George Washington University v. Factory Mutual Insurance Company

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
THE GEORGE WASHINGTON
UNIVERSITY,
Plaintiff,
v. No. 21-cv-3006 (DLF)
FACTORY MUTUAL INSURANCE
COMPANY,
Defendant.
MEMORANDUM OPINION
In this civil action, George Washington University (GWU) sues its insurer, Factory Mutual
Insurance Company (Factory Mutual), for breach of contract. Before the Court is Factory Mutual’s
Motion to Dismiss, Dkt. 11. For the reasons that follow, the Court will grant the Motion under
Rule 12(b)(6) of the Federal Rules of Civil Procedure.
I. BACKGROUND1
A. Policy Details
Plaintiff George Washington University maintains three campuses in Washington, D.C.,
and Ashburn, Virginia. Compl. ¶ 3, Dkt. 1-2. GWU purchased an “All Risks” insurance policy
from defendant Factory Mutual for the period of July 1, 2019 to July 1, 2020. Id. ¶¶ 7, 30–31. The
policy insured GWU against “All Risk of Physical Loss or Damage” to its property. Id. ¶¶ 7, 32.
Factory Mutual promised to pay the insured up to $1 billion for each “occurrence . . . arising out
of or caused by one discrete event of physical-loss or damage.” Id. ¶ 15; see also id. ¶ 32.
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On a Rule 12(b)(6) motion, the Court assumes the truth of material factual allegations in the
complaint. See Am. Nat’l Ins. Co. v. FDIC, 642 F.3d 1137, 1139 (D.C. Cir. 2011).
The contract also enables GWU to collect under a “Time Element” provision, which covers
expenses “directly resulting from physical loss or damage of the type insured[].” Id. ¶ 37. This
provision allows GWU to recover for loss accrued during the period between the “discrete
occurrence” and that time “when with due diligence and dispatch the building and equipment could
be: (i) repaired or replaced; and (ii) made ready for operations, under the same or equivalent
physical and operating conditions that existed prior to the damage.” Id. ¶ 38; Compl. Ex. A, at 41,
Dkt. 1-2. Among the losses covered are “Actual Loss Sustained”—which describes the “total net
sales less cost of merchandise sold, materials and supplies consumed in the operations or services
rendered by the Insured”—and “Extra Expense”—which describes “the extra expenses to
temporarily continue as nearly normal as practicable the conduct of the Insured’s business during
the interruption.” Compl. ¶ 40. Time Element coverage also extends to losses suffered when an
order of a “civil authority” limited access to the insured location. Id. ¶ 41.
The policy carves several exclusions out of this broad grant of coverage. Among them is
a “Contamination Exclusion,” which
Excludes the following unless directly resulting from other physical damage not
excluded by this Policy: 1) 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. If contamination due only to the actual not
suspected presence of contaminant(s) directly results from other physical damage
not excluded by this Policy, then only physical damage caused by such
contamination may be insured.
Compl. Ex. A, at 21. “Contamination” is defined elsewhere in the policy as “any condition of
property due to the actual or suspected presence of any foreign substance, impurity, pollutant,
hazardous material, poison, toxin, pathogen or pathogenic organism, bacteria, virus, disease
causing or illness causing agent, fungus, mold or mildew.” Id. at 72.
After listing the Exclusions to the broad grant of coverage, the policy then extends
additional forms of coverage. These provisions, listed under an “Additional Coverages” section,
2
extend limited coverage otherwise carved out by exclusions or not satisfying the threshold
requirements. Most relevant of these “Additional Coverages” is the “Communicable Disease”
provision, which
Covers the reasonable and necessary costs incurred by the Insured[’s] . . . location
with the actual not suspected presence of communicable disease for the: 1) cleanup,
removal and disposal of the actual not suspected presence of communicable
diseases from insured property; and 2) actual costs of fees payable to public
relations services or actual costs of using the Insured’s employees for reputation
management resulting from the actual not suspected presence of communicable
diseases on insured property.
