By Eli Flesch

Law360 (June 9, 2021, 6:10 PM EDT) -- Goodwill's affiliated nonprofit in Oklahoma has asked the Tenth Circuit to revive its pandemic coverage suit and to certify questions to the state Supreme Court on whether policy provisions covering direct physical loss or damage to property require physical alteration for coverage to apply.

Goodwill Industries of Central Oklahoma said Tuesday that a district court erred in finding that the charity didn't show any physical damage to its properties as a result of government mandated shutdowns. It also contested the lower court's finding that a virus exclusion in its policy with Philadelphia Indemnity Insurance Co. would have precluded coverage even if it had adopted a more expansive definition of direct physical loss.

Describing the language in its "all-risk" policy as ambiguous, Goodwill pushed the argument that the lack of definition for direct physical loss or damage should have compelled a ruling in the charity's favor under Oklahoma's contract laws.

"This entire lawsuit could have been avoided had PIIC included a definition for the term 'direct physical loss of or damage to' within the policy, defining it to include only 'physical alteration to property.' It did not," Goodwill said in a 101-page brief to the court.

Government orders issued by Oklahoma Gov. Kevin Stitt in March last year required noncritical businesses like Goodwill to suspend operations, the nonprofit said. The resulting loss of access to its properties was covered under its policy, it said.

"There does not need to be any structural damage to be deprived of a physical space, and there is nothing in the dictionary definitions the court relies on to indicate an alteration or tangible structural change to the property is necessary," Goodwill said.

In a separate filing Tuesday, Goodwill said the questions at the heart of its multimillion-dollar case against Philadelphia Indemnity should be taken up by the Oklahoma Supreme Court. It asked for the court's guidance in helping to determine the "novel" issues of law at stake in the case, including those concerning physical damage.

A ruling from the state Supreme Court "would eliminate the injustice of inconsistent rulings by state and federal courts," said Jim Priest, the CEO of Goodwill Industries of Central Oklahoma. Priest, who is also an attorney, is representing Goodwill in his official capacity at the nonprofit, he said.

The nonprofit asked that the state high court be allowed to decide if direct physical loss includes intangible losses that would, for example, prevent the use of a property. It also asked that the court decide whether physical loss or damage is ambiguous in its policy.

With the appeal, Goodwill also becomes one of the latest policyholders to try its hand in certifying questions of physical loss to a state supreme court.

In Washington, a group of dental practices asked U.S. District Judge Barbara J. Rothstein to send to the state Supreme Court the question of whether the physical loss required for coverage under their policies could include the loss of use of a property.

But the judge said she had all the tools necessary to decide the case. Kicking the question to the state Supreme Court would only result in needless delays and costs, she added.

Judge Rothstein eventually tossed hundreds of the suits, including those of the dental practices, finding last month that the coronavirus causes no physical damage.

And in California last month, an art gallery petitioned the Ninth Circuit to send similar questions of direct physical loss to the California Supreme Court.

Goodwill's suit was first dismissed in November last year, when U.S. District Judge David L. Russell found that at a minimum, a business must allege that a substance like the coronavirus actually entered a premises in order to show direct physical loss.

Some policyholders around the country have been honing their arguments to show precisely that, including In-N-Out in a federal dispute in California, and the owner of fashion giants Versace, Jimmy Choo and Michael Kors in a New Jersey state court.

Judge Russell, however, found Goodwill's suit inadequate in this respect.

"Goodwill only states that the government's mandated closures rendered it unusable, not that COVID-19 'attached to [or] deprived [it] of [its] property.'" he wrote.

Representatives for Philadelphia Indemnity could not immediately be reached for comment.

Goodwill Industries of Central Oklahoma is represented by Jim T. Priest.

Philadelphia Indemnity Insurance Co. is represented by Philip R. Richards and Joy Tate of Richards & Connor, Jeffrey A. Zachman and Kathryn Guinn of Dentons, and by Stephen E. Goldman and Wystan M. Ackerman of Robinson & Cole LLP.

The case is Goodwill Industries of Central Oklahoma v. Philadelphia Indemnity Insurance Co., case number 21-6045, in the U.S. Court of Appeals for the Tenth Circuit.

--Editing by Abbie Sarfo.

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