Seifert v. IMT Ins. Co.

• Decision Date: 16 October 2020
• Docket Number: Civil No. 20-1102 (JRT/DTS)
• Citation: 495 F.Supp.3d 747
• Parties: Kenneth SEIFERT d/b/a the Hair Place and Harmar Barbers, Inc., individually and on behalf of all others similarly situated, Plaintiffs, v. IMT INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — District of Minnesota

495 F.Supp.3d 747

Kenneth SEIFERT d/b/a the Hair Place and Harmar Barbers, Inc., individually and on behalf of all others similarly situated, Plaintiffs,

v.IMT INSURANCE COMPANY, Defendant.

Civil No. 20-1102 (JRT/DTS)

United States District Court, D. Minnesota.

Signed October 16, 2020

Amanda M. Williams, Daniel E. Gustafson, and Mary M. Nikolai, GUSTAFSON GLUEK PLLC, 120 South Sixth Street, Suite 2600, Minneapolis, MN 55402; Dennis Stewart, GUSTAFSON GLUEK PLLC, 600 B Street, San Diego, CA 92101; Chad Throndset and Patrick W. Michenfelder, THRONDSET MICHENFELDER LLC, One Central Avenue West, Suite 203, St. Michael, MN 55376; and Yvonne M. Flaherty, LOCKRIDGE GRINDAL NAUEN PLLP, 100 Washington Avenue South, Suite 2200, Minneapolis, MN 55401, for plaintiffs.

Shayne M. Hamann, Gregory J. Duncan, and Steven J. Erffmeyer, ARTHUR, CHAPMAN, KETTERING, SMETAK & PIKALA PA, 81 South Ninth Street, Suite 500, Minneapolis, MN 55402, for defendant.

MEMORANDUM OPINION AND ORDER GRANTING DEFENDANT'S MOTION TO DISMISS

JOHN R. TUNHEIM, Chief Judge 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 bacteria 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 response 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 independent 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. Hamman ("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, Docket 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 caused by or result from a Covered Cause of Loss.

(Policy at 82.) "Covered Causes of Loss" are defined as "[d]irect physical loss[es] unless the loss is excluded." (Id. at 78.)

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 property." (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 Rule 12(b)(6), arguing that 1) Seifert failed to satisfy the condition precedent of filing a formal claim; 2) Seifert failed to plead sufficient facts alleging lost business income caused by a direct physical loss of or damage to his properties, 3) various exclusions precluded coverage, and 4) the known-loss doctrine precluded any claim of loss (Mot. Dismiss, May 29, 2020, Docket No. 9.)

DISCUSSION

I. STANDARD OF REVIEW

In reviewing a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), the Court considers all facts alleged in the complaint as true to determine if the complaint states a " ‘claim to relief that is plausible on its face.’ " See Braden v. Wal-Mart Stores, Inc. , 588 F.3d 585, 594 (8^th Cir. 2009) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal , 556 U.S. at 678, 129 S.Ct. 1937. The Court construes the complaint in the light most favorable to the plaintiff, drawing all inferences in their favor. Ashley Cty., Ark. v. Pfizer, Inc. , 552 F.3d 659, 665 (8^th Cir. 2009). Although the Court accepts the complaint's factual allegations as true, it is not bound to accept as true a legal conclusion couched as a factual allegation. Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (quotation omitted). "Where a complaint pleads facts that are merely consistent with a defendant's liability, it stops short of the line between possibility and plausibility," and therefore must be dismissed. Iqbal , 556 U.S. at 678, 129 S.Ct. 1937.

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 bears 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 (8^th Cir. 2004).

However, this is not to say that a qualifying loss is established "whenever property cannot be used for its intended purpose." Pentair, Inc. v. Am. Guarantee & Liab. Ins. Co. , 400 F.3d 613, 616 (8^th 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 (8^th 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 (8^th Cir. 1986).

Seifert claims that his inability to provide haircuts and salon services is indistinguishable from the 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 unrelated 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 that the Cedar Bluff court...