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Law360 (October 19, 2020, 1:58 PM EDT ) A Minnesota federal judge has granted IMT Insurance Co.'s bid to toss a hair salon's suit seeking coverage for lost income from COVID-19 shutdowns, saying the state's law doesn't recognize coverage for mere loss of use of the property without actual contamination.
U.S. District Judge John R. Tunheim said Friday that although an insured does not need to show "structural damage" to get property coverage under Minnesota case law, "simply claiming 'mere loss of use or function' is not enough."
The judge sided with IMT's position that the hair salon owner failed to allege direct physical loss or damage, but gave the owner 20 days to amend his complaint, holding "it is possible that his claims may survive if properly alleged."
Kenneth Seifert, who owns The Hair Place and Harmar Barbers Inc., shut down his hair salon and barbershop due to state closure orders in March. He filed a claim to IMT and was told his losses were not covered by the policy. The owner then sued the insurer in May, alleging breach of contract and seeking declaratory and monetary relief.
"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," Judge Tunheim ruled Friday.
Minnesota state law requires "actual physical contamination of the insured property" to allege physical damage, the judge said. Seifert failed to show that his properties were contaminated by COVID-19, only asserting that he suffered a financial loss not related to "an actual infiltration and contamination" of the properties, the judge added.
"Minnesota case law does not require a showing of structural damage to qualify for coverage," Judge Tunheim said in the order. "However, this is not to say that a qualifying loss is established 'whenever property cannot be used for its intended purpose.'"
The judge pointed out that the hair salon owner specifically alleged that government closure orders instead of COVID-19 were the sole cause of his losses, and "governmental action prohibiting the use of property, by itself, is not enough."
Additionally, the policy's civil authority coverage is not triggered because the owner failed to demonstrate that COVID-19 contaminated his neighboring properties or he lost access to his property, the judge added. And since the government orders were issued in response to COVID-19, Seifert's losses from the orders are expressly barred by the policy's virus and bacteria exclusion.
"Pursuant to the anti-concurrent loss provision, if a virus is any part of the causal chain causing a loss, then the loss is not covered," Judge Tunheim said in the order.
Representatives from the parties could not be immediately reached for comment on Monday.
The hair salon owner is represented by Amanda M. Williams, Daniel E. Gustafson, Mary M. Nikolai and Dennis Stewart of Gustafson Gluek PLLC, Chad Throndset and Patrick W. Michenfelder of Throndset Michenfelder LLC and Yvonne M. Flaherty of Lockridge Grindal Nauen PLLP.
IMT is represented by Gregory J. Duncan, Shayne M. Hamann and Steven J. Erffmeyer of Arthur Chapman Kettering Smetak & Pikala PA.
The case is Seifert et al. v. IMT Insurance Company, case number 20-1102, in the U.S. District Court for the District of Minnesota.
--Editing by Janice Carter Brown.
For a reprint of this article, please contact reprints@law360.com.
