Wisconsin rules insurance does not cover business losses from Covid-19

On June 1, 2022, the Wisconsin Supreme Court unanimously found that the plaintiffs – a group of bars and restaurants led by named plaintiff Colectivo Coffee – had no insurance coverage for the financial losses that they had suffered as a result of the COVID-19 shutdown. This is the first decision on COVID coverage issued by our Supreme Court.

Colectivo and the group of various bars and restaurants united in the action sought coverage under property insurance policies they had received from Society Insurance. They claimed that COVID-19 particles and the government shutdown order issued in March 2020 caused loss of use of their premises and loss of business revenue. The company denied the claim, and Colectivo and the company sued. The company decided to dismiss the lawsuit, but a Milwaukee County trial court dismissed the motion, finding the allegations made were sufficient to state a claim and raise a coverage issue under the policy. The company appealed directly to the Wisconsin Supreme Court.

The issues on appeal were: (1) whether a bar or restaurant’s inability to use its dining space for in-person dining due to the pandemic and related government restrictions constitutes a direct physical loss or damage to its property and (2) whether the presence of COVID-19 on a bar’s or restaurant’s property has caused the bar or restaurant to suspend operations, thereby entitling it to coverage under of the police contamination provision.

The Supreme Court determined that neither COVID particles nor government restrictions caused “direct physical loss or damage” to covered property. To be a loss, Company policy required that certain property be physically damaged or destroyed, not just prohibited from use. Here, none of the restaurants or bars suffered any damage or damage to their physical space and no repairs were required. Essentially, the Court concluded that a financial loss is not a physical loss. The court noted that this was the opinion of the “overwhelming majority” of other courts across the country that have considered the issue.

On the second question, Colectivo argued that the policy covered “contamination”, which the policy defined as an “unsafe condition in your products, goods and premises”, which “results in an action by a public health authority or government that prohibits ownership or production of the product. Here, the Court held that it was not contamination with COVID particles that prohibited access; rather, it was a government order restricting that access. The Court acknowledged that bars and restaurants reopened after the state’s order was overturned later in 2020. Since COVID particle contamination was not the actual cause of the loss, the contamination provision was not triggered.

Many businesses have suffered during the COVID pandemic, and in many cases the financial impact has not only been significant, but it is continuing. Unfortunately, this recent decision may preclude the use of traditional property insurance as a viable option to recover or even offset these losses. However, contrary to the Wisconsin Supreme Court’s assessment, many other jurisdictions have either ruled in favor of insurance coverage in similar situations, or dismissed requests for early dismissal in favor of contested litigation ( as the trial court originally did here). Contradictory results generate fair legal questions and ambiguities favor the policyholder. So COVID insurance coverage may not be completely dead in the water.

It should be noted that insurance is not the whole story. Many businesses have entered the Paycheck Protection Program for relief. Other companies have turned to contractual protections, such as a force majeure clause, to mitigate the damage caused by the pandemic. Some companies have requested a reduction in commercial rents based on the provisions of their lease agreement. Of course, unfortunately, many businesses could not survive and had to close their doors, but then bankruptcy protections became available.

© 2022 Davis|Kuelthau, sc All rights reservedNational Law Review, Volume XII, Number 154

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