KENNETH SEIFERT d/b/a THE HAIR PLACE and HARMAR BARBERS, INC., individually and on behalf of all others similarly situated v. IMT INSURANCE COMPANY
Civil No. 20-1102 (JRT/DTS)
UNITED STATES DISTRICT COURT DISTRICT OF MINNESOTA
October 16, 2020
JOHN R. TUNHEIM
MEMORANDUM OPINION AND ORDER GRANTING DEFENDANT‘S MOTION TO DISMISS
Shayne M. Hamann, Gregory J. Duncan, and Steven
Plaintiffs (“Seifert“) filed this action to collect lost business income, as a result of the coronavirus-related and government-mandated closure of Seifert‘s hair salon and barbershop, which he alleges is covered under insurance policies issued by Defendant IMT Insurance Co. (“IMT“). IMT filed a Motion to Dismiss, claiming that the insurance policies only cover losses attributable to direct physical loss or damage, not a businessowner‘s mere loss of use of an insured property, and that the virus or bactеria exclusion precludes any otherwise qualifying loss or damage. Because Seifert does not plausibly allege any direct physical loss or damage to the properties, or plausibly demonstrate that the virus or bacteria exclusion would not preclude coverage given the facts he does allege, the Court will grant IMT‘s Motion to Dismiss.
BACKGROUND
I. THE PANDEMIC
Seifert owns and runs a hair salon, The Hair Place, and a barbershop, Harmar Barbers, Inc. (Compl. ¶¶ 1-2, May 6, 2020, Docket No. 1.) On March 13, 2020, Minnesota Governor Tim Walz declared a peacetime emergency in rеsponse to the spread of the novel coronavirus and issued several Emergency Executive Orders, one of which mandated the closure of salons and barbershops.1 (Id. ¶ 20.) As a result of the Orders, Seifert had to suspend all business operations. (Id. ¶ 4.) Subsequently, he contacted his indeрendent insurance broker, an authorized IMT agent, in late March to file a claim for lost business income. (Id. ¶ 27.) Seifert was advised that his losses were not covered by the insurance policies. (Id. ¶¶ 5, 27.)
II. THE POLICIES
A. COVERAGE
Seifert entered into insurance policies with IMT on March 25, 2019 and renewed both policies on April 2, 2020. (Id. ¶¶ 3, 11-12, 15; Aff. of Shayne M. Hamann (“Hamman Aff.“) ¶¶ 3-6, May 29, 2020, Docket No. 13.)2 Each policy contains a Businessowners Coverage Form, which covers “direct physical loss of or damage to Covered Property at the premises described.” (Hamman Aff. ¶¶ 3-6, Ex. A (“Policy“) at 77, Ex. B at 207, Ex. C at 363, and Ex. D at 526, May 29, 2020, Dockеt No. 13-1.)3 The policies also insure against lost Business Income:
We will pay for the actual loss of Business Income you sustain due to the necessary suspension of your “operations” . . . . The suspension must be caused by direct physical loss of or damage to property at the described premises. The loss or damage must be cаused by or result from a Covered Cause of Loss.
Finally, the policies offer Civil Authority coverage. (Id. at 85.) This coverage is triggered when a Covered Cause of Loss causes damage to nearby property other than the insured property and, as a consequence, a civil authority prohibits access to the insured property because of “dangerous physical conditions resulting from the damage or . . . to enable a civil authority to have unimpeded access to the damaged рroperty.” (Id.) If triggered, Civil Authority coverage would also insure against lost business income. (Id.)
B. EXCLUSIONS
The Businessowners policies insure against “all risk” except for risks that are expressly excluded. (See Compl. ¶¶ 14-15.) The prefatory language of the exclusions section states that IMT “will not pay for loss or damage caused directly or indirectly” by an excluded event. (Policy at 93.) The prefatory language also includes an anti-concurrent causation clause, stating that any such loss or damage “is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss.” (Id.) Finally, the policy contains a Virus or Bacteria Exclusion, which precludes coverage for any loss or damage associated with a “virus, bacterium, or other microorganism that induces or is capable of inducing physical distress, illness or disease.” (Id. at 96.)
III. PROCEDURAL BACKGROUND
On May 6, 2020, Seifert filed his Complaint, alleging breach of contract and seeking declaratory and monetary relief. (Compl. ¶¶ 37-48.) In response, IMT filed a Motion to Dismiss pursuant to
DISCUSSION
I. STANDARD OF REVIEW
In reviewing a motion to dismiss under
II. ANALYSIS
Under Minnesota law, the interpretation of an insurance contract is a question of law. Horizon III Real Estate v. Hartford Fire Ins. Co., 186 F. Supp. 2d 1000, 1004 (D. Minn. 2002). “[A] court will compare the allegations in the complaint in the underlying action with the relevant language in the insurance policy.” Midwest Family Mut. Ins. Co. v. Justkyle, Inc., No. 17-1632, 2018 WL 3475486, at *5 (D. Minn. July 19, 2018) (quoting Meadowbrook, Inc. v. Tower Ins. Co., 559 N.W.2d 411, 415 (Minn. 1997)). “While the insured bеars the initial burden of demonstrating coverage, the insurer carries the burden of establishing the applicability of exclusions.” Id. at *6 (quoting Travelers Indem. Co. v. Bloomington Steel & Supply Co., 718 N.W.2d 888, 894 (Minn. 2006)).
