This update was prepared with the assistance of co-author Tess Olinger, Summer Associate

In the wake of COVID-19 and governmental closure orders, many businesses were forced to temporarily suspend their operations. Consequently, many consumer-facing businesses lost out on a significant source of income. As previously predicted, some of these business turned to their Commercial General Liability (“CGL”) insurance policies to seek coverage for these losses. After insurers denied coverage, these businesses brought suit.

Claims for coverage for COVID-related loss have faced significant hurdles in most jurisdictions, including Minnesota. Over the past year, most courts around the country have held there is no coverage under CGL policies because these policies require a showing of “direct physical loss or damage,” which is often interpreted to mean a physical alteration to the property, not merely an economic loss to the business. Additionally, some policies contain virus, law and ordinance exclusions, or both.

Recently, the Eighth Circuit Court of Appeals (applying Iowa law) became the first federal appellate court to affirm denial of coverage. In its published opinion in Oral Surgeons P.C. v. The Cincinnati Insurance Co. (discussed below), the Eighth Circuit joined the vast majority of courts around the country—including in Minnesota—that have denied coverage. Both insureds and insurers should be aware of potential language in their policies that could trigger or prevent coverage in these situations.

I. Minnesota Courts have Uniformly Denied Coverage for COVID-Related Loss

Insureds have had no success whatsoever in obtaining coverage in Minnesota courts. There have been six cases in total, and each resulted in dismissal of the insured’s claim for coverage.

The first of these cases is Seifert v IMT Insurance Co.^[1] The Minnesota federal district court held that the plaintiff was not entitled to coverage for their COVID-related losses because the insured failed to allege that it suffered direct physical loss or damage to its premises. The court held that the policy only provided coverage in the event of direct physical loss or damage, not for economic loss. This decision aligns with numerous similar decisions across the country.

In attempts to prove physical loss or damage, some insureds have argued that infections occurring at insured premises demonstrates that the premises are contaminated with COVID-19, and that is a direct physical loss. One such case is Berkseth Rojas DDS v. Aspen American Insurance Co.^[2] The insured alleged that three employees were infected with COVID-19, and, therefore, “it [was] an absolute certainty that covered property has been infiltrated and contaminated by COVID-19 by those three persons.” The insured alleged that this contamination forced her to make repairs and changes to her property, such as installing plexiglass at the reception area and limiting the number of patients in the building at one time, thus limiting the functional space of her building. The court rejected this attempt to compare the presence of coronavirus on her property to other conditions, such as asbestos and smoke contamination, noting that there is a difference between contamination by particles and damage by those particles. The insured claimed only contamination by COVID-19, not physical damage to her property.

Another important component in determining the potential success of a COVID-related coverage claim is coverage exclusions. Even if a court agreed that “direct physical loss or damage” could apply to COVID-related contamination, virus or law and ordinance exclusions may preclude coverage. For example, in Blue Ox LLC et al. v. Midwest Mutual Family Insurance Co,^[3] a Minnesota state court held that the policy in question did not cover plaintiffs’ COVID-19 related losses both because there was a lack of direct physical loss or damage, and because there was a virus exclusion, stating that the insurer would not “pay for loss or damage caused directly or indirectly by any virus.” The court emphasized the term “indirectly” in rejecting the plaintiffs’ argument that their loss was caused by Governor Walz’s Executive Orders, not COVID-19 specifically, reasoning: “plaintiffs do not dispute that the coronavirus is part of the causal chain that prompted the governor to issue his executive orders, which resulted in their business losses.” The policy also contained an Ordinance or Law exclusion precluding coverage for losses caused directly or indirectly by “the enforcement or compliance with any ordinance or law regulating the construction, use, or repair of any property.” According to the court, the Executive Orders were issued pursuant to authority delegated to Governor Walz, and thus had the force of law. Finally, yet another exclusion barred coverage. The “Consequential Loss Exclusion” stated that the insurer “will not pay for any loss or damage caused by or resulting from delay, loss of use, or loss of market.” The court determined that plaintiffs were claiming a loss of use during the time they were unable to be open to normal capacity, which meant their business losses were not covered.

II. The Eighth Circuit Recently Issued the First Federal Appellate Decision, Joining the Vast Majority of Courts to Deny Coverage for COVID-Related Loss.