Compl. Ex. A, at 29. Payout on the Communicable Disease Exception is capped at $1 million. Id.
at 10. Factory Mutual concedes that COVID-19 is a “communicable disease” and has paid GWU
$1 million in accordance with the provision. Compl. ¶ 43.
B. COVID-19 Pandemic
Together with government orders, the presence of COVID-19 on campus caused
significant interruption to GWU’s operations. Id. ¶¶ 12–13, 72, 86–96. GWU spent “millions” on
its property to reach the operating capacity the property enjoyed before the pandemic, including
“installation of new, or modification of existing HVAC systems, the installation of barriers (for
example, Plexiglas), and rearrangement of interior spaces to limit or reduce the spread of the
COVID-19 virus.” Id. ¶¶ 14, 97–102. GWU also suffered “millions of dollars” in losses when it
could no longer use its property for in-person instruction. Id. ¶¶ 113–118.
GWU requested that Factory Mutual cover these significant expenses. Id. ¶ 17. In
particular, GWU sought payment for both for the damage caused to its facilities and for the losses
suffered because of its inability to operate normally. Id. ¶ 39. Factory Mutual denied coverage,
stating that the COVID-19 virus did not cause “physical loss or damage” to GWU’s property. Id.
¶ 17. GWU brought suit to enforce the terms of the insurance policy, asking for declaratory relief
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and money damages. Id. ¶ 18. Factory Mutual moved to dismiss the complaint under Rule
12(b)(6), arguing that GWU failed to allege sufficient facts to show that COVID-19 causes
“physical loss or damage” to insured property. Def.’s Statement of P. & A. in Supp. of Mot. to
Dismiss at 1, Dkt. 11.
II. LEGAL STANDARDS
Rule 12(b)(6) of the Federal Rules of Civil Procedure allows a defendant to move to
dismiss the complaint for failure to state a claim upon which relief can be granted. Fed. R. Civ. P.
12(b)(6). To survive a Rule 12(b)(6) motion, a complaint must contain factual matter sufficient to
“state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
(2007). A facially plausible claim is one that “allows the court to draw the reasonable inference
that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009). This standard does not amount to a specific probability requirement, but it does require
“more than a sheer possibility that a defendant has acted unlawfully.” Id.; see also Twombly, 550
U.S. at 555 (“Factual allegations must be enough to raise a right to relief above the speculative
level.”). A complaint need not contain “detailed factual allegations,” but alleging facts that are
“merely consistent with a defendant's liability . . . stops short of the line between possibility and
plausibility.” Iqbal, 556 U.S. at 678 (internal quotation marks omitted).
Well-pleaded factual allegations are “entitled to [an] assumption of truth,” id. at 679, and
the court construes the complaint “in favor of the plaintiff, who must be granted the benefit of all
inferences that can be derived from the facts alleged,” Hettinga v. United States, 677 F.3d 471,
476 (D.C. Cir. 2012) (internal quotation marks omitted). An “unadorned, the-defendant-
unlawfully-harmed-me accusation” is not credited; likewise, “[t]hreadbare recitals of the elements
of a cause of action, supported by mere conclusory statements, do not suffice.” Iqbal, 556 U.S. at
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678. Ultimately, “[d]etermining whether a complaint states a plausible claim for relief . . . [is] a
context-specific task that requires the reviewing court to draw on its judicial experience and
common sense.” Id. at 679.
III. ANALYSIS
A. “Physical Loss or Damage” Requires a Tangible Alteration
Whether GWU has alleged a claim for breach of contract turns on the meaning of the phrase
“physical loss or damage.” “Because an insurance policy is a contract, it is governed by principles
of contract law.” Tolson v. Hartford Fin. Servs. Grp., 278 F. Supp. 3d 27, 33 (D.D.C. 2017)
(citing Stevens v. United Gen. Title Ins. Co., 801 A.2d 61, 66 (D.C. 2002)). In the District of
Columbia, courts must “give the words used in an insurance contract their common, ordinary, and
popular meaning.” Redmond v. State Farm Ins. Co., 728 A.2d 1202, 1205 (D.C. 1999) (cleaned
up). Those words will control “so long as they are clear and unambiguous.” Id. at 1206. Guided
by these principles, the Court begins with the text of the policy.
