The OSF filed a claim with its property insurer, Great American Insurance Company. The insurer denied coverage and OSF sued.

Great American moved for summary judgment.

The Great American Policy

The Great American policy provided:

Building and Personal Property Coverage Form

A. Coverage

We will pay for direct physical loss of or damage to covered property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss.

…

Business Income (and Extra Expense) Coverage Form

A. Coverage

1. Business Income

…

We will pay for the actual loss of Business Income you sustain due to the necessary “suspension” of your “operations” during the “period of restoration.” The “suspension” must be caused by direct physical loss of or damage to property at the premises which are described in the Declarations and for which a Business Income Limit of Insurance is shown in the Declarations.

… 

The policy, amended by endorsement, defined:

period of restoration 

as:

The period of time that:

a. Begins:

1. at the time of direct physical loss or damage for Business Income Coverage; or

2. immediately after the time of direct physical loss or damage for Extra Expense Coverage;

caused by or resulting from any Covered Cause of Loss at the described premises; and

b. Ends on the earlier of:

1. The date when the property at the described premises should be repaired, rebuilt, or replaced with reasonable speed and similar quality; or

2. The date when business is resumed at a new permanent location. 

It also provided that:

period of restoration

excluded:

any increased time required due to the enforcement of or compliance with any ordinance or law that … requires any insured or others to test for, monitor, clean up, remove, contain, treat, detoxify, or neutralize or in any way respond to, or assess the effects of “pollutants”

, defined as:

any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. 

The policy also provided:

Causes of Loss – Special Form

A. Covered Causes of Loss

When Special is shown in the Declarations, Covered Causes of Loss means direct physical loss unless the loss is excluded or limited in this Policy. 

B. Exclusions

1. We will not pay for loss or damage caused directly or indirectly by any of the following. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.

i. Ordinance or Law

ii. Earth Movement

iii. Governmental Action

iv. Nuclear Hazard

v. Utility Services

vi. War and Military Action

vii. Water

viii. “Fungus,” Wet Rot, Dry Rot, and Bacteria

2. We will not pay for loss or damage caused by any of the following:

a. Artificially generated electrical, magnetic or electromagnetic energy that damages, disturbs, disrupts or otherwise interferes with any: (1) electrical or electronic device, appliance, system, or network; or (2) device, appliance, system or network utilizing cellular or satellite technology.

…

b. Delay, loss of use or loss of market.

c. Smoke, vapor or gas from agricultural smudging or industrial operations.

d. (1) wear and tear, (2) rust or other corrosion, decay, deterioration, hidden or latent defect … (3) smog, (4) settling, cracking, shrinking or expansion, (5) nesting or infestation … (6) mechanical breakdown….

The court found that the OSF's claim was covered by the policy because the open-air theatre sustained “physical loss or damage to property” when the wildfire smoke infiltrated it and rendered it unusable for its intended purpose.

The court reasoned that the interior of the building had to be cleaned, the air filters had to be changed multiple times, and smoke in the air within the theater had to dissipate before business could be resumed. It conceded that the cleaning of the space took merely a few hours, but pointed out that the dissipation of the smoke took several days, during which time the OSF had to suspend operations.

The court was not persuaded by Great American's contention that this period of time could not be considered “restoration” because no structural repairs had been necessary, finding no such limitation within the terms of the policy.

The court next rejected Great American's argument that three different exclusions operated to exclude coverage for the smoke.

First, it found that the “delay, loss of use or loss of market” exclusion did not apply because the delay and loss of use of the theater for performance was caused by smoke – that is, it “was caused by the claimed damage.” If a delay or loss of use of covered property was caused by a claimed damage to the property, yet was excluded from coverage, that exclusion “would void the entire purpose of the policy,” the court reasoned. It added that this exclusion only made sense in the context of the policy “when a delay external to the damage” caused a loss of use.

Second, it ruled that the “smog” exclusion did not preclude coverage, rejecting Great American's assertion that the smoke amounted to smog.

Next, it decided that the wildfire smoke was not a “pollutant” for purposes of the definition of “period of restoration” given that there was no required “enforcement of or compliance with any ordinance or law.”

The case is Oregon Shakespeare Festival Ass'n v. Great American Ins. Co., No. 1:15-cv-01932-CL (D. Ore. June 7, 2016).