cas. Co., 837 P.2d 1000, 1003–04 (Wash. 1992). AFM’s policy covers loss
** The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
*** The Honorable Dean D. Pregerson, United States District Judge for the
Central District of California, sitting by designation.

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“as a direct result of physical loss or damage.” The Washington Supreme Court
recently observed 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.” Hill & Stout, PLLC v. Mut. of Enumclaw Ins. Co., 515 P.3d 525, 533
(Wash. 2022). The court held that the “loss of intended use and loss of business
income” caused by the Governor’s orders “is not a physical loss of property,” id. at
532, and stated that it agreed with the district court’s conclusion here that “there
must be some physical effect on the property” to trigger coverage, id. at 534.
Although Hill & Stout dealt only with a claim that the Governor’s orders triggered
coverage, the court also noted, as did the district court here, “the strong, if not
unanimous, consensus around the country” that COVID-19 itself does not cause a
direct physical loss of property. Id.; see Nguyen, 541 F. Supp. 3d at 1207.
Hill & Stout acknowledged “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.” Id. at 533. But, in rejecting a claim by dentists for business
losses caused by the COVID-19 pandemic, the court held that “this case is not one
of them” because there was “no physical loss of functionality to the property.” Id.
“[T]here 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

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because of a dangerous physical condition.” Id. The same is true here.
Although the policy’s Communicable Disease provision provides coverage
even without physical loss or damage, it requires the actual presence of COVID-19,
which Aspen does not allege.
2. Even assuming coverage under the AFM policy, its Contamination
exclusion applies. The policy excludes coverage for “Contamination, and any cost
due to contamination including the inability to use or occupy property or any cost
of making property safe or suitable for use or occupancy.” “Contamination” is
defined to include “any condition of property due to the actual or suspected presence
of . . . bacteria, virus, disease causing or illness causing agent.” See Overton v.
Consol. Ins. Co., 38 P.3d 322, 329 (Wash. 2002); Hill & Stout, 515 P.3d at 536–37
(finding a virus exclusion applicable to a claim for property damage allegedly caused
by COVID-19).1
AFFIRMED.
1 Given the guidance in Hill & Stout, we decline to certify the coverage question
to the Washington Supreme Court.

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