Factory Mutual promised to insure “property, as described in this Policy, against ALL
RISKS OF PHYSICAL LOSS OR DAMAGE.” Compl. Ex. A, at 1. Because the policy does not
define the words “physical,” “loss,” or “damage,” the Court must look elsewhere to find their plain
meaning. “Physical” is defined in relevant part as “[o]f or relating to natural phenomena perceived
through the senses (as opposed to the mind); of or relating to matter or the material world; natural;
tangible, concrete.” Oxford English Dictionary Online (3d ed. 2022). “Loss” is described as
“[p]erdition, ruin, destruction; the condition or fact of being ‘lost,’ destroyed, or ruined,” or “being
deprived of.” Id. Finally, “damage” means “injury, harm; esp. physical injury to a thing, such as
impairs its value or usefulness.” Id. Taken together, these definitions suggest a plain,
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unambiguous meaning for the phrase “physical loss or damage”: Property must undergo a tangible
alteration to trigger coverage under this provision of the policy.
This conclusion finds support in District of Columbia caselaw. In Proper Ventures, LLC
v. Seneca Ins. Co., the D.C. Superior Court held that “in the context of business interruption
property insurance, the term ‘direct loss’ implies some form of direct physical change to the
insured property.” No. 2020 CA 002194 B, 2021 WL 3841785, at *5 (D.C. Super. Ct. Feb. 18,
2021) (emphasis added). And in Rose’s 1, LLC v. Erie Ins. Exch., No. 2020 CA 002424 B, 2020
WL 4589206 (D.C. Super. Ct. Aug. 6, 2020), the court held that “under a natural reading of the
term ‘direct physical loss,’ the words ‘direct’ and ‘physical’ modify the word ‘loss.’” Id. at *3.
Siding with the insurer, the court required a showing of an “effect on the material or tangible
structure of the insured properties.” Id. at *2 (emphasis added).
Despite unambiguous text and precedent interpreting it, GWU proposes an alternative
interpretation. GWU contends that “loss” should be interpreted to mean “loss of use” or “loss of
functionality.” Pl.’s Opp’n at 9, Dkt. 15. The Court disagrees with plaintiff’s attempt to read the
word “physical” out of the policy. Indeed, an overwhelming majority of courts nationwide have
rejected this interpretation of the word “loss.” See Santo’s Italian Cafe LLC v. Acuity Ins. Co., 15
F.4th 398, 402 (6th Cir. 2021) (“A loss of use simply is not the same as a physical loss.”); Bridal
Expressions LLC v. Owners Ins. Co., No. 21-3381, 2021 WL 5575753, at *1 (6th Cir. Nov. 30,
2021) (“A direct physical alteration of the property [is] needed to show ‘damage to’ it, and some
form of complete destruction or dispossession [is] needed to show ‘loss of’ the property.”);
Cordish Cos., Inc. v. Affiliated FM Ins. Co., No. CV ELH-20-2419, 2021 WL 5448740, at *14 (D.
Md. Nov. 22, 2021) (“The term ‘physical,’ as used in the Policy, clearly indicates that the damage
must affect the good itself, rather than the Plaintiff’s use of that good.”) (internal quotation marks
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and citation omitted), aff’d, No. 21-2055, 2022 WL 1114373 (4th Cir. Apr. 14, 2022); Town
Kitchen LLC v. Certain Underwriters at Lloyd’s, London, 522 F. Supp. 3d 1216, 1222 (S.D. Fla.
2021) (“[T]he key difference between . . . loss of use theory and something clearly covered—like
a hurricane—is that the property did not change.”), aff’d, No. 21-10992, 2022 WL 1714179 (11th
Cir. May 27, 2022). “Put simply, [p]laintiff seeks to recover from economic losses caused by
something physical—not physical losses.” Town Kitchen, 522 F. Supp. 3d at 1222.
