Essentia Health v. ACE American Insurance Company

Background

Minnesota Governor Tim Walz issued an executive order requiring the postponement of nonessential or elective surgeries and procedures during the early COVID-19 pandemic. Essentia Health alleged that the resulting suspension of operations caused it to lose more than $59 million in April 2020.

Essentia sought coverage from ACE under a Premises Pollution Liability Portfolio Insurance Policy. The policy covered certain losses resulting from a “pollution condition” or an “indoor environmental condition.” Essentia sought business-interruption loss based on its allegation that COVID-19 was a “pollution condition.” It brought a breach-of-contract claim and sought a declaration that it was entitled to up to $5 million in coverage, along with damages and other relief.

ACE moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a complaint does not state a legally sufficient claim for relief.

Policy Interpretation

The court applied Minnesota law. It explained that insurance policies must be read as a whole and that unambiguous terms receive their plain and ordinary meaning. Although the words “contaminant” and “irritant,” considered separately, could plausibly describe a virus, the court held that the policy’s other provisions changed that analysis.

The policy’s healthcare endorsement specifically included viruses within the definition of “indoor environmental condition,” but only for coverage involving remediation costs. It did not provide business-interruption coverage for virus-related indoor environmental conditions. The court reasoned that treating viruses as “pollution conditions” would make those limits meaningless and would expand virus coverage beyond the narrower coverage stated in the endorsement.

The court therefore concluded that the policy was unambiguous and could not reasonably be understood to cover business-interruption losses resulting from a virus. The court also rejected Essentia’s reliance on alleged statements by ACE in other proceedings, regulatory filings, policies, and proposed endorsements because extrinsic evidence cannot create an ambiguity in otherwise unambiguous policy language.

Ruling

The court held that Essentia’s claim failed as a matter of law because Essentia sought coverage only on the theory that COVID-19 was a covered “pollution condition.” It did not resolve ACE’s alternative argument that Essentia’s losses were caused by the governor’s executive order rather than directly by COVID-19.

Judge Eric C. Tostrud granted ACE American Insurance Company’s motion to dismiss. The court dismissed Essentia Health’s complaint with prejudice and ordered that judgment be entered accordingly.