The Eighth Circuit recently became the first federal appellate court to address a COVID-related loss coverage dispute, in Oral Surgeons P.C. v. The Cincinnati Insurance Co., a case interpreting Iowa law.^[4] The Eighth Circuit agreed with the district court that the policy at issue unambiguously required physical alteration, physical contamination, or physical destruction of insured property, and that the insured’s losses were confined to an “inability to use” the property, resulting in economic loss. The insured did not, however, allege any physical alteration to its property from COVID-19. Although Oral Surgeons interpreted and applied Iowa contract law, the Eighth Circuit referred to Minnesota case law in its analysis, reasoning there is no material difference between Iowa and Minnesota law on insurance contact interpretation.

In short, insureds in Minnesota have an uphill battle to obtain coverage for their COVID-related business losses, and insurers likely have strong grounds to deny coverage.

III. COVID-19 Business Insurance Cases in Other Jurisdictions

While many Minnesota insureds have struggled to obtain coverage, some jurisdictions have interpreted “direct physical loss or damage” in a way that favors coverage.

For example, Missouri courts have accepted the COVID-19 contamination theory advanced in Berkseth Rojas. In Blue Springs Dental Care LLC., et al. v. Owners Insurance Company, the court held that the insured plausibly alleged that COVID-19 physically damaged its property by physically “attaching” to the insured’s premises.^[5] The court determined this allegation was sufficient to survive a motion to dismiss, but that Blue Springs would need to prove that COVID-19 actually contaminated the premises.

In another example, Studio 417 Inc., et al. v. The Cincinnati Insurance Co., the court reasoned that the insurer was conflating the terms “physical loss” and “physical damage,” and that in order to give effect to the policy language in its entirety, the two words must have distinct meanings.^[6] The policy at issue did not define either term. Using the dictionary definition of “loss”, the court determined that the ordinary meaning of loss reasonably could be “the act of losing possession” or “deprivation”. Under this definition, the insured pled sufficient facts that it had suffered a physical loss due to COVID-19.

As stated, however, Minnesota courts have not issued similar decisions.

IV. The Future of COVID-Related Loss Insurance Claims

The recent Eighth Circuit decision in Oral Surgeons further solidifies the interpretation that most CGL policies require direct physical loss or damage, and that COVID-19 does not cause any such harm. But even if COVID-19 could cause this harm, many policies include exclusions that likely preclude coverage, such as virus exclusions and anti-concurrent loss provisions. Whether insureds will have an uphill battle to obtain coverage for COVID-related losses in the future all depends, of course, on the exact terms of the policy at issue and the kind of loss caused by COVID-19.

[1] Seifert v IMT Insurance Co., 495 F.Supp.3d 747 (D. Minn. 2020).
[2] Berkseth-Rojas v. Aspen American Insurance Co., No. 3:20-cv-948-D (N.D. TX. July 13, 2021).
[3] Blue Ox LLC et al. v. Midwest Mutual Family Insurance Co., No. 62-CV-20-3771 (Minn. 2d Dist. Ct. Jan. 29, 2021).
[4] Oral Surgeons P.C. v. The Cincinnati Insurance Co., 2 F.4th 1141 (8^th Cir. 2021).
[5] Blue Springs Dental Care, LLC, et al. v. Owners Insurance Co., 488 F.Supp.3d 867, 873 (W.D. Mo. 2020).
[6] Studio 417, Inc., et al. v. The Cincinnati Insurance Co., 478 F.Supp.3d 794, 801 (W.D. Mo. 2020).

In this edition of WIT AND WISDOM OF WINTHROP, our Employment Litigation Newsletter, we take a look at what’s happening in the news related to the Delta variant and CDC mask recommendations. We also review employment updates to COVID-19 vaccinations, the independent contractor rule, “anti-hacking” law, and non-compete agreements.

Click here to read the issue!

The long-awaited Assisted Living Facility Rules have at last been adopted by the Minnesota Department of Health.  Providers should immediately review the rules to ensure compliance, especially because the assisted living facility license application requires applicants to attest to having read and understood both Minnesota Statutes Chapter 245G and the newly approved Rules.

View the adopted rules in the Minnesota State Register Volume 46, Number 3.