A. COVERAGE UNDER THE POLICIES4
1. Business Income
The insurance policies cover the loss of business income when business operations are suspended because of “direct physical loss of or damage to property at the described premises.” (Policy at 82.) Minnesota caselaw does not require a showing of structural damage to qualify for coverage. “Direct physical loss” can also be found when business premises are contaminated by asbestos, see Sentinel Mgmt. Co. v. New Hampshire Ins. Co., 563 N.W.2d 296, 300 (Minn. Ct. App. 1997), or smoke, see Gen. Mills, Inc. v. Gold Medal Ins. Co., 622 N.W.2d 147, 152 (Minn. Ct. App. 2001). In short, “[i]t is sufficient to show that the “insured property is injured in some way,” which may be something less than structural damage or some other tangible injury. See Archer Daniels Midland Co. v. Aon Risk Servs., Inc. of Minnesota, No. 97-2185, 2002 WL 31185884, at *3 (D. Minn. Sept. 27, 2002), aff‘d, 356 F.3d 850 (8th Cir. 2004).
However, this is not to say that a qualifying loss is established “whenever proрerty cannot be used for its intended purpose.” Pentair, Inc. v. Am. Guarantee & Liab. Ins. Co., 400 F.3d 613, 616 (8th Cir. 2005) (emphasis in original). Actual physical contamination of the insured property is still required. See Source Food Tech., Inc. v. U.S. Fid. & Guar. Co., 465 F.3d 834, 837-38 (8th Cir. 2006). Simply claiming “mere loss of use or function” is not enough. Pentair, 400 F.3d at 616; see also Hampton Foods, Inc. v. Aetna Cas. & Sur. Co., 787 F.2d 349, 352 (8th Cir. 1986).
Seifert claims that his inability to provide haircuts and salon services is indistinguishable from thе intangible physical loss in General Mills. However, in General Mills, there was smoke contamination of the insured‘s property; here, Seifert has not pleaded any facts demonstrating his businesses were similarly contaminated by the novel coronavirus. That is, he only asserts that he suffered an economic loss unrelatеd to an actual infiltration and contamination of the properties.
Seifert also asserts that another case, Cedar Bluff, stands for the proposition that physical loss can be found when an external force renders property unsafe or unusable, even when the property remains physically unchanged. Yet, he fails to mention
As such, Seifert‘s claims fail to fall within the permissible realm of “direct physical loss,” as he cannot allege facts showing his properties were actually contaminated or damaged by the coronavirus.5 In fact, Siefert explicitly states that his business losses were “not because of the presence of a virus” at the premises. (Compl. ¶ 24.) Instead, the Orders are alleged to be the sole cause of his losses, but governmental action prohibiting the use of property, by itself, is not enough. See Source Food, 465 F.3d at 838. As a result, Seifert does not plead a plausible claim for relief. Accordingly, the Court will grant IMT‘s Motion to Dismiss with respect to Business Income coverage under the policies.
2. Civil Authority
The policies also provide coverage when a Covered Cause of Loss causes damаge to another‘s property and a civil authority then prohibits access to the insured property. Thus, a direct physical loss of or damage to property is again required to trigger coverage.
As such, if a complaint does not plead facts alleging some actual contamination or damage to property to a neighboring property, then the complaint does not state a plausible claim to relief. Here, Seifert does not plead any facts demonstrating that the coronavirus contaminated propеrties neighboring his businesses, or that a civil authority then prohibited him from entering his insured properties because of any such contamination. Accordingly, the Court will grant IMT‘s Motion to Dismiss with respect to Civil Authority coverage under the policies.
B. VIRUS OR BACTERIA EXCLUSION6
The virus exclusion precludes coverage for any loss or damage caused indirectly or directly by any “virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease.” (Policy at 96.) Furthermore, as defined by the prefatory language applicable to all excluded events, the virus
Here, Seifert alleges that his business lossеs are the direct and proximate result of “Governmental Pandemic Closure Orders; orders that have been put in place in an effort to control the spread of the COVID-19 Pandemic.” (Compl. ¶ 24.) Pursuant to the anti-concurrent loss provision, if a virus is any part of the causal chain causing a loss, then the loss is not covered. Accordingly, the Court will grant IMT‘s Motion to Dismiss with respect to the Virus or Bacteria Exclusion.
CONCLUSION
Although Seifert has failed to plead factual content to allow the Court to draw the reasonable inference that Seifert is entitled to coverage for lost business income, it is possible that his claims may survive if properly alleged.7 Accordingly, the Court will grant Seifert twenty days to amend the Complaint to address the deficiencies in pleading identified above.
ORDER
Based on the foregoing, and all the files, records, and prоceedings herein, IT IS HEREBY ORDERED that Defendant‘s Motion to Dismiss [Docket No. 9] is GRANTED without prejudice. If no Amended Complaint is filed within twenty days from the date of this Order, the Court will dismiss the case with prejudice.
DATED: October 16, 2020
at Minneapolis, Minnesota.
JOHN R. TUNHEIM
Chief Judge
United States District Court