Seifert v. Imt Ins. Co.

• Decision Date: 02 June 2021
• Docket Number: Civil No. 20-1102 (JRT/DTS)
• Citation: 542 F.Supp.3d 874
• 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

542 F.Supp.3d 874

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 June 2, 2021

Amanda M. Williams and Daniel E. Gustafson, GUSTAFSON GLUEK PLLC, 120 South Sixth Street, Suite 2600, Minneapolis, MN 55402; and Yvonne M. Flaherty, LOCKRIDGE GRINDAL NAUEN PLLP, 100 Washington Avenue South, Suite 2200, Minneapolis, MN 55401, for plaintiffs.

Shayne M. Hamann, ARTHUR, CHAPMAN, KETTERING, SMETAK & PIKALA PA, 81 South Ninth Street, Suite 500, Minneapolis, MN 55402, for defendant.

MEMORANDUM OPINION AND ORDER DENYING IN PART AND GRANTING IN PART DEFENDANT'S MOTION TO DISMISS

JOHN R. TUNHEIM, Chief Judge

Plaintiff Kenneth Seifert filed this action to collect lost business income after executive orders mandated the closure of his hair salon and barbershop due to the rising number of COVID-19 cases in Minnesota, lost income alleged to be covered under the insurance policies he purchased from Defendant IMT Insurance Co. ("IMT"). IMT has filed a Motion to Dismiss, claiming that the policies do not cover Seifert's losses and that, even if they did, the virus exclusion contained in the policies would preclude recovery.

Because the business income provision of the policies insures against a direct physical loss of property, as when government mandates deprive a business owner of legally occupying or using the premises and property as intended, Seifert plausibly alleges that he is entitled to coverage. Additionally, because the virus exclusion is only triggered by a direct or indirect contamination of the covered premises, the exclusion has no effect with respect to Seifert's alleged losses. However, coverage under the civil authority provision of the policies is unavailable and the doctrine of regulatory estoppel is inapplicable. Thus, the Court will grant in part and deny in part IMT's Motion to Dismiss.

BACKGROUND

I. FACTUAL BACKGROUND

In an earlier decision, the Court laid out the relevant facts in detail. See Seifert v. IMT Ins. Co. , 495 F. Supp. 3d 747, 749–50 (D. Minn. 2020). As Seifert has not alleged any new facts in the Amended Complaint, the Court will briefly summarize them here.

Seifert's businesses, The Hair Place and Harmar Barbers, Inc., were ordered to close by two executive orders issued in response to the growing number of COVID-19 cases in Minnesota.¹ (Am. Compl. ¶¶ 1–2, 4, 27–28, Nov. 10, 2020, Docket No. 36.) As a result, Seifert contacted an authorized IMT agent to file a claim for lost business income. (Id. ¶ 35.) Seifert was advised that his losses were not covered. (Id. ¶¶ 5, 35.)

The policies at issue contain a business income provision, which protects against the actual loss of business income sustained due to a "suspension of your ‘operations’ during the ‘period of restoration’ ... caused by direct physical loss of or damage to property ... caused by or result[ing] from a Covered Cause of Loss." (Aff. of Shayne M. Hamman ¶ 3, Ex. A ("Policy") at 82, May 29, 2020, Docket No. 13-1.² ) "Covered Cause[ ] of Loss" is defined as a "[d]irect physical loss unless the loss is excluded." (Policy at 78.) "Operations" is defined as "business activities occurring at the described premises." (Id. at 109.) And "period of restoration" is the period of time beginning "after the time of direct physical loss or damage" and ending on the date when "the property at the described premises should be repaired, rebuilt or replaced" or when "business is resumed at a new permanent location." (Id. at 109–10.)

The policies also contain a civil authority provision, which protects against the actual loss of business income when "a Covered Cause of Loss causes damage to property" other than the insured property and, as a consequence, "[a]ccess to the area immediately surrounding the damaged property is prohibited by civil authority as a result of the damage" and the civil authority has acted either in response to dangerous physical conditions from the damage or to have unimpeded access to the damaged property. (Id. at 85.)

Finally, the policies contain a virus exclusion, which precludes coverage for loss or damage caused by a "virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease." (Id. at 96.) Such loss or damage, whether caused directly or indirectly, is excluded "regardless of any other cause or event that contributes concurrently or in any sequence to the loss ... whether or not the loss event results in widespread damage or affects a substantial area." (Id. at 93.)