It is no answer that because some harmful gases, fumes, and odors can cause damage that
would be covered under the policy, COVID-19 should be, too. It is true, as GWU points out, that
substances like mold, asbestos, sulfuric gas, urine odor, and gasoline vapor have been held to cause
“physical loss or damage.” Pl.’s Opp’n at 10–11 (citing cases). The crucial fact in those instances,
however, is not loss of use, but the change in physical character. Each of those substances cause
long-lasting change to the physical character of the property. See Carilion Clinic v. Am. Guarantee
& Liab. Ins. Co., No. 7:21-CV-00168, 2022 WL 347617, at *12 (W.D. Va. Feb. 4, 2022)
(“Whether it be methamphetamine, gasoline, ammonia, or asbestos contamination, a rock fall or
failed drainpipe, there was some physical loss associated with the insured property itself.”); Sandy
Point Dental, P.C. v. Cincinnati Ins. Co., 20 F.4th 327, 333 (7th Cir. 2021) (“[T]he reasoning in
the asbestos cases indicates that the courts deemed ‘physical injury’ to be present because asbestos
causes a physical alteration to property, not because the asbestos leads only to loss of use.”). By
comparison, COVID-19 is short-lived. See Compl. ¶ 78 (“[T]he COVID-19 virus remains
viable—i.e., capable of infecting persons who come in contact with it—for at least seven days on
a range of common surfaces.”).2 While COVID-19 poses a serious risk to humans, it does not
2
The COVID-19 virus may not even live for one week. Indeed, in its complaint, GWU cites a
CDC report that cuts against its claim that COVID-19 causes long-lasting damage. Compl. at 30
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threaten the integrity of physical structures. Cases involving harmful gases, fumes, and odors
provide no reason to abandon the conclusion compelled by text and precedent: “physical loss or
damage” requires a tangible alteration.
GWU points to four cases holding that a “tangible alteration” is not required to show
“physical loss or damage.” See Pl.’s Opp’n at 12. But some of those courts concluded that the
phrase “physical loss or damage” is ambiguous, not that its plain meaning clearly precludes
Factory Mutual’s interpretation. See Regents of Univ. of Colo. v. Factory Mut. Ins. Co., No. 2021-
cv-30206, 2022 WL 245327, at *4 (Colo. Dist. Ct. Jan. 26, 2022) (“The ambiguity in the phrase
‘physical loss or damage’ is enough to demonstrate that the present matter cannot be determined
by the pleadings alone.”); see also Elegant Massage, LLC v. State Farm Mut. Auto. Ins. Co., 506
F. Supp. 3d 360, 376 (E.D. Va. 2020). Moreover, the cases highlighted by GWU represent only a
small minority of COVID-19 insurance cases and are dwarfed by “the overwhelming majority of
courts [that] have found no coverage when interpreting similar language.” Crescent Plaza Hotel
Owner L.P. v. Zurich Am. Ins. Co., 520 F. Supp. 3d 1066, 1069 (N.D. Ill.), aff’d, 20 F.4th 303 (7th
n.44. This CDC report states that “[d]ata from surface survival studies indicate that a 99%
reduction in infectious SARS-CoV-2 and other coronaviruses can be expected under typical indoor
environmental conditions within 3 days (72 hours) on common non-porous surfaces like stainless
steel, plastic, and glass.” Id. Although the Court “must accept as true plaintiff’s well-pleaded
allegations,” Pl.’s Opp’n at 17, a court “may judicially notice a fact that is not subject to reasonable
dispute because it can be accurately and readily determined from sources whose accuracy cannot
reasonably be questioned,” Fed. R. Evid. 201(b)(2). This Court has previously concluded that the
CDC website is such a source, Loucka v. Lincoln Nat’l Life Ins. Co., 334 F. Supp. 3d 1, 9 (D.D.C.
