Olmsted Medical Center v. Continental Casualty Company

United States Court of Appeals
For the Eighth Circuit
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No. 22-1256
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Olmsted Medical Center
Plaintiff - Appellant
v.
Continental Casualty Company
Defendant - Appellee
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Appeal from United States District Court
for the District of Minnesota
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Submitted: October 18, 2022
Filed: April 26, 2023
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Before LOKEN, GRUENDER, and GRASZ, Circuit Judges.
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GRASZ, Circuit Judge.
This case presents the question of whether allegations of the presence of the
virus that causes COVID-19, combined with compliance with the related health-and-
safety regulations and executive orders, is sufficient to state a claim for a “physical

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loss” of property under an insurance policy governed by Minnesota law. The district
court1 held that such allegations were insufficient. We affirm.
I. Background
Olmsted Medical Center (“Olmsted”) provides preventive, primary, and
specialty healthcare in southeastern Minnesota. Olmsted purchased a business
property insurance policy from Continental Casualty Company (“Continental”) for
the period from January 1, 2020 to January 1, 2021. The “Coverage” section of the
policy states that it “insures against risks of direct physical loss of or damage to
property and/or interests described herein at” Olmsted’s premises.
In March 2020, Minnesota Governor Tim Walz issued Executive Order 20-01,
declaring a peacetime emergency due to the threat posed by the COVID-19
pandemic. Later that month, Governor Walz issued Executive Order 20-09, which
ordered non-essential or elective surgeries and procedures that used personal
protective equipment or ventilators to be indefinitely postponed. Olmsted estimates
sixty percent of the surgeries or procedures performed at its locations are non-
essential or elective and that it suffered losses in excess of $19 million due to
COVID-19 and Executive Order 20-09.
In May 2020, Olmsted submitted a claim for losses it sustained due to the
COVID-19 pandemic under the insurance policy it held with Continental.
Continental denied the claim two days later. Olmsted filed suit in Minnesota state
court, alleging Continental breached the insurance contract when it refused to pay
the claim. Olmsted requested damages and declaratory relief. Continental removed
the action to federal court based on diversity jurisdiction, and Olmsted filed an
amended complaint with the same causes of action.
1 The Honorable Michael J. Davis, United States District Judge for the District
of Minnesota.

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In the amended complaint, Olmsted alleged that the “SARS-CoV-2 virus was
physically present” at its premises; that there were confirmed COVID-19 cases
within the facility starting in July 2020;2 and that from the spring of 2020 through
June 2021, at least 129 Olmsted employees, eighty-two patients, and thirty-six
individuals in the facility tested positive for COVID-19. In addition, Olmsted
alleged that COVID-19 was “pervasive” in the community, with 4,800 community
members testing positive for COVID-19 at Olmsted’s community testing site, which
was near its location, during the same time period.
Olmsted also alleged “SARS-CoV-2 can live on surfaces and materials
anywhere from a few hours to multiple days.” In addition, “[i]f any contaminated
spot is missed during routine cleaning procedures, the virus will continue to survive
and possibly spread until it is contained.” Olmsted alleged it canceled or postponed
about fifty percent of its surgeries and procedures, and that “patients who previously
schedule[d] non-essential or elective surgeries and procedures” and those who
wanted to, could not be treated at Olmsted. Olmsted alleged these cancellations and
postponements were “a result of the existence of COVID-19 and the attendant
SARS-CoV-2 virus, Executive Order 20-09, and the required quarantine and
isolation protocols.” In Olmsted’s view, “[b]ecause of the pervasive nature of the
positive tests, it would have been impossible for Olmsted Medical to continuously
clean and disinfect the facility in order to safely allow all of these procedures to
occur.”
There are four provisions of the property insurance policy that are relevant to
this appeal. They are the business-interruption, contingent-business interruption,
civil-authority, and ingress-egress provisions. The business-interruption provision
“covers against loss resulting from necessary interruption of business caused by
direct physical loss of or damage to covered property . . . .” The contingent-business
interruption provision covers loss “resulting from necessary interruption of business
2 We acknowledge Olmsted’s appellate brief noted an exhibit attached to the
amended complaint showing the first confirmed case of COVID-19 at Olmsted may
have been as early as May 25, 2020.

