HealthPartners, Inc. v. American Guarantee and Liability Insurance Company

Background

HealthPartners and its affiliated plaintiffs sued American Guarantee and Liability Insurance Company (AGLIC), alleging breach of an insurance contract and breach of the covenant of good faith and fair dealing. The plaintiffs sought coverage for losses they attributed to COVID-19 and executive orders issued by Minnesota and Wisconsin during the pandemic.

AGLIC’s policy generally covered time-element losses, including business-interruption losses, resulting from a necessary suspension of business caused by “direct physical loss of or damage to” covered property. The policy also contained civil-authority coverage and special coverage for interruption by communicable disease. HealthPartners alleged that government restrictions suspended elective medical and dental services, required certain property closures, and led to continuing operational limits and remediation costs. It alleged losses exceeding $430 million. AGLIC paid $45,726 for losses at three fitness centers but denied the other claimed losses.

Motion to Dismiss Standard

AGLIC moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint alleges enough facts to state a legally plausible claim. On such a motion, the court generally accepts well-pleaded factual allegations as true but does not accept bare legal conclusions.

Analysis

The court applied Minnesota law, under which interpreting an insurance policy is a legal question. The insured first bears the burden of showing that the policy provides coverage.

For time-element coverage, the court held that HealthPartners had not plausibly alleged “direct physical loss of or damage to” covered property. The government orders restricted how HealthPartners could use its facilities, but the complaint also alleged that HealthPartners continued providing medical and dental care to tens of thousands of patients. Relying on Eighth Circuit precedent, the court concluded that loss of use or function, without physical alteration, physical contamination, or physical destruction, does not qualify as physical loss under the policy.

The court also rejected the contamination theory. Although HealthPartners alleged that COVID-19 was present in its facilities and that it had to clean, disinfect, reconfigure spaces, and provide personal protective equipment, the court found that it had not plausibly alleged a fundamental, irreversible change to the covered property. The court distinguished cases involving asbestos or adulterated food because those conditions impaired or changed the property in a way that could not be undone through routine cleaning. The court further noted that HealthPartners’ continued provision of care undermined the claim that COVID-19 rendered its facilities useless.

The court rejected the civil-authority coverage claim for two independent reasons. HealthPartners did not allege physical loss of or damage to nearby property that it did not own, as the policy required. In addition, the government orders restricted operations but did not prohibit access to HealthPartners’ locations.

The court also rejected the interruption-by-communicable-disease coverage claim. That provision required an authorized governmental agency to declare portions of a location uninhabitable because of the threat of communicable disease and prohibit access to those portions. The court found that Minnesota’s order restricted elective procedures, Wisconsin’s order exempted healthcare facilities from its stay-at-home restrictions, and the Wisconsin health department’s guidance was only a recommendation. Nothing in the orders declared a HealthPartners location uninhabitable.

Because the court found no insurance coverage, it did not address AGLIC’s alternative policy-exclusion arguments. The court also concluded that HealthPartners’ claim for breach of the covenant of good faith and fair dealing failed.

Disposition

The court granted AGLIC’s motion to dismiss and dismissed the complaint with prejudice. It ordered that judgment be entered accordingly.