2018) (“[T]he CDC’s Lyme-testing criteria and procedures are a matter of public record, and it
cannot be reasonably questioned that the agency's website is an accurate source for those
standards”); see also Gent v. CUNA Mut. Ins. Soc’y, 611 F.3d 79, 84 n.5 (1st Cir. 2010) (taking
judicial notice of CDC website when it was “unclear to what extent the information on the CDC's
website [was] formally part of the record”). For these reasons, the Court credits the contents of
the CDC article cited in the complaint, titled Science Brief SARS-CoV-2 and Surface (Fomite)
Transmission/or Indoor Community Environments. (Apr. 5, 2021),
https://www.cdc.gov/coronavirus/2019-ncov/more/science-and-research/surface-
transmission.html.
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Cir. 2021); see also Def.’s Reply at 19, Dkt. 18 (citing cases).3 The Court thus concludes that
“physical loss or damage” requires a tangible alteration to the insured property.
B. COVID-19 Does Not Cause a Tangible Alteration to Property
In the alternative, GWU argues that COVID-19 falls within the “physical loss or damage”
provision of the policy because its droplets materially alter the objects they touch. See Pl.’s Opp’n
at 15–18; Compl. ¶ 77 (alleging that COVID-19 “changes the chemical composition of air” and
creates “a surface with quantifiably different physical properties”). But GWU states only in
conclusory fashion that this surface-level change—i.e., the virus’s physical presence on, or
attachment to, objects—“is a form of physical damage” to the property itself. Compl. ¶ 75. That
conclusion is simply not plausible. See, e.g., CDC, Guidance for Cleaning and Disinfecting 2
(Sept. 16, 2020), https://www.cdc.gov/coronavirus/2019-ncov/community/pdf/
reopening_america_guidance.pdf (“Coronaviruses on surfaces and objects naturally die within
hours to days.”); CDC, Cleaning and Disinfecting Your Facility (Nov. 15, 2021),
https://www.cdc.gov/coronavirus/2019-ncov/community/disinfecting-building-facility.html (“If
no one with confirmed or suspected COVID-19 has been in a space cleaning once a day is usually
enough to remove virus that may be on surfaces. . . . If more than 3 days have passed since the
person who is sick or diagnosed with COVID-19 has been in the space, no additional cleaning
(beyond regular cleaning practices) is needed.”). Rather, at most, viral droplets “create[] a new
surface” on the material they touch. Compl. ¶ 77. In this regard, COVID-19 functions in much
the same way as “sweat [or] skin oil” does, id.—it can be cleaned without permanently harming
property qua property, see Woolworth LLC v. Cincinnati Ins. Co., 535 F. Supp. 3d 1149, 1154
3
GWU asserts that the absence of the word “direct” from GWU’s policy distinguishes this case
from others. See Pl.’s Opp’n at 13 n.5. But the inclusion or lack of the word “direct” is irrelevant
to the requirement of physical alteration.
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(N.D. Ala. 2021), appeal dismissed, No. 21-11847-CC, 2021 WL 3870691 (11th Cir. June 16,
2021) (“A virus can simply be wiped off the surface with disinfectant, so there is no ‘physical
damage’ or ‘physical loss’ of property.”) (cleaned up). At bottom, GWU conflates the risk
COVID-19 poses to people with the effect it has on property.
Although District of Columbia courts have not considered whether COVID-19 can cause
physical loss or damage, Pl.’s Opp’n at 13–15, the overwhelming majority of courts that have
considered the question have held that COVID-19 does not materially alter the property it touches.
See S.A. Palm Beach, LLC v. Certain Underwriters at Lloyd’s London, 32 F.4th 1347, 1358 (11th
Cir. 2022) (“As far as we can tell, every federal and state appellate court that has decided the
meaning of ‘physical loss of or damage to’ property (or similar language) in the context of the
COVID-19 pandemic has come to the same conclusion and held that some tangible alteration of
the property is required.”); 100 Orchard St., LLC v. Travelers Indem. Ins. Co. of Am., 542 F. Supp.
3d 227, 229 (S.D.N.Y. 2021) (noting that “most courts that have decided the issue have held that
the physical presence of COVID-19 does not constitute property loss or damage”); Out W. Rest.