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conducted by the Insured at [Olmsted’s premises], caused by perils insured against
that result in direct physical loss or damage to” the property of certain specified third
parties. The civil-authority provision covers losses “during the period of time while
access to [Olmsted’s premises] is prohibited by order of civil authority, but only
when such order is given as a direct result of physical loss or damage to property . . .
occurring at or in the immediate vicinity of” Olmsted’s premises. The ingress-egress
provision covers losses “during the period of time when as a direct result of physical
loss or damage to property . . . ingress to or egress from [Olmsted’s premises] is
thereby physically prevented.”
After Olmsted filed its amended complaint, Continental filed a motion to
dismiss. Continental argued, among other things, that Olmsted’s allegations did not
implicate a “direct physical loss of or damage to” property; therefore, its claim for
coverage did not fall within the policy’s language under any of the above provisions.
The district court agreed, as do we.
II. Analysis
We review the district court’s decision to grant a Rule 12(b)(6) motion to
dismiss de novo. Rock Dental Ark. PLLC v. Cincinnati Ins. Co., 40 F.4th 868, 870
(8th Cir. 2022). “To survive a motion to dismiss, a complaint must contain sufficient
factual matter, accepted as true, to ‘state a claim to relief that is plausible on its
face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 570 (2007)). A claim is plausible on its face “when the
plaintiff pleads factual content that allows the court to draw the reasonable inference
that the defendant is liable for the misconduct alleged.” Id.
“Because we are a federal court sitting in diversity, we apply the substantive
law of the forum state.” Chew v. Am. Greetings Corp., 754 F.3d 632, 635 (8th Cir.
2014). When applying the substantive law of the forum state, we must follow
decisions of the state’s supreme court interpreting the forum’s law. See Brill as Tr.
for Brill v. Mid-Century Ins. Co., 965 F.3d 656, 659 (8th Cir. 2020). However, if a

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state’s supreme court “has not spoken on an issue, we must predict how it would
decide the issue.” Id. To make this prediction, we “may consider relevant state
precedent, analogous decisions, considered dicta . . . and any other reliable data.”
Id. (quoting Integrity Floorcovering, Inc. v. Broan-Nutone, LLC, 521 F.3d 914, 917
(8th Cir. 2008)). The parties agree Minnesota law governs this case.
Olmsted alleges Continental breached the insurance contract by failing to pay
Olmsted’s claim. In Minnesota, “[i]nterpretation of an insurance policy, and
whether a policy provides coverage in a particular situation, are questions of law that
we review de novo.” Depositors Ins. Co. v. Dollansky, 919 N.W.2d 684, 687 (Minn.
2018) (quoting Eng’g & Constr. Innovations, Inc. v. L.H. Bolduc Co., 825 N.W.2d
695, 704 (Minn. 2013)). In addition, “the insured bears the initial burden of
demonstrating coverage” under the policy. Midwest Fam. Mut. Ins. Co. v. Wolters,
831 N.W.2d 628, 636 (Minn. 2013) (quoting Travelers Indem. Co. v. Bloomington
Steel & Supply Co., 718 N.W.2d 888, 894 (Minn. 2006)).
Minnesota courts “interpret insurance policies using the general principles of
contract law.” Id. To “determine whether an insurance policy provides coverage”
under Minnesota law, we begin “by looking at the language of the insurance policy
itself.” Dollansky, 919 N.W.2d at 691. The goal is to “ascertain and give effect to
the intentions of the parties as reflected in the terms of the insuring contract.”
Wolters, 831 N.W.2d at 636 (quoting Jenoff, Inc. v. N.H. Ins. Co., 558 N.W.2d 260,
262 (Minn. 1997)). “Provisions in an insurance policy are to be interpreted
according to both plain, ordinary sense and what a reasonable person in the position
of the insured would have understood the words to mean.” Id. (internal quotation
marks omitted).
Olmsted’s claim for insurance coverage stems from policy language covering
certain losses caused by “direct physical loss of or damage to covered property.”
We have previously held under Minnesota law that “loss of use or function” alone
is not sufficient to establish “direct physical loss or damage.” See Pentair, Inc. v.
Am. Guarantee & Liab. Ins. Co., 400 F.3d 613, 616 (8th Cir. 2005). In Pentair, we