The long-awaited Provider Relief Fund reporting portal is now open: https://prfreporting.hrsa.gov/s/.  Providers who received one or more provider relief fund payments exceeding $10,000 in the aggregate during Period 1 (from April 10, 2020 to June 30, 2020) have until September 30, 2021, to report on the use of those funds.  The deadline to use funds from Period 1 was June 30, 2021.  Last month, the U.S. Department of Health and Human Services (HHS), through the Health Resources and Services Administration (HRSA), released significantly updated reporting requirements. Providers are strongly encouraged to thoroughly review the updated guidance to understand the four new reporting periods, the use of funds deadlines, and the information required to be reported.  In addition, HRSA has also released several new resources to assist reporting providers:

• Data Entry Workbook,
• Reporting-specific FAQs, and
• Submitting Reporting Information user guide.

HHS continues to emphasize that detecting, combatting and deterring the fraudulent use of Provider Relief Fund distributions remains a high priority.  Maintaining complete and accurate records and complying with reporting and auditing requirements are key to avoiding future regulatory scrutiny.

Please contact our team to discuss questions or concerns.

Budget Work Continues in Special Session

The Legislature has been meeting in special session for two weeks. Twelve budget bills must be passed and signed into law by the end of the month in order to avoid a full or partial government shutdown. Of these, only five bills have been passed by both the House of Representatives and the Senate as of early this morning. None have yet been sent to Governor Tim Walz or signed into law.

Tax and Capital Investment Bills Also in Queue

Along with the dozen budget bills, the Legislature is also expected to pass bills related to tax expenditures and capital investments. Traditionally, these bills are the last to be passed in a given year. An agreement on the tax bill was previously announced, though some changes are still expected. It is yet to be determined whether the capital investment bill will simply include adjustments to previously-approved projects or be a more robust bill authorizing new projects.

Continue Working Through Weekend

In order to get the budget passed before the end the of month, the Legislature will be meeting in session this weekend. In fact, the House has three bills scheduled for the calendar on Saturday, in spite of the fact that language wasn’t public for most of these until the end of the business day on Thursday. The three bills scheduled for Saturday relate to education, health and human services and a small capital investment bill (new projects may be added).

Late Changes Still to Come

While agreements have been announced on all budget areas except for public safety, it should be noted that the agreements are not final. Changes have been announced to many of the bills following the announced agreement. It is expected that additional bills will be passed just before the special session ends that will encompass these later changes.

Shutdown Not Expected

When it was first determined that a special session would be needed to pass the state’s biennial budget, many hoped that the special session would last just a single day. That has proven to be wishful thinking, but legislative leaders continue to insist that the Legislature will finish its work by the end of the month, and avoid a state shutdown.

Special Session Begins, Peacetime Emergency Continues

The legislature began a special session on Monday, June 14, at noon. Special session was necessary for Governor Tim Walz to extend the state’s peacetime emergency due to COVID-19. As has happened numerous times since the peacetime emergency first began, House Republicans brought forward a resolution to terminate it. The resolution failed by a margin of 64-68.

Passage of Budget Begins

Four budget bills were on the agenda for the House of Representatives on Thursday: Commerce & Energy, Higher Education, Agriculture & Broadband, and Legacy Funding for outdoor and cultural heritage funds. More than 60 amendments were prepared to be offered to the bills, including 28 for the Commerce & Energy bill alone.

The first bill brought up in the House was the Commerce bill, Special Session H.F. 6. After more than twelve hours of discussion, a motion to re-refer the bill to committee was defeated, two amendments had been voted on and a third amendment was offered. At that point, as the clock was nearing midnight, the bill was laid on the table. The other three bills were also laid on the table.

Meanwhile, the Senate debated each of the four bills the House had on the calendar within a few hours, as they had expected the House to pass and send each of them over. Once the House passes the bills, the Senate will be able to officially pass them.

Public Allowed in Capitol

When session was gaveled in on Monday, it was the first time since March of 2020 that the public was able to be in the Capitol while the legislature was in session. Several activists held rallies, reminding everyone in attendance how much the building echoes. However, it was still difficult for the public to interact with elected officials, as the areas in front of the House and Senate Chambers were roped off to all but the elected officials and staff.

Additional Tentative Agreements Announced

Chairs for a few other committees announced that they had reached tentative agreements throughout the week. A bill on taxes has been introduced, and though it was scheduled for a hearing on Thursday, that hearing was postponed until Friday. Agreements on Workforce/Jobs, Housing and Transportation have also been announced, and details are slowly being made public.

While a number of bills are still being negotiated, there are a handful that are likely to have the most controversial details decided by House and Senate leadership, along with the Governor. Among these bills are Public Safety & Judiciary, State Government and Environment.

