This article is a follow up to one I wrote on August 10, 2020 relating to potential insurance coverage for business losses due to the government shutdowns and restrictions for in-person dining during the COVID-19 pandemic. The first lawsuit on this issue was filed nearly two years ago.
One case finally made its way to the Wisconsin Supreme Court, and on June 1, 2022, the Court unanimously held that Society Insurance Company did not have to provide coverage for business interruption losses claimed by restaurants and bars due to government shutdowns and restrictions imposed on in-person dining. This case is Colectivo Coffee Roasters, Inc. v. Society Insurance, 2021AP463 (June 1, 2022).
In this lawsuit, the plaintiff and other bars and restaurants experienced substantial losses as a result of the COVID-19 pandemic and related government restrictions on in-person dining. The Supreme Court addressed the specific issue of whether those losses are covered by a property insurance policy issued by Society Insurance. Specifically, the questions are: (1) Whether a bar or restaurant’s inability to use its dining space for in-person dining because of the pandemic and related government restrictions constitutes a direct physical loss of or damage to its property under Society’s policy; and (2) Whether the presence of COVID-19 on a bar or restaurant’s property caused the bar or restaurant to suspend its operations, thereby entitling it to coverage under the policy’s contamination provision. The Supreme Court concluded that the answer to both questions is no, and ruled against the bars and restaurants.
The Wisconsin Supreme Court followed the majority of courts nationwide in holding that the presence of COVID-19 does not constitute a physical loss of or damage to property because it does not “alter the appearance, shape, color, structure, or other material dimensions of the property.” The Court held that although the restaurants could not use their dining room for in-person dining for a period of time, “the dining room was still there, unharmed and it was not physically lost or damaged. Without such a harm, the policy’s business income and extra expense provisions do not apply.”
With respect to the civil authority provisions of the insurance policy, which the restaurant argued should apply based upon the government’s imposed shutdown, the Court ruled that the restaurant did not identify any physical loss or damage to its property or surrounding property such that the business income or extra expense coverage should apply.
Finally, the Court affirmed the ruling of no coverage under the contamination provision of the policy for three reasons. (1) The restaurant did not suspend its operations due to the presence of COVID-19, but did so based upon the Governor’s orders. (2) The Governor’s orders did not prohibit access to the restaurant’s property - they restricted how the property could be used. (3) The Governor’s orders did not prohibit the restaurant from producing its products - they prevented it only from serving its products for in-person dining.
This ruling by the Wisconsin Supreme Court marks a trend among state Supreme Courts in finding no business interruption coverage for alleged COVID-19 related losses, and also follows the well-established nationwide trend in the federal courts denying insurance coverage for these claims.