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considered whether a factory that experienced electrical power outages had suffered
“direct physical loss or damage.” The district court found the plaintiff did not “prove
coverage because the power outages caused no injury to the Taiwanese factories
other than a shutdown of manufacturing operations.” Id. On appeal, the plaintiff
argued the “inability to function after the loss of power” satisfied the policy’s
language. Id. We disagreed because accepting the argument would lead to the
conclusion that “direct physical loss or damage is established whenever property
cannot be used for its intended purpose.” Id. We did not believe the Minnesota
Supreme Court would endorse such a broad reading of its caselaw. See id. (citing
Marshall Produce Co. v. St. Paul Fire & Marine Ins. Co., 98 N.W.2d 280, 297
(Minn. 1959), and Rest Assured, Inc. v. Am. Motorist Ins. Co., No. C9-98-2302, 1999
WL 431112 (Minn. Ct. App. June 29, 1999) (unpublished)). We held that, “although
electric power has a ‘physical’ element, the district court’s construction [was]
consistent with the plain language of . . . the policy.” Pentair, 400 F.3d at 616.
Our decision in Pentair recently played a role in a case similar to this one,
albeit under Iowa law. In Oral Surgeons, P.C. v. Cincinnati Insurance Co., 2 F.4th
1141, 1143 (8th Cir. 2021), we considered language in an insurance contract that
covered “accidental physical loss or accidental physical damage.” We reiterated our
Pentair conclusion that the adjective “physical” meant the policy could not
“reasonably be interpreted to cover mere loss of use when the insured’s property has
suffered no physical loss or damage.” Id. at 1144 (citing Pentair, 400 F.3d at 616).
In other words, “there must be some physicality to the loss or damage of property—
e.g., a physical alteration, physical contamination, or physical destruction.” Id. We
concluded that when the insured had “pleaded generally that [it] suspended non-
emergency procedures due to the COVID-19 pandemic and the related government-
imposed restrictions,” it had not pleaded the physical alteration necessary to support
a physical loss or physical damage, “regardless of the precise definitions of the terms
‘loss’ or ‘damage.’” Id. at 1145.
Olmsted’s theory relies on the idea that a “physical contamination” can satisfy
the “physicality” requirement we described in Oral Surgeons. Olmsted argues it has

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suffered a “physical loss” because its property was contaminated by SARS-CoV-2
and it complied with the physical distancing, quarantining, and isolation regulations
imposed by the governor’s executive order. It is true that some forms of physical
contamination may support a finding of “direct physical loss.” See Torgerson
Props., Inc. v. Cont’l Cas. Co., 38 F.4th 4, 6 (8th Cir. 2022) (“Contamination . . . is
a direct physical loss; blanket shutdown orders are not.”). But neither we nor the
Minnesota Supreme Court have ever held SARS-CoV-2 is the kind of contaminant
that results in a “direct physical loss.” See Lindenwood Female Coll. v. Zurich Am.
Ins. Co., 61 F.4th 572, 574 (8th Cir. 2023) (observing, “we have not held that
allegations of the virus’s presence, standing alone, satisfy the Oral Surgeons
standard”). We reach that question today, make the appropriate “Erie-educated
guess,” Blankenship v. USA Truck, Inc., 601 F.3d 852, 856 (8th Cir. 2010), and hold
that it is not.
As we indicated in Oral Surgeons, a plaintiff must allege a “physicality” to
the loss. See 2 F.4th at 1145. Even if we assume some forms of contamination may
have a physical effect on property to support a finding of “physical loss,” Olmsted
has not alleged SARS-CoV-2 had any effect on its property. Olmsted acknowledged
in its complaint that, while SARS-CoV-2 can live on surfaces, contaminated
property will return to a non-contaminated state with no intervention because the
virus may die on its own in as little as a few hours. This is consistent with the district
court’s observation that the virus can also be eliminated by “routine cleaning
procedures” and disinfectant. In the end, although SARS-CoV-2 may have a
“physical” element, see Pentair, 400 F.3d at 616, it does not have a physical effect
on real or personal property. See Verveine Corp. v. Strathmore Ins. Co., 184 N.E.3d
1266, 1275 (Mass. 2022) (“[T]he question is not whether the virus is physical, but
rather if it has direct physical effect on property that can be fairly characterized as
“loss or damage.”). Admittedly, the presence of SARS-CoV-2 may ultimately result
in a loss of use because of the danger the virus poses to human health, but we have
already found mere loss of use is not a “direct physical loss” in this type of insurance
policy under Minnesota law. See Pentair, 400 F.3d at 616.