National Guard Asked to Prepare for Likely Call Up

Protests and unrest have continued in the Uptown area of Minneapolis following the shooting death of Winston Smith earlier this month. Protesters have blocked a road in this busy area, even after blockades had been removed by police, and a woman was killed when a driver intentionally drove into a group of protesters. Governor Walz has put the National Guard on notice that they are likely to be called up soon to help with the situation.

440 Days

The Minnesota State Capitol opened its doors to the public on Thursday for the first time since closing them last March due to the pandemic. Our client, The Minnesota Association of Resources for Recovery and Chemical Health (MARRCH) was the first advocacy group to hold a press conference in the building. MARRCH called on legislators to invest needed resources into treatment and recovery programs for those dealing with addiction.

Hearings!

The Higher Education working group, composed of senators and representatives who served on the conference committee, met on Wednesday to review the compromise budget bill that is expected to be passed in special session. A Commerce working group was expected to do the same, but had to cancel its meeting because the policy language was not finished being drafted. It is now scheduled to meet on Monday morning. Similar meetings are scheduled for the Legacy (today) and Agriculture/Broadband (Monday) working groups.

Tax Agreement

On Thursday, Brian Bakst of Minnesota Public Radio reported that legislative negotiators had wrapped up agreement on the tax bill. Leaders had previously announced that federal conformity on the Paycheck Protection Program (PPP) loan forgiveness and unemployment insurance would be included in the agreement. Yesterday, Speaker of the House Melissa Hortman (DFL-Brooklyn Park) stated that an extension of the historic tax credit was also part of the deal.

Speaking of Taxes, Revenues Way Up

The state collected 119% more general fund revenues than was projected in May, bringing in $3.306 billion in the month. Because tax filing deadlines were shifted from April to May, it was expected that revenues would exceed projections. Even accounting for this shift, receipts for the fiscal year are still 10.4% more ($2.17 billion) than projected. Unless a new official forecast is completed, which is not expected, excess revenues will not be available for the legislature to spend until the 2022 legislative session.

Special Session Monday, and Beyond

The legislature will be back for its first special session of 2021 on Monday, June 14, as Governor Tim Walz renews his emergency powers. Although he has indicated that he hopes the need for the peacetime emergency will come to an end, it is likely that the legislature will be back in July to repeat the exercise. Although legislative leaders had originally hoped that Monday’s special session would only last one day, the legislature is now expected to be in session until the budget is passed, which is expected to happen prior to July 1.

Budget Work Continues

Today marks the day that Governor Tim Walz and legislative leaders gave committees to finalize budget allocations for their respective jurisdictions. Capitol insiders are not surprised that many committees will miss today’s deadline. From the outset, several committee chairs privately indicated that they viewed the deadline as aspirational rather than a set deadline.

Can We See It?

Even committees that have completed their work aren’t making the information public. There are no committee meetings scheduled today (or in the next week), and there have only been two budget-related public meetings all week. It is likely that no documents related to the state’s budget will be made available to the public prior to private approvals by legislative leaders and the Governor.

Will It End?

Next Friday, June 4, is the deadline for policy decisions, and the legislature is still planning to meet in special session on June 14, when the Governor is expected to reauthorize his emergency powers. The most important date to remember is June 30. If the legislature doesn’t pass a budget prior to that date, the state will begin a shutdown. Expect that if committees are unable to find agreement that leadership will step in and make final decisions in order to avoid a shutdown.

Judicial Branch Opening

This week the state judicial branch released new guidance regarding COVID-19 safety requirements as a new statewide order expands in-person court proceedings. Changes take place beginning on June 14.

Statewide COVID Restrictions Lifted

Beginning today, nearly all statewide COVID-19 restrictions have been lifted. Capacity limits on indoor and outdoor spaces have been lifted, as well as most mask mandates. Masks are still required on public transportation, in certain jurisdictions (including the City of Minneapolis and the City of St. Paul), and certain businesses. This week, the state also announced a series of incentives for people to get vaccinated, ranging from free tickets to the State Fair to free drinks provided by breweries during on-site vaccination clinics.

A Budget Deal!

As expected, Minnesota’s regular legislative session ended on Monday without passage of the state’s next biennial budget. However, Governor Tim Walz and legislative leaders announced that day that they had reached a broad global agreement on the budget. The global agreement includes how funds will be allocated between different state agencies, how some of the $2.8 billion in federal American Rescue Plan funds will be used, and decisions on a few key policy details. Still to be determined are details within each agency budget on how the funds will be used, as well as most policy decisions, including some that have stymied House and Senate negotiators thus far. Committee chairs are tasked with leading these decisions.

