Olmsted Medical Center v. Continental Casualty Company

Background

Olmsted Medical Center, a nonprofit medical organization, sued Continental Casualty Company under an insurance policy covering the period from January 1, 2020, to January 1, 2021. Olmsted alleged that the COVID-19 pandemic, Minnesota executive orders, and quarantine and isolation protocols caused it to cancel or postpone approximately half of its surgeries and procedures from spring 2020 through about June 2021. It alleged at least $19,336,351 in losses.

Olmsted submitted a claim to Continental on May 12, 2020. Continental denied business-interruption and civil-authority coverage two days later. Olmsted’s amended complaint asserted breach of contract and sought declaratory relief concerning coverage and Continental’s obligation to reimburse its losses.

Continental’s motion

Continental moved to dismiss under Rule 12(b)(6), which allows dismissal when the complaint does not adequately state a claim for relief. It argued that the lawsuit was filed outside the policy’s 12-month limitations period and that Olmsted’s alleged losses did not fall within the policy’s coverage. Continental also mentioned policy exclusions but did not address them in this motion.

Limitations period

The policy required any lawsuit seeking recovery under the policy to begin within 12 months after the “inception of the loss,” unless applicable insurance law prescribed a longer period. The court held that Minnesota law allowed the parties to use this shorter period and that the one-year period was reasonable under the facts alleged. Olmsted knew of the alleged loss and its cause when the Governor’s order took effect, and Continental denied the claim while ten months remained to file suit.

The court held that the portion of Olmsted’s claim based on the Governor’s order was time barred. The order took effect on March 23, 2020, and the restriction on elective procedures ended effective May 10, 2020; therefore, that alleged loss began and ended more than one year before Olmsted filed suit on May 12, 2021. The court stated that it could not decide on a motion to dismiss whether the portion of the claim based on COVID-19, contamination, and quarantining was filed within one year, because the record did not establish when Olmsted knew or should have known that it had suffered an appreciable loss.

Business-interruption coverage

The policy required “direct physical loss of or damage to” covered property for business-interruption coverage. Applying Minnesota law and cited Eighth Circuit decisions, the court held that this language requires physicality, such as physical alteration, contamination, or destruction, rather than merely losing the ability to use property.

The court held that Olmsted had not alleged physical loss or damage. It concluded that the presence of COVID-19, even if alleged, did not cause the required physical damage because routine cleaning could eliminate the virus from surfaces. The Governor’s order also did not make Olmsted’s property unusable: the facilities remained open, employees and patients could enter for essential procedures, and Olmsted continued providing essential medical care. Accordingly, the business-interruption claim did not qualify for coverage.

Contingent business-interruption coverage

The contingent coverage provision required direct suppliers, service providers, customers, or other relevant third parties to suffer direct physical loss or damage that caused the interruption. The court held that Olmsted did not identify any particular supplier, service provider, customer, or other third party whose property suffered the required physical loss or damage. Olmsted’s general allegations about COVID-19 cases and its speculation that the virus may have spread to other properties were insufficient.

Civil-authority coverage

The policy required an order prohibiting access to Olmsted’s location because of physical loss or damage to covered property at or near the location. The court held that Olmsted did not allege the required physical loss or damage. It also held that the Governor’s order did not prohibit access to the premises because employees and patients could still enter for essential medical procedures. The civil-authority claim was therefore both time barred to the extent based on the Governor’s order and unsupported by the alleged facts.

Ingress-egress coverage

The policy required physical loss or damage that physically prevented entry to or exit from Olmsted’s location. The court held that Olmsted did not allege physical loss or damage and did not allege that entry or exit was physically prevented. The order limited the types of procedures that could be performed, but it did not prevent employees and patients from entering or leaving the property.

Disposition

The court granted Continental Casualty Company’s motion to dismiss and dismissed the matter with prejudice. It ordered that judgment be entered accordingly.