Ht-Seattle Owner, LLC v. American Guarantee and Liability Insurance Company

NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
HT-SEATTLE OWNER, LLC,
Plaintiff-Appellant,
v.
AMERICAN GUARANTEE AND
LIABILITY INSURANCE COMPANY,
Defendant-Appellee.
No. 21-35916
D.C. No. 2:21-cv-00048-BJR
MEMORANDUM*
Appeal from the United States District Court
for the Western District of Washington
Barbara Jacobs Rothstein, District Judge, Presiding
Argued and Submitted March 30, 2023
Seattle, Washington
Before: NGUYEN and HURWITZ, Circuit Judges, and PREGERSON,** District
Judge.
In this insurance coverage action, HT-Seattle Owner, LLC, seeks
reimbursement from American Guarantee and Liability Insurance Company
(“Zurich”) for business losses incurred at a hotel during the COVID-19 pandemic.
* This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
** The Honorable Dean D. Pregerson, United States District Judge for the
Central District of California, sitting by designation.
FILED
MAY 19 2023
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS

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2
Applying Washington law, the district court granted Zurich’s motion to dismiss and
denied HT’s motion to alter or amend the judgment. We have jurisdiction under 28
U.S.C. § 1291. We review the Rule 12(b)(6) dismissal de novo and the order
denying the motion to alter or amend for abuse of discretion. Ta Chong Bank Ltd.
v. Hitachi High Techs. Am., Inc., 610 F.3d 1063, 1066 (9th Cir. 2010). 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). Zurich’s policy covers
“direct physical loss of or damage . . . to Covered Property.” 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 went on to hold 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 in a related case 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.

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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
because of a dangerous physical condition.” Id. The same is true here.
2. Even assuming that coverage was triggered under the Zurich policy, its
Contamination exclusion applies. 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). 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 as “Any condition
of property due to the actual presence of any . . . pathogen or pathogenic organism,
bacteria, virus, disease causing or illness causing agent.”
The fact that the definition of “contaminant” in the Zurich policy does not
expressly include viruses does not make HT’s Contamination exclusion ambiguous.

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The word “contaminant” does not appear in the Contamination exclusion; it instead
appears in two policy provisions not relevant to this case—the “Decontamination
Costs” and “Land and Water Contaminant Cleanup, Removal and Disposal”
provisions. By its terms, the definition of “contamination” in the Louisiana
Amendatory Endorsement does not apply to claims arising in Washington.
3. In light of the foregoing, the district court did not err in dismissing HT’s
statutory and common law bad-faith claims, which are all premised on the assertion
that Zurich incorrectly denied coverage. And, as COVID-19 does not cause direct
physical loss of covered property, the district court correctly concluded that any
amendment of the operative complaint would be futile.1
AFFIRMED.
1 Given the guidance in Hill & Stout, we deny HT’s motion to certify the
coverage question to the Washington Supreme Court. Dkt. 48. We also deny HT’s
motion to take judicial notice of statements made by Zurich in other litigation.
Dkt. 19. We grant Zurich’s motion to take judicial notice of the Washington Court
of Appeals’s grant of interlocutory review of Snoqualmie Entertainment Authority
v. Affiliated FM Ins. Co., No. 21-2-03194-0, 2021 WL 4098938 (Wash. Super. Ct.
Sept. 3, 2021). Dkt. 29. We grant HT’s motion to file an oversized citation of
supplemental authorities. Dkt. 49.

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