Seifert et al v. IMT Insurance Company

Filing 28

MEMORANDUM OPINION AND ORDER granting 9 Motion to Dismiss. (Written Opinion) Signed by Chief Judge John R. Tunheim on 10/16/2020. (HAZ)

CASE 0:20-cv-01102-JRT-DTS Doc. 28 Filed 10/16/20 Page 1 of 12

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
KENNETH SEIFERT d/b/a THE HAIR PLACE
and HARMAR BARBERS, INC., individually
and on behalf of all others similarly
situated,
Plaintiffs,
v.

Civil No. 20-1102 (JRT/DTS)

MEMORANDUM OPINION AND ORDER
GRANTING DEFENDANT’S MOTION TO
DISMISS

IMT INSURANCE COMPANY,
Defendant.

Amanda M. Williams, Daniel E. Gustafson, and Mary M. Nikolai,
GUSTAFSON GLUEK PLLC, 120 South Sixth Street, Suite 2600, Minneapolis,
MN 55402; Dennis Stewart, GUSTAFSON GLUEK PLLC, 600 B Street, San
Diego, CA 92101; Chad Throndset and Patrick W. Michenfelder,
THRONDSET MICHENFELDER LLC, One Central Avenue West, Suite 203, St.
Michael, MN 55376; and Yvonne M. Flaherty, LOCKRIDGE GRINDAL NAUEN
PLLP, 100 Washington Avenue South, Suite 2200, Minneapolis, MN 55401,
for plaintiffs.
Shayne M. Hamann, Gregory J. Duncan, and Steven J. Erffmeyer, ARTHUR,
CHAPMAN, KETTERING, SMETAK & PIKALA PA, 81 South Ninth Street, Suite
500, Minneapolis, MN 55402, for defendant.
Plaintiffs (“Seifert”) filed this action to collect lost business income, as a result of
the coronavirus-related and government-mandated closure of Seifert’s hair salon and
barbershop, which he alleges is covered under insurance policies issued by Defendant IMT
Insurance Co. (“IMT”). IMT filed a Motion to Dismiss, claiming that the insurance policies

CASE 0:20-cv-01102-JRT-DTS Doc. 28 Filed 10/16/20 Page 2 of 12

only cover losses attributable to direct physical loss or damage, not a businessowner’s
mere loss of use of an insured property, and that the virus or bacteria exclusion precludes
any otherwise qualifying loss or damage. Because Seifert does not plausibly allege any
direct physical loss or damage to the properties, or plausibly demonstrate that the virus
or bacteria exclusion would not preclude coverage given the facts he does allege, the
Court will grant IMT’s Motion to Dismiss.
BACKGROUND
I. THE PANDEMIC
Seifert owns and runs a hair salon, The Hair Place, and a barbershop, Harmar
Barbers, Inc. (Compl. ¶¶ 1–2, May 6, 2020, Docket No. 1.) On March 13, 2020, Minnesota
Governor Tim Walz declared a peacetime emergency in response to the spread of the
novel coronavirus and issued several Emergency Executive Orders, one of which
mandated the closure of salons and barbershops. 1 (Id. ¶ 20.) As a result of the Orders,
Seifert had to suspend all business operations. (Id. ¶ 4.) Subsequently, he contacted his
independent insurance broker, an authorized IMT agent, in late March to file a claim for
lost business income. (Id. ¶ 27.) Seifert was advised that his losses were not covered by
the insurance policies. (Id. ¶¶ 5, 27.)

See Minn. Emergency Exec. Order No. 20-08 at
https://mn.gov/governor/assets/Filed%20EO-2008_Clarifying%20Public%20Accommodations_tcm1055-423784.pdf.
1

-2-

1

(Mar.

18,

2020),

CASE 0:20-cv-01102-JRT-DTS Doc. 28 Filed 10/16/20 Page 3 of 12

II. THE POLICIES
A. COVERAGE
Seifert entered into insurance policies with IMT on March 25, 2019 and renewed
both policies on April 2, 2020. (Id. ¶¶ 3, 11–12, 15; Aff. of Shayne M. Hamman (“Hamman
Aff.”) ¶¶ 3–6, May 29, 2020, Docket No. 13.) 2 Each policy contains a Businessowners
Coverage Form, which covers “direct physical loss of or damage to Covered Property at
the premises described.” (Hamman Aff. ¶¶ 3–6, Ex. A (“Policy”) at 77, Ex. B at 207, Ex. C
at 363, and Ex. D at 526, May 29, 2020, Docket No. 13-1.) 3 The policies also insure against
lost Business Income:
We will pay for the actual loss of Business Income you sustain
due to the necessary suspension of your “operations” . . . . The
suspension must be caused by direct physical loss of or
damage to property at the described premises. The loss or
damage must be caused by or result from a Covered Cause of
Loss.
(Policy at 82.) “Covered Causes of Loss” are defined as “[d]irect physical loss[es] unless
the loss is excluded.” (Id. at 78.)