What’s Included

Included in the agreement is the decision to fully conform to federal tax law regarding the Paycheck Protection Program loan forgiveness and unemployment benefits, meaning that businesses and individuals will not have to pay tax on these benefits. Additionally, leaders have committed to spending $70 million on broadband expansion.

Regarding the federal American Rescue Plan funding, the Governor will have a bucket of $500 million to use as he deems appropriate, while $550 million will be allocated for the legislature to spend in each of the next two biennia. The legislature will decide how to use the remaining $1.2 billion next year.

What’s Not Included

Described as a budget-only agreement, several key policy issues, including police reform and so-called “clean car” standards, are yet to be decided. During the regular session, the conference committees that have jurisdiction over these issues struggled to make any progress on negotiating either policy or budget issues due to lack of agreement on these policy issues.

Special Session Timeline

Leaders have given committees a Friday, May 28, deadline to adopt a spreadsheet detailing how the money allocated to the agency is to be spent. They provided an additional week for legislators to adopt policy provisions in committee, with decisions due by Friday, June 4. Staff would then have a full business week to prepare the formal bills for an anticipated special session on Monday, June 14.

House Republicans Unhappy

Several members of the Republican caucus in the House expressed dissatisfaction with the agreement. Minority Leader Kurt Daudt (R-Crown) told the StarTribune, “Who from the legislative branch would ever agree to let the governor spend $500 million on whatever he wanted should turn in their election certificates and find a new job.” It is rumored that the House Republicans will not agree to suspend the rules to pass bills for a one-day special session, which will force legislators to extend the session into several days.

Seventeen

With three days before the end of the regular legislative session and no global budget agreement on the horizon, only seventeen bills have passed both the House and Senate and been sent to Governor Tim Walz for his signature. In one such case, Winthrop lobbyists worked on behalf of a client to pass a bill that clarified the law regulating continuing education course provider activities. The Minnesota Department of Commerce issued an administrative bulletin in 2020 that strictly interpreted the law in such a way that upended traditional business models for continuing education course providers. The lobbying team successfully negotiated a compromise with the Department, which formed the foundation for the language of Senate File 1020, authored by Sen. Gary Dahms (R-Redwood Falls) and Rep. Ginny Klevorn (DFL-Plymouth). The bill passed the legislature overwhelmingly and was signed into law by the Governor.

May 10, 2021

This past Monday, Minnesota received long-awaited guidance on how federal funds passed under the American Rescue Plan can be used. Along with the guidance, the state was informed that it will receive approximately $200 million more than expected, bringing the total funds coming to the state to $2.8 billion (this does not include additional funds being sent directly to tribal, local and county governments). How to use these funds has been, and will continue to be, a significant part of the budget negotiations between legislative leaders and the Governor.

May 17, 2021

According to Minnesota’s state constitution, the regular legislative session must end by the first Monday following the third Saturday of May. This year, that date falls on May 17. In odd-numbered years, the focus of the legislature is to pass a biennial budget. At this point, there is still no “global agreement” between leadership, and the legislature will not be able to pass a budget prior to the end of regular session. There will be a special session.

June 14, 2021

If they are not already in a special session for the budget, Governor Walz is expected to call a special session on June 14, which is the date that the current peacetime emergency will expire.

June 30, 2021

If the legislature doesn’t pass a new budget by June 30, a state shutdown will begin on July 1. With Minnesotans’ love for state parks and the Fourth of July weekend, avoiding a shutdown is a huge priority for state leaders. In previous shutdowns, Minnesota courts deemed certain state services “essential,” and continued funding for them, but since then, the state Supreme Court ruled that the courts do not have this power, and if the legislature does not appropriate funds, there will be no funds, even for “essential” services.

BONUS UPDATES

Today — May 14, 2021

Following updated guidance released by the CDC yesterday, Minnesota’s mask mandate is lifted effective today. The state’s guidance allows local jurisdictions and businesses to continue requiring masks if they choose; Minneapolis and St. Paul are keeping their mandates in place, at least for now. Additionally, both students and staff are required to continue masking until the end of the current school year.

January 31, 2022

The Minnesota Legislature will reconvene next year on January 31, 2022.