II. PROCEDURAL BACKGROUND

On May 6, 2020, Seifert filed a Complaint, alleging breach of contract and seeking declaratory and monetary relief. (Compl. ¶¶ 37–48, May 6, 2020, Docket No. 1.) In response, IMT filed a Motion to Dismiss pursuant to Rule of Civil Procedure 12(b)(6). (Mot. Dismiss, May 29, 2020, Docket No. 9.) The Court granted IMT's Motion without prejudice to allow Seifert an opportunity to amend the pleadings, especially as the law concerning business interruption coverage with respect to the COVID-19 pandemic was very much in development. Seifert , 495 F. Supp. 3d at 753 ; id. at 753 n.7.

On November 4, 2020, Seifert filed a Motion for Extension of Time,³ (Mot. Extension, Nov. 4, 2020, Docket No. 29), and then an Amended Complaint on November 10, 2020, alleging three Counts: (1) Breach of Contract; (2) Declaration of Rights; and (3) Regulatory Estoppel, (Am. Compl. ¶¶ 57–76.) IMT has filed a second Motion to Dismiss pursuant to Rule 12(b)(6). (Mot. Dismiss, Nov. 24, 2020, Docket No. 37.)

DISCUSSION

I. STANDARD OF REVIEW

In reviewing a motion to dismiss under Rule 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." Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 594 (8th Cir. 2009) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ). The Court construes the complaint in the light most favorable to the plaintiff, drawing all inferences in plaintiff's favor. Ashley Cnty. v. Pfizer, Inc. , 552 F.3d 659, 665 (8th 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). Instead, "[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.

II. STATE LAW

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) ).

III. ANALYSIS

A. Coverage

The Amended Complaint presents a more nuanced theory concerning the key policy language in dispute, "direct physical loss of or damage to property." Because Seifert does not allege any damage to his properties, only the terms "direct physical loss of" are relevant.⁴

The Court interpreted this language before when granting IMT's motion to dismiss the Complaint; but, when doing so, the Court relied on Minnesota and Eighth Circuit cases that grappled with slightly different language: "direct physical loss to property." See Source Food Tech., Inc. v. U.S. Fid. & Guar. Co. , 465 F.3d 834, 835–36 (8th Cir. 2006) ; Gen. Mills, Inc. v. Gold Medal Ins. Co. , 622 N.W.2d 147, 151 (Minn. Ct. App. 2001) ; Sentinel Mgmt. Co. v. New Hampshire Ins. Co. , 563 N.W.2d 296, 297 (Minn. Ct. App. 1997) ; see also Pentair, Inc. v. Am. Guarantee & Liab. Ins. Co., 400 F.3d 613, 614, 616 (8th Cir. 2005) (reading a policy as if it said "direct physical loss to" instead of "direct physical loss of"). As Seifert correctly notes, because of the disjunctive separating "of" and "to," these words must mean different things. Thus, the more precise question considered now is whether "of" makes a difference when assessing the plausibility of Seifert's claims.

As the policies do not define what "direct physical loss of" means, the Court will give the words their plain and ordinary meanings. See, e.g. , Farm Bureau Mut. Ins. Co. v. Earthsoils, Inc. , 812 N.W.2d 873, 876 (Minn. Ct. App. 2012). "Direct" means "stemming immediately from a source."⁵ "Physical" is "having material existence[;] perceptible especially through the senses and subject to the laws of nature."⁶ These two words modify "loss," which means "destruction" or "deprivation."⁷ As such, the policies insure against an immediate and materially perceptible destruction or deprivation of property. However, to give the full phrase meaning, there is also the word "of" to consider.

As courts have stated when considering similar business interruption claims, "to" and "of" are not interchangeable; that is, they mean distinctly different things. See, e.g. , Seoul Taco Holdings, LLC v. Cincinnati Ins. Co. , No. 20-1249, ––– F.Supp.3d ––––, ––––, 2021 WL 1889866, at *6 (E.D. Mo. May 11, 2021) ; T & E Chicago LLC v. Cincinnati Ins. Co. , 501 F.Supp.3d 647, 652 (N.D. Ill. 2020) ; see also Source Food , 465 F.3d at 838 ("[T]he policy's use of the word ‘to’ in the...