In reviewing a motion to dismiss, the Court may consider the allegations in the complaint as
well as “those materials that are necessarily embraced by the pleadings.” Schriener v. Quicken
Loans, Inc., 774 F.3d 442, 444 (8th Cir. 2014). As such, it may consider “documents whose
contents are alleged in a complaint and whose authenticity no party questions.” Kushner v.
Beverly Enters., Inc., 317 F.3d 820, 831 (8th Cir. 2003) (quoting In re Syntex Corp. Sec. Litig., 95
F.3d 922, 926 (9th Cir. 1996)).
3
From this point forward, the Court will simply cite to Ex. A, as all the policies are identical.
2

-3-

CASE 0:20-cv-01102-JRT-DTS Doc. 28 Filed 10/16/20 Page 4 of 12

Finally, the policies offer Civil Authority coverage. (Id. at 85.) This coverage is
triggered when a Covered Cause of Loss causes damage to nearby property other than
the insured property and, as a consequence, a civil authority prohibits access to the
insured property because of “dangerous physical conditions resulting from the damage
or . . . to enable a civil authority to have unimpeded access to the damaged property.”
(Id.) If triggered, Civil Authority coverage would also insure against lost business income.
(Id.)
B. EXCLUSIONS
The Businessowners policies insure against “all risk” except for risks that are
expressly excluded. (See Compl. ¶¶ 14–15.) The prefatory language of the exclusions
section states that IMT “will not pay for loss or damage caused directly or indirectly” by
an excluded event. (Policy at 93.) The prefatory language also includes an anti-concurrent
causation clause, stating that any such loss or damage “is excluded regardless of any other
cause or event that contributes concurrently or in any sequence to the loss.” (Id.) Finally,
the policy contains a Virus or Bacteria Exclusion, which precludes coverage for any loss or
damage associated with a “virus, bacterium, or other microorganism that induces or is
capable of inducing physical distress, illness or disease.” (Id. at 96.)
III.

PROCEDURAL BACKGROUND
On May 6, 2020, Seifert filed his Complaint, alleging breach of contract and seeking

declaratory and monetary relief. (Compl. ¶¶ 37–48.) In response, IMT filed a Motion to
-4-

CASE 0:20-cv-01102-JRT-DTS Doc. 28 Filed 10/16/20 Page 5 of 12

Dismiss pursuant to Rule 12(b)(6), arguing that 1) Seifert failed to satisfy the condition
precedent of filing a formal claim; 2) Seifert failed to plead sufficient facts alleging lost
business income caused by a direct physical loss of or damage to his properties, 3) various
exclusions precluded coverage, and 4) the known-loss doctrine precluded any claim of
loss (Mot. Dismiss, May 29, 2020, Docket No. 9.)
DISCUSSION
I. STANDARD OF REVIEW
In reviewing a motion to dismiss under Federal Rule of Civil Procedure 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.’” See Braden v. Wal-Mart Stores, Inc.,
588 F.3d 585, 594 (8th Cir. 2009) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). “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. The Court construes the complaint in the light most favorable to
the plaintiff, drawing all inferences in their favor. Ashley Cty., Ark. 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 (2007) (quotation omitted). “Where a
complaint pleads facts that are merely consistent with a defendant's liability, it stops

-5-

CASE 0:20-cv-01102-JRT-DTS Doc. 28 Filed 10/16/20 Page 6 of 12

short of the line between possibility and plausibility,” and therefore must be dismissed.
Iqbal, 556 U.S. at 678.
II. ANALYSIS
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)).
A. COVERAGE UNDER THE POLICIES 4
1. Business Income
The insurance policies cover the loss of business income when business operations
are suspended because of “direct physical loss of or damage to property at the described

As a preliminary matter, IMT argues that it is under no obligation to perform under the policies,
as Seifert failed to satisfy the condition precedent with respect to properly submitting a formal
claim. IMT also argues that the known-loss doctrine precludes coverage. Both arguments are
unavailing. With respect to the condition precedent, not only did Seifert promptly contact his
insurance broker, an authorized IMT agent, after the closure of his businesses, but he also satis(footnote continued on next page)
4

