Court Opinion

ID: 9499170
Source: CourtListenerOpinion
Date Created: 2023-08-05 17:39:42.596055+00
Date Added: 2024-06-11T17:59:19.483016
License: Public Domain

GRUENDER, Circuit Judge,
dissenting.
Because I conclude that Source Food suffered no “direct physical loss to Property” as required by the insurance policy, I respectfully dissent.
The Court states that coverage in 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), “was based not so much on the contamination as its effect: it rendered the products functionally impaired.” Ante at 997. However, even though coverage may have been triggered by functional impairment, the cause of the functional impairment of the oats and oat-based products in General Mills and the apartment buildings in Sentinel was the physical contamination consisting of unapproved pesticide in General Mills and asbestos fibers in Sentinel. The Minnesota Court of Appeals explained in Sentinel that “a building’s function may be seriously impaired or destroyed and the resulting property rendered useless by the presence of contaminants.” Sentinel, 563 N.W.2d at 300 (emphasis added). The beef product at issue in this case was rendered functionally impaired — it could not be transported across the border to Source Food’s facilities in Minnesota and distributed to customers in the United States— not by the presence of any physical damage or contaminants but by the order of the USDA.
Moreover, I do not find the Court’s attempt to distinguish Pentair, Inc. v. American Guarantee & Liability Insurance Co., 400 F.3d 613 (8th Cir.2005), to be persuasive. The argument made by the insured in Pentair that the loss of function of the factories constituted “direct physical loss of or damage to property” under Minnesota law is very similar to the argument advanced by Source Food. See id. at 616. The Pentair Court rejected the position of the insured, explaining that in Sentinel and General Mills, the “insured property was physically contaminated — a building by the release of asbestos fibers in Sentinel, and grain by application of an unap*999proved pesticide in General Mills.” Id. Although the Court noted that “[o]nce physical loss or damage is established, loss of use or function is certainly relevant in determining the amount of loss, particularly a business interruption loss,” it refused to adopt the position that “direct physical loss or damage is established whenever property cannot be used for its intended purpose.” Id. Source Food concedes that the truckload of beef product was not physically damaged or contaminated in any manner, and I would hold, consistent with Pentair, that mere loss of function does not constitute “direct physical loss to Property.”
Applying the insurance contract as written, in my opinion, is not a hypertechnical approach. See Ill. Farmers Ins. Co. v. Glass Serv. Co., 683 N.W.2d 792, 799 (Minn.2004) (“When the language of an insurance contract is unambiguous, we interpret that language in accordance with its plain and ordinary meaning.”). To characterize Source Food’s inability, due to a government order, to transport its truckload of beef product across the border and sell the beef product in the United States as “direct physical loss to Property” would render the word “physical” meaningless. I also note that the Court’s analysis either ignores the policy’s use of the word “to” in the policy language “direct physical loss to Property” or substitutes the word “of’ for “to,” as in “direct physical loss of property” or even “direct loss of property,” which are not phrases found in the policy. I find that the policy’s use of the words “to property” further undermines the Court’s conclusion that functional impairment of the beef product due to a border closing triggers insurance coverage under this insurance policy.
Even if I were willing to characterize the loss of intended function of this single truckload of beef product as “direct physical loss to Property,” I would still hold that Source Food is not entitled to coverage based on the business interruption provision of this insurance policy. That provision of the policy covers the “actual loss of ‘business income’ you sustain due to the necessary suspension of your ‘operations’ during the ‘period of restoration.’ The suspension must be caused by direct physical loss to Property ____” USFG Add. at 16 (emphasis added). Source Food’s business was effectively halted until it could find a new supplier in the United States, and its insurance claim sought damages for extraordinary operating expenses, loss of profits based on the early termination of its contract with a primary customer, and the cost of obtaining beef product from an alternative supplier. USFG Appendix at 184. However, as of the date of the embargo, the only beef product that Source Food had actually purchased from its Canadian supplier that it could not transport across the border was one truckload of manufactured and packaged beef product. It was not the inability to ship this single truckload into the United States that shut down Source Food’s business. Rather, the closure of the border to Canadian beef over a period of time was the cause of the suspension of Source Food’s business, until Source Food could find a domestic supplier.
Because the truckload of beef product was not physically damaged or contaminated in any manner, I would hold that Source Food cannot recover the loss of business income resulting from the embargo on Canadian beef under an insurance policy provision requiring a suspension of operations caused by “direct physical loss to Property.” I would affirm the judgment of the district court.