Seifert v. IMT Insurance Company

Background

Kenneth Seifert, doing business as The Hair Place, and Harmar Barbers, Inc. sued IMT Insurance Company for breach of contract and sought declaratory and monetary relief. They claimed that IMT’s insurance policies covered lost business income resulting from Minnesota government orders that closed salons and barbershops during the coronavirus pandemic.

The policies covered business income lost when operations were suspended because of “direct physical loss of or damage to” covered property. They also included Civil Authority coverage when damage to nearby property caused a government authority to prohibit access to the insured property. The policies contained a Virus or Bacteria Exclusion covering loss or damage caused directly or indirectly by a virus or similar microorganism, along with an anti-concurrent-causation provision excluding losses when an excluded event contributed to the loss.

Analysis

The court applied Federal Rule of Civil Procedure 12(b)(6), which asks whether the complaint alleges enough facts to state a plausible claim for relief. Under Minnesota law, the insured initially had to show that the claimed loss fell within the policy’s coverage, while IMT had the burden of establishing applicable exclusions.

For Business Income coverage, the court explained that Minnesota law does not always require structural damage. Physical contamination, such as asbestos or smoke contamination, can qualify as direct physical loss. But the complaint still had to allege actual physical contamination or damage; merely losing the ability to use property for its intended purpose was not enough.

The court found that Seifert alleged only an economic loss caused by government closure orders. He did not allege that the coronavirus had entered, contaminated, or damaged the salon, barbershop, or neighboring properties. The court also noted that Seifert expressly alleged that his losses were not caused by the virus’s presence at the businesses. Government action prohibiting use of the property, without physical loss or damage, did not satisfy the policy requirement.

The court reached the same conclusion for Civil Authority coverage because Seifert did not allege that the coronavirus contaminated or damaged nearby property or that a civil authority barred access because of such contamination or damage.

The court also held that the Virus or Bacteria Exclusion barred coverage because Seifert alleged that the closure orders were issued to control the spread of the coronavirus. Under the policy’s anti-concurrent-causation language, coverage was excluded when a virus was any part of the causal chain producing the loss. The court rejected IMT’s reliance on the Pollution Exclusion and Ordinance or Law Exclusion on the grounds that those exclusions did not establish an additional basis for dismissal on the allegations presented.

The court rejected IMT’s arguments that Seifert failed to submit a formal claim and that the known-loss doctrine barred coverage. It found that Seifert promptly contacted his insurance broker, an authorized IMT agent, and explained that the known-loss doctrine was a fraud-based defense that did not apply because fraud was not being disputed.

Disposition

The court granted IMT’s Motion to Dismiss without prejudice. It granted the motion as to Business Income coverage, Civil Authority coverage, and the Virus or Bacteria Exclusion. The court gave Seifert twenty days to amend the complaint to address the pleading deficiencies. If he did not file an amended complaint within that period, the court stated that it would dismiss the case with prejudice.