-6-

CASE 0:20-cv-01102-JRT-DTS Doc. 28 Filed 10/16/20 Page 7 of 12

premises.” (Policy at 82.) Minnesota caselaw does not require a showing of structural
damage to qualify for coverage. “Direct physical loss” can also be found when business
premises are contaminated by asbestos, see Sentinel Mgmt. Co. v. New Hampshire Ins.
Co., 563 N.W.2d 296, 300 (Minn. Ct. App. 1997), or smoke, see Gen. Mills, Inc. v. Gold
Medal Ins. Co., 622 N.W.2d 147, 152 (Minn. Ct. App. 2001). In short, “[i]t is sufficient to
show that the “insured property is injured in some way,” which may be something less
than structural damage or some other tangible injury. See Archer Daniels Midland Co. v.
Aon Risk Servs., Inc. of Minnesota, No. 97-2185, 2002 WL 31185884, at *3 (D. Minn. Sept.
27, 2002), aff'd, 356 F.3d 850 (8th Cir. 2004).
However, this is not to say that a qualifying loss is established “whenever property
cannot be used for its intended purpose.” Pentair, Inc. v. Am. Guarantee & Liab. Ins. Co.,
400 F.3d 613, 616 (8th Cir. 2005) (emphasis in original). Actual physical contamination of
the insured property is still required. See Source Food Tech., Inc. v. U.S. Fid. & Guar. Co.,
465 F.3d 834, 837–38 (8th Cir. 2006). Simply claiming “mere loss of use or function” is not
enough. Pentair, 400 F.3d at 616; see also Hampton Foods, Inc. v. Aetna Cas. & Sur. Co.,
787 F.2d 349, 352 (8th Cir. 1986).

fied the procedure for reporting a claim, as outlined on IMT’s website. With respect to the
known-loss doctrine, it is a fraud-based defense, but fraud is not being disputed here, so the
doctrine is inapplicable. See Guar. Title, Inc. v. Alterra Excess & Surplus Ins. Co., No. 14-0028,
2014 WL 12601039, at *3 (D. Minn. Nov. 19, 2014) (citing Sand Cos., Inc. v. Gorham Hous. Partners
III, LLP, No. A10–113, 2010 WL 5154378, at *7 (Minn. Ct. App. Dec. 21, 2010).

-7-

CASE 0:20-cv-01102-JRT-DTS Doc. 28 Filed 10/16/20 Page 8 of 12

Seifert claims that his inability to provide haircuts and salon services is
indistinguishable from the intangible physical loss in General Mills. However, in General
Mills, there was smoke contamination of the insured’s property; here, Seifert has not
pleaded any facts demonstrating his businesses were similarly contaminated by the novel
coronavirus. That is, he only asserts that he suffered an economic loss unrelated to an
actual infiltration and contamination of the properties.
Seifert also asserts that another case, Cedar Bluff, stands for the proposition that
physical loss can be found when an external force renders property unsafe or unusable,
even when the property remains physically unchanged. Yet, he fails to mention that the
Cedar Bluff court held that undamaged panels of siding were covered only because
adjoining panels were damaged, and repairs could not be made without resulting in a
color mismatch. See Cedar Bluff Townhome Condo. Ass'n, Inc. v. Am. Family Mut. Ins. Co.,
857 N.W.2d 290, 295 (Minn. 2014). That is, there was still a physical loss; the dispute only
concerned the extent of the loss.
As such, Seifert’s claims fail to fall within the permissible realm of “direct physical
loss,” as he cannot allege facts showing his properties were actually contaminated or
damaged by the coronavirus. 5 In fact, Siefert explicitly states that his business losses were

Accord 10E, LLC v. Travelers Indem. Co., No. 20-04418, 2020 WL 5359653, at *5 (C.D. Cal. Sept.
2, 2020) (granting defendant’s motion to dismiss for failing to allege that the virus had infected
or entered the premises); Malaube, LLC v. Greenwich Ins. Co., No. 20-22615, 2020 WL 5051581,
(footnote continued on next page)
5

-8-

CASE 0:20-cv-01102-JRT-DTS Doc. 28 Filed 10/16/20 Page 9 of 12

“not because of the presence of a virus” at the premises. (Compl. ¶ 24.) Instead, the
Orders are alleged to be the sole cause of his losses, but governmental action prohibiting
the use of property, by itself, is not enough. See Source Food, 465 F.3d at 838. As a result,
Seifert does not plead a plausible claim for relief. Accordingly, the Court will grant IMT’s
Motion to Dismiss with respect to Business Income coverage under the policies.
2. Civil Authority
The policies also provide coverage when a Covered Cause of Loss causes damage
to another’s property and a civil authority then prohibits access to the insured property.
Thus, a direct physical loss of or damage to property is again required to trigger coverage.
As such, if a complaint does not plead facts alleging some actual contamination or
damage to property to a neighboring property, then the complaint does not state a
plausible claim to relief. Here, Seifert does not plead any facts demonstrating that the
coronavirus contaminated properties neighboring his businesses, or that a civil authority
then prohibited him from entering his insured properties because of any such
contamination. Accordingly, the Court will grant IMT’s Motion to Dismiss with respect to
Civil Authority coverage under the policies.

