974 N.W.2d 442
Wis.2022Background
- Colectivo Coffee Roasters and several bars/restaurants purchased a Society Insurance property policy in early 2020 that covered "direct physical loss of or damage to" property and, when triggered, business-income and extra-expense losses; the policy also included contamination and civil-authority coverages.
- In March 2020 Wisconsin DHS Emergency Orders prohibited in-person dining (allowing takeout/delivery in many cases); plaintiffs lost income from complying with those orders or because local law barred carryout sales.
- Colectivo submitted an insurance claim for business-interruption losses; Society denied coverage, asserting no "direct physical loss or damage" to property.
- Colectivo sued for declaratory relief and breach of contract; the circuit court denied Society's motion to dismiss; Society appealed directly to the Wisconsin Supreme Court via bypass.
- The Supreme Court reversed: it held that neither the alleged presence of COVID-19 on premises nor government orders restricting in-person dining amounted to "direct physical loss of or damage to" property, and the contamination clause did not apply.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether inability to use dining space due to COVID-19 and government orders constitutes a "direct physical loss of or damage to" property triggering business-income and extra-expense coverage | Presence of virus or orders made premises unsafe or unusable, causing a direct physical loss of the dining area | Temporary loss of use or access is not a "direct physical loss or damage" because property’s tangible characteristics were not altered and no repair/replacement was required | No — loss of use from restrictions or the virus does not meet the policy's requirement of physical loss or damage |
| Whether a government civil-authority order barring access triggered civil-authority coverage | Palm’s emergency orders prohibited public access and thus triggered civil-authority coverage | Orders restricted use but did not prohibit access or stem from physical damage to surrounding property required by the provision | No — orders did not prohibit access and plaintiffs identified no physical damage to surrounding property |
| Whether the contamination provision covers suspensions caused by the presence of COVID-19 | Presence of COVID-19 particles created a "dangerous condition" (contamination) and government action responding to it barred access/production, so coverage applies | Plaintiffs suspended operations due to orders (not direct contamination); orders did not prohibit access or production as required by the clause | No — plaintiffs conceded suspension was due to orders, orders did not prohibit access or production, so contamination provision was not triggered |
Key Cases Cited
- RTE Corp. v. Md. Cas. Co., 74 Wis. 2d 614, 247 N.W.2d 171 (Wis. 1976) (defines physical "loss" as destruction or irreparable harm requiring replacement)
- Wis. Label Corp. v. Northbrook Prop. & Cas. Ins. Co., 233 Wis. 2d 314, 607 N.W.2d 276 (Wis. 2000) (distinguishes physical damage from non-tangible defects where tangible characteristics unchanged)
- Am. Fam. Mut. Ins. Co. v. Am. Girl, Inc., 268 Wis. 2d 16, 673 N.W.2d 65 (Wis. 2004) (insurance policy interpretation is a question of law reviewed de novo; give effect to parties' intent)
- Day v. Allstate Indem. Co., 332 Wis. 2d 571, 798 N.W.2d 199 (Wis. 2011) (policy terms must be read in the context of the policy as a whole)
- Sandy Point Dental PC v. Cincinnati Ins. Co., 20 F.4th 327 (7th Cir. 2021) (presence of COVID-19 does not constitute physical loss because it does not alter tangible property characteristics)
- Advance Cable Co., LLC v. Cincinnati Ins. Co., 788 F.3d 743 (7th Cir. 2015) (physical damage requires a change to the tangible characteristics of property)
- In re Soc'y Ins. Co. COVID-19 Bus. Interruption Prot. Ins. Litig., 521 F. Supp. 3d 729 (N.D. Ill. 2021) (district court reached opposite conclusion, treating loss of use as physical loss; discussed and rejected by Wisconsin Supreme Court)
- 10E, LLC v. Travelers Indem. Co. of Conn., 483 F. Supp. 3d 828 (C.D. Cal. 2020) (dining restrictions interfered with use/value but did not allege direct physical loss or damage)