620 F.Supp.3d 811
E.D. Wis.2022Background:
- Froedtert Health (and affiliates) operate a Milwaukee-area healthcare network and allege over $85 million in COVID-19-related expenses and losses during the July 1, 2019–July 1, 2020 policy period.
- Froedtert purchased an all‑risks property policy from Factory Mutual that includes Communicable Disease Response and Interruption by Communicable Disease coverages, each with a $1 million aggregate sublimit, and other coverages conditioned on "physical loss or damage."
- The policy contains a contamination exclusion defining "contamination" to include the actual or suspected presence of any virus, and also excludes loss of use.
- Factory Mutual accepted coverage only under the Communicable Disease provisions and paid the $1 million sublimit; Froedtert sued seeking broader declaratory and breach relief plus bad‑faith damages.
- Factory Mutual moved to dismiss under Rule 12(b)(6); the court applied Wisconsin contract/insurance law and governing pleading standards.
- The court dismissed all claims, holding Froedtert failed to plausibly allege "physical loss or damage" from COVID‑19 and that, even if it had, the contamination exclusion barred coverage; the bad‑faith claim also failed.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether COVID‑19 presence constitutes "physical loss or damage" under the policy | Froedtert: microscopic virus on surfaces/air physically compromises property and thus causes physical loss/damage | Factory Mutual: policy language requires tangible alteration; COVID‑19 does not alter appearance, shape, color, structure, or other material dimensions | Court: COVID‑19 presence does not plausibly constitute physical loss/damage; claim fails (following controlling precedent) |
| Whether Communicable Disease provisions create coverage for communicable‑disease loss independent of "physical damage" language | Froedtert: prefatory policy language and existence of communicable‑disease provisions show parties intended coverage for disease‑related losses | Factory Mutual: those provisions do not state disease causes physical loss; they are limited and subject to sublimits and exclusions | Court: prefatory language insufficient to rewrite policy; communicable‑disease provisions do not establish physical‑damage coverage beyond their express terms |
| Whether the contamination exclusion bars coverage even if physical loss/damage were alleged; and whether the communicable‑disease provisions operate as exceptions | Froedtert: exclusion ambiguous when read with communicable‑disease coverages; ambiguity should be construed for insured | Factory Mutual: contamination exclusion expressly includes viruses and is reconcilable with communicable‑disease provisions (which can be exceptions) | Court: contamination exclusion applies to virus losses; communicable‑disease coverages are reconcilable as limited exceptions; exclusion bars broader recovery |
| Whether independent concurrent causation (e.g., government negligence) rescues coverage | Froedtert: government negligence was an insured independent cause, so coverage should apply despite COVID as contributory cause | Factory Mutual: independent cause doctrine requires a cause actionable without the excluded risk; alleged government negligence depended on presence of COVID | Court: government negligence was not an independent actionable cause without COVID; concurrent‑cause doctrine does not extend coverage here |
| Whether bad‑faith denial claim survives | Froedtert: insurer acted unreasonably in denying coverage beyond the $1M sublimit | Factory Mutual: denial was reasonable given policy language and controlling precedent | Court: insurer had a reasonable basis to deny broader coverage; bad‑faith claim dismissed |
Key Cases Cited
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) (pleading must state a plausible claim to survive dismissal)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (plausibility standard and evaluation of well‑pleaded facts)
- Sandy Point Dental PC v. Cincinnati Ins. Co., 488 F. Supp. 3d 690 (N.D. Ill. 2020) (presence of COVID‑19 does not constitute physical damage to property)
- Kraemer Bros. v. U.S. Fire Ins. Co., 278 N.W.2d 857 (Wis. 1979) (independent concurrent causation doctrine explained)
- Siebert v. Wisconsin Am. Mut. Ins. Co., 797 N.W.2d 484 (Wis. 2011) (independent concurrent cause must be actionable without the excluded risk)
- Schinner v. Gundrum, 833 N.W.2d 685 (Wis. 2013) (three‑step Wisconsin insurance coverage analysis)