at *7 (S.D. Fla. Aug. 26, 2020) (same); Diesel Barbershop, LLC v. State Farm Lloyds, No. 20-461,
2020 WL 4724305, at *5 (W.D. Tex. Aug. 13, 2020) (finding that pleading mere economic loss was
not a plausible claim). But cf. Studio 417, Inc. v. Cincinnati Ins. Co., No. 20-03127, 2020 WL
4692385, at *5 (W.D. Mo. Aug. 12, 2020) (denying defendant’s motion to dismiss because
plaintiffs alleged that COVID-19 had physically entered the premises).

-9-

CASE 0:20-cv-01102-JRT-DTS Doc. 28 Filed 10/16/20 Page 10 of 12

B. VIRUS OR BACTERIA EXCLUSION 6
The virus exclusion precludes coverage for any loss or damage caused indirectly or
directly by any “virus, bacterium or other microorganism that induces or is capable of
inducing physical distress, illness or disease.” (Policy at 96.) Furthermore, as defined by
the prefatory language applicable to all excluded events, the virus exclusion is an anticoncurrent loss provision. “When an anti-concurrent loss provision is triggered . . . courts
need not inquire into which of a covered or excluded loss was the proximate cause of the
damage, but simply exclude coverage where any portion of the loss was caused or
contributed to by an excluded loss.” Ken Johnson Props., LLC v. Harleysville Worcester
Summary Ins. Co., No. 12-1582, 2013 WL 5487444, at *12 (D. Minn. Sept. 30, 2013). Thus,
the virus exclusion would extend “to all losses where a virus is part of the causal chain.”
Turek Enters., Inc. v. State Farm Mut. Auto. Ins. Co., No. 20-11655, 2020 WL 5258484, at
*8–9 (E.D. Mich. Sept. 3, 2020).
Here, Seifert alleges that his business losses are the direct and proximate result of
“Governmental Pandemic Closure Orders; orders that have been put in place in an effort

In addition to the Virus or Bacteria Exclusion, IMT argues that the Pollution Exclusion and the
Ordinance or Law Exclusion also apply. However, exclusions are to be construed narrowly and
strictly against the insurer. Grinnell Mut. Reinsurance Co. v. Villanueva, 37 F. Supp. 3d 1043, 1046
(D. Minn. 2014), aff'd, 798 F.3d 1146 (8th Cir. 2015). As such, IMT’s attempt to place the
coronavirus in the same category of pollutants as “smoke, vapor, soot, fumes, acids, alkalis,
chemicals, and waste” is unavailing. (Policy at 100). Additionally, while the Ordinance or Law
Exclusion might be applicable, IMT offers nothing to demonstrate whether the Emergency
Executive Order specifically closing barbershops and hair salons had the force of law. As such,
the Court will also construe this exclusion against IMT.
6

-10-

CASE 0:20-cv-01102-JRT-DTS Doc. 28 Filed 10/16/20 Page 11 of 12

to control the spread of the COVID-19 Pandemic.” (Compl. ¶ 24.) Pursuant to the anticoncurrent loss provision, if a virus is any part of the causal chain causing a loss, then the
loss is not covered. Accordingly, the Court will grant IMT’s Motion to Dismiss with respect
to the Virus or Bacteria Exclusion.
CONCLUSION
Although Seifert has failed to plead factual content to allow the Court to draw the
reasonable inference that Seifert is entitled to coverage for lost business income, it is
possible that his claims may survive if properly alleged. 7 Accordingly, the Court will grant
Seifert twenty days to amend the Complaint to address the deficiencies in pleading
identified above.

ORDER
Based on the foregoing, and all the files, records, and proceedings herein, IT IS
HEREBY ORDERED that Defendant’s Motion to Dismiss [Docket No. 9] is GRANTED
without prejudice. If no Amended Complaint is filed within twenty days from the date of
this Order, the Court will dismiss the case with prejudice.

See, e.g., Studio 417, 2020 WL 4692385, at *5–6; see also Mudpie, Inc. v. Travelers Cas. Ins. Co.
of Am., No. 20-3213, 2020 WL 5525171, at *8 (N.D. Cal. Sept. 14, 2020) (“The Court [recognizes]
that the law concerning business interruption coverage linked to the COVID-19 pandemic is very
much in development . . . and [will] grant leave to amend.”).
7

-11-

CASE 0:20-cv-01102-JRT-DTS Doc. 28 Filed 10/16/20 Page 12 of 12

DATED: October16, 2020
at Minneapolis, Minnesota.

______

______
JOHN R. TUNHEIM
Chief Judge
United States District Court

-12-