U.S. District Judge John R. Tunheim said the salon owner had sufficiently alleged a direct physical loss, a precondition for coverage, by showing his hair salon and barbershop lost function and value after being forced to close by government orders last year.
The policy's virus exclusion is not triggered because the owner, Kenneth Seifert, alleged that his losses were caused solely by government closure orders, Judge Tunheim said. Even Though the orders were issued in response to COVID-19, stretching the causal chain to include government orders would be "too far" and "transform a virus exclusion into a government-order or pandemic exclusion," the judge said.
"As the amended complaint demonstrates, when the insurance industry proposed this exclusion to state regulators, they were intent on excluding coverage 'involving contamination by disease-causing agents' at the property," he said.
Last October, the judge granted IMT's bid to toss the salon owner's suit, but allowed him to amend the complaint, saying "it is possible that his claims may survive if properly alleged."
Seifert, who owns The Hair Place and Harmar Barbers Inc., shut down his businesses due to state closure orders in March 2020. He filed a claim to IMT and was told his losses were not covered by the policy. The owner then sued the insurer two months later, alleging breach of contract and seeking declaratory and monetary relief.
On Wednesday, Judge Tunheim said the virus exclusion had no effect on Seifert's losses as he did not allege that the businesses suffered any actual contamination or that his staff and customers contracted the virus.
"The policies' virus exclusion is intended to preclude coverage only when there has been some direct or indirect contamination of the business premises, not whenever a virus is circulating in a community and a government acts to curb its spread by means of executive orders of general applicability," the judge said.
The salon owner also sufficiently showed that government orders made him unable to use the physical space to conduct business as intended. "Minnesota courts would find this to be a cognizable impairment of function and value," he said, adding that the state has found "direct physical loss" can exist without structural damage.
But he sided with IMT by finding that the salon owner cannot get the policy's civil authority coverage because the owner failed to show his nearby properties were damaged.
Representatives from the parties could not be immediately reached for comment on Wednesday.
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 Peter Rozovsky.
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