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To defend its complaint, Olmsted first turns to three Minnesota cases:
Marshall Produce Co. v. St. Paul Fire and Marine Insurance Co., 98 N.W.2d 280
(Minn. 1959); General Mills, Inc. v. Gold Medal Insurance Co., 622 N.W.2d 147
(Minn. Ct. App. 2001); and Sentinel Management Co. v. New Hampshire Insurance
Co., 563 N.W.2d 296 (Minn. Ct. App. 1997). Olmsted argues that these cases show
Minnesota has broadly interpreted “direct physical loss” and “direct physical
damage.” These cases do not alter our conclusion.
We begin with Marshall Produce because decisions by the Minnesota
Supreme Court are binding. See Mid-Century Ins., 965 F.3d at 659. In Marshall
Produce, the Minnesota Supreme Court considered policies that insured property
“against all loss or damage by fire.” 98 N.W.2d at 285 (emphasis omitted). Certain
food products stored in the plaintiff’s facility were exposed to smoke from a nearby
fire. Id. at 285–86. The government—the party that had previously contracted to
purchase the food products—subsequently rejected them under its purchase contract
which required the facility to be free of “smoke-laden air.” Id. at 284–86 (emphasis
omitted). The court addressed the question of whether a loss in value would sustain
a finding of “loss or damage” when there was no physical damage to the merchandise
itself. Id. at 287. The court held, “[i]t was not necessary that plaintiff’s merchandise
be intrinsically damaged so long as its value was impaired . . . .” Id. at 293.
Marshall Produce provides little guidance for interpreting the insurance
contract in this case because the language of the policies is markedly different. In
Marshall Produce, the Minnesota Supreme Court considered whether “all loss or
damage” required physical damage to the merchandise. Here, the policy states that
it covers “direct physical loss of or damage to covered property.” The explicit
requirement that the loss be “physical” demonstrates the contract language in this
case means something different than the contract in Marshall Produce. Cf. Source
Food Tech., Inc. v. U.S. Fid. & Guar. Co., 465 F.3d 834, 837 (8th Cir. 2006)
(distinguishing Marshall Produce on the grounds that the policy covered “all loss or
damage by fire,” and the relevant policy covered only “direct physical loss to
property”). And as we have previously observed, nothing in Marshall Produce

