A group of Wisconsin businesses that sued their insurance company for denying COVID-related claims are out of luck, the Wisconsin Supreme Court ruled in a unanimous decision released Wednesday.
The plaintiffs in the class-action suit, Colectivo Coffee Roasters, Inc. v. Society Insurance, included the coffee shop chain and 15 other bars and restaurants, all insured by the Fond du Lac-based Society Insurance. The company covers more Wisconsin bars and restaurants than any other insurance company, the plaintiffs’ lead attorney Jay Urban of Urban & Taylor told Reuters in April.
The plaintiffs are among thousands of companies across the country that have sued their insurance companies since the pandemic began, arguing their business interruption policies should cover losses caused by the COVID-19 virus and ensuing public health orders restricting business operations.
Most courts have sided with insurers in such suits, as the Wisconsin Supreme Court did Wednesday, reversing a decision by a Milwaukee County Circuit Court judge and instructing the lower court to dismiss the suit. According to the latest data from the COVID Coverage Litigation Tracker, produced by the University of Pennsylvania Carey Law School, federal courts have dismissed more than 95% of such lawsuits where a motion to dismiss was filed. State courts have dismissed more than 78%.
“As the overwhelming majority of the other courts that have addressed the same issue have concluded, 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 dimension of the property,’” Justice Rebecca Dallet wrote in the decision.
Colectivo Coffee did not immediately respond to an email request for comment.
‘Not physically lost or damaged’
Without physical damage or loss, the court ruled, three of the four insurance policy provisions the plaintiffs pointed to do not apply. That includes the provisions that would compensate the business for lost income, extra expenses or the loss of use of their property because a civil authority orders a closure.
“For a harm to constitute a physical loss of or damage to the property, it must be one that requires the property to be repaired, rebuilt, or replaced,” as in a fire, Dallet wrote in the court’s unanimous opinion.
While the plaintiffs argued that COVID-19 and public health orders had forced them to renovate their properties to reduce the spread of the virus, the court determined those changes were not comparable to repairs.
“To restore property is to ‘bring (it) back to … (its) former or original state,’ not to alter its condition,” Dallet wrote. “So although Colectivo could not use its dining room for in-person dining for a period of time, the dining room was still there, unharmed — it was not physically lost or damaged.”
The plaintiffs also pointed to a fourth provision, designed to provide coverage for losses due to a “dangerous condition in your products, merchandise or premises.” They argued that “COVID-19 particles” had contaminated surfaces inside their properties, triggering this coverage.
But the justices ruled it was not the virus, but rather the public health orders issued by Department of Health Services Secretary Andrea Palm — and later struck down by the Wisconsin Supreme Court — that restricted the use of the properties. That order did not prohibit access to the properties, but rather limited their use, Dallet wrote, allowing pickup and delivery but barring indoor dining.
“COVID-19 is not a ‘physical peril that (makes merely) entering a structure hazardous,’” Dallet wrote, differentiating the virus from things like wildfire smoke or repeated rockfalls.
“Indeed, despite the continuing presence of the virus, in-person dining operations were no longer prohibited after the court invalidated Palm's orders,” Dallet wrote. “Thus, assuming the presence of COVID-19 particles constitutes ‘contamination,’ that contamination did not cause Colectivo to suspend its operations, as the policy requires.”
Even businesses that were unable to sell alcohol because local rules prohibited carry-out alcohol sales were barred from doing so not by the public health order or the virus itself, but by those local rules, the court ruled. As such, the contamination provision would not apply.
Wisconsin court ‘going with the mainstream’
Colectivo filed its class-action lawsuit in 2021 after Society Insurance denied coverage under a policy the company purchased in February 2020. Society Insurance filed a motion to dismiss. Last February, Milwaukee County Circuit Court judge Judge Laura Gramling Perez denied that motion, finding that Colectivo had provided sufficient evidence that the closure of its dining room was due to the virus and the ensuing public health orders.
Wisconsin’s District 1 Court of Appeals allowed Society Insurance to appeal the court’s non-final order. Society Insurance then petitioned to bypass the court of appeals and bring the case before the Wisconsin Supreme Court, which heard the case in April.
Larry Solan, a professor at Brooklyn Law School and former chairman of American Law Society’s insurance law section, said the Wisconsin Supreme Court’s ruling “is going with the mainstream.” It’s not unique to COVID-related claims, he said: It’s just really hard to get business interruption coverage if there isn’t clear physical damage.
“It's very hard to find cases like this that came out the other way, on the side of the policyholders,” Solan said. He pointed to a 2015 New Hampshire case, Mellin v. Northern Security Insurance Company, in which a court found the odor of cat urine had caused covered losses. Last June, following that precedent, the Superior Court for the State of New Hampshire granted a motion for partial summary judgment in favor of a hotel company seeking to recover more than $100 million in COVID-related losses from eight insurance companies.
“The courts have been very ungenerous with insurance policyholders making these claims precisely because there's no serious proof of physical loss,” Solan said. While he’s not surprised by the ruling, he understands why Colectivo brought the case