A federal district court has refused to dismiss COVID-19 business interruption litigation filed by an Ann Arbor, Michigan, hair salon, despite its policy’s virus exclusion, because of its communicable disease coverage.

Salon XL Color & Design Group LLC, which was forced to close because of Michigan Gov. Gretchen Whitmer’s executive orders, had a commercial property policy with West Bend, Wisconsin-based West Bend Mutual Insurance Co., according to Thursday’s ruling by the U.S. District Court in Detroit in Salon XL Color & Design Group, LLC v. West Bend Mutual Insurance Co.

“Salon XL has plausibly alleged that the COVID-19 particles have infected their property, exposed their staff and patrons, and therefore Salon XL ‘has been unable to use its property for its intended purpose,’” said the ruling in citing the salon’s amended complaint.

“This is enough to survive a motion to dismiss when the Policy states that it will cover ‘direct physical loss or damage’ that does not define ‘loss’ or ‘damage’ to exclude loss of use,” it said.

“The terms ‘damage’ and ‘loss’ in this contract is ambiguous and ambiguities in an insurance contract are construed in favor of the insured,” it said.

“West Bend’s arguments over the interpretations of these commonly used words seek to impose additional pleading requirements or raise issues more appropriately resolved at the summary judgment stage.”

The salon’s amended complaint said West Bend’s policy “expressly provides coverage for business losses resulting from temporary shutdown by government order due to a ‘communicable disease.’”

The court agreed with West Bend that the coverage’s virus exclusion excluded coverage, but cited the communicable disease provision.

The “Virus and Bacteria Exclusion and the consequential losses Exclusion precludes coverage under the Business Income, Extra Expense and civil authority coverages. Salon XL’s claim under the Communicable Diseases coverage survives this motion to dismiss,” it said.

West Bend’s attorney had no comment while the salon’s attorneys did not respond to a request for comment.

In December, a federal district court in California refused to dismiss COVID-19-related coverage litigation filed by a preschool against a Markel Corp. unit, based on a communicable disease endorsement in its coverage.

More insurance and risk management news on the coronavirus crisis here.