Grp. Inc. v. Affiliated FM Ins. Co., 527 F. Supp. 3d 1142, 1148 (N.D. Cal. 2021) (“The
overwhelming majority of courts have concluded that neither COVID-19 nor the governmental
orders associated with it cause or constitute property loss or damage for purposes of insurance
coverage.”). Courts have reached this conclusion even at the motion to dismiss stage. See, e.g.,
TP Racing LLLP v. Am. Home Assurance Co., No.21-cv-118, 2021 WL 4851430, at *4 (D. Ariz.
Oct. 13, 2021) (explaining that the “claim that virus droplets ‘structurally change’ the surfaces
upon which they land is belied by the ease with which the virus may be eliminated from any
surface”); 100 Orchard St., 542 F. Supp. 3d at 229 (“[W]hile the presence of COVID-19 may
render property potentially harmful to people, it does not constitute harm to the property itself.”);
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Woolworth, 535 F. Supp. 3d at 1154 (“A virus does not physically alter the property it rests on. A
virus does not require property to be repaired, rebuilt, or replaced.”); Karmel Davis & Assocs.,
Att’ys-at-Law, LLC v. Hartford Fin. Servs. Grp., Inc., 515 F. Supp. 3d 1351, 1357 (N.D. Ga. 2021)
(“The mere fact that it may rest unseen on surfaces before it can be cleaned up with a disinfectant
is not . . . direct physical change.”).
The few cases to which GWU points to support its claim that COVID-19 materially alters
the surfaces it touches, see Pl.’s Opp’n at 16, are either distinguishable or unpersuasive. For
example, in Inns by the Sea v. California Mutual Insurance Co., 71 Cal. App. 5th 688 (2021), the
court sided with the insurer, explaining that “despite [the plaintiff’s] allegation that the COVID-
19 virus was present on its premises, it has not identified any direct physical damage to property
that caused it to suspend its operations.” Id. at 705. In other cases, courts accepted, without
explanation, conclusory assertions that COVID-19 necessarily damages whatever property it
touches. See Pl.’s Opp’n at 16 (citing cases). For example, one court credited, without analysis,
a conclusion that COVID-19 “stay[s] on surfaces and in the air for up to a month [and] physically
alters the air and surfaces to which it attaches.” Goodwill Indus. of Orange Cnty. v. Phila. Indem.
Ins. Co., No. 30-2020-01169032, 2021 WL 476268, at *3 (Cal. Super. Jan. 28, 2021). Another
credited unsupported statements that the virus “altered the structure of the property by
contaminating objects and lingering in the air.” Regents of Univ. of Colo., 2022 WL 245327, at
*4. Both courts accepted that viral droplets attach to surfaces, but they failed to explain how
COVID-19—which can be cleaned—plausibly causes long-lasting damage. It is because of this
missing link that the Court finds these cases unpersuasive.
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In sum, GWU cannot meet the threshold requirement for coverage under the insurance
policy because COVID-19 does not cause “physical loss or damage” to property. Accordingly,
the Court will grant Factory Mutual’s motion to dismiss. 4
CONCLUSION
For the foregoing reasons, the Court grants Factory Mutual’s Motion to Dismiss and
dismisses the case. A separate order consistent with this decision accompanies this memorandum
opinion.
________________________
DABNEY L. FRIEDRICH
United States District Judge
September 6, 2022
4
GWU also claims that the “Imminent Risk That the COVID-19 Virus Would Re-Enter GWU’s
Property Also Qualifies as ‘Physical Loss or Damage.’” Pl.’s Opp’n at 18. This argument fails
for the same reason that “loss of use” does—the policy requires that the policyholder suffer a
tangible alteration to its property. Because the Court holds that COVID-19 cannot cause physical
damage, GWU also cannot recover under the policy’s Civil Authority provision which requires
that there be “physical damage of the type insured” to its property or to nearby property. See supra
section III.B. Finally, the Court need not address Factory Mutual’s second argument for
dismissal—that coverage is barred by the Contamination Exclusion.
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