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suggests the Minnesota Supreme Court would endorse the mere loss of use as a
“physical loss.” Pentair, 400 F.3d at 616.
Next, we turn to General Mills and Sentinel Management—more recent cases
decided by the Minnesota Court of Appeals. Although decisions by a state’s
intermediate court are not binding on us, they are not without value. “[W]e follow
decisions of the intermediate state court when they are the best evidence of
[Minnesota] law.” Spagna v. Phi Kappa Psi, Inc., 30 F.4th 710, 716 (8th Cir. 2022)
(quoting Netherlands Ins. v. Main St. Ingredients, LLC, 745 F.3d 909, 913 (8th Cir.
2014)). Neither General Mills nor Sentinel Management persuade us the Minnesota
Supreme Court would conclude the presence of SARS-CoV-2 constitutes a “direct
physical loss” of property.
The Minnesota Court of Appeals concluded in these cases that “direct physical
loss” extended to certain contaminants. In General Mills, the Minnesota Court of
Appeals considered whether the policy applied when oats were treated with a non-
FDA approved pesticide, all machinery “had to be disassembled, cleaned, and
reassembled” to remove the traces of the unapproved pesticide, and all products
contaminated by the unapproved pesticide were discarded because they were
“adulterated” under FDA regulations. 622 N.W.2d at 150–51. In Sentinel
Management, the Minnesota Court of Appeals considered whether the policy applied
when a building contained released asbestos fibers, which is a known carcinogen.
563 N.W.2d at 298. While released asbestos fibers could be removed from surfaces,
it appears that “abrasions from normal residential and building maintenance
activities” would continue to cause asbestos fibers to be released until the asbestos-
containing materials were replaced. See id.
General Mills and Sentinel Management are distinguishable from the present
case. These cases dealt with forms of contamination that were permanent absent
some intervention. Furthermore, they are more accurately described as fitting into
the category of cases involving “property that became practically useless for
anything.” Santo’s Italian Café LLC v. Acuity Ins. Co., 15 F.4th 398, 404–05 (6th

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Cir. 2021) (collecting cases); see also Source Food, 465 F.3d at 837 (observing that
the product in General Mills was “rendered . . . unusable”). Indeed, in Sentinel
Management, the court suggested the standard “direct physical loss” to property may
be met when “a building’s function [is] seriously impaired or destroyed and the
property rendered useless by the presence of contaminants.” 563 N.W.2d at 300.
Rather than being permanent, a SARS-CoV-2 contamination is surface-level,
removed with relative ease, and will dissipate on its own in a matter of days, if not
sooner. And although Olmsted had to cancel or postpone elective and non-essential
surgeries and procedures, Olmsted continued to function as a healthcare provider
throughout the COVID-19 pandemic.
Olmsted’s second argument is that a conclusion in its favor is compelled by
the distinction between physical loss “of” property and physical loss “to” property.
To support this claim, Olmsted points to our decision in Source Food. In that case,
we decided whether there was a “direct physical loss to Property” under an insurance
contract governed by Minnesota law. Source Food, 465 F.3d at 835–36 (emphasis
omitted). We held the policy language was not satisfied when the plaintiff’s
uncontaminated beef product could not be shipped across the United States and
Canada border due to a United States Department of Agriculture embargo. Id. at
838. We further explained the plaintiff’s “argument might be stronger if the policy’s
language included the word ‘of’ rather than ‘to,’ as in ‘direct physical loss of
property’ or even ‘direct loss of property.’” Id.
In spite of that observation in Source Food, we are not persuaded by
Olmsted’s reliance on the distinction between “of” and “to” in this case. The
Minnesota Supreme Court has rejected “a process of dissection” in contract
interpretation, and instead opts for “a process of synthesis in which the words and
phrases are given a meaning in accordance with the obvious purpose of the contract
as a whole.” Motorsports Racing Plus, Inc. v. Arctic Cat Sales, Inc., 666 N.W.2d
320, 324 (Minn. 2003) (cleaned up). Reading the contract as a whole closes the door
on Olmsted’s argument.

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The only policy provision Olmsted relies on that has the word “of” is the
business-interruption provision. That provision uses the phrase “direct physical loss
of or damage to” property, while the other relevant provisions use the phrase “direct
physical loss or damage to” property. (Emphasis added). The business-interruption
provision, however, expressly limits coverage to the “length of time as would be
required . . . to rebuild, repair or replace” the affected property. Due to the fact
SARS-CoV-2 does not have an effect on the underlying property, we do not see how
to square Olmsted’s broader interpretation of the provision with the express time
limitation. See Oral Surgeons, 2 F.4th at 1144 (“That the policy provides coverage
until property ‘should be repaired, rebuilt or replaced’ or until business resumes
elsewhere assumes physical alteration of the property, not mere loss of use.”).
For all the reasons explained above, Olmsted’s claims for breach of contract
and declaratory judgment do not state claims for relief that are plausible, and the
district court correctly dismissed Olmsted’s complaint.
III. Conclusion
The judgment of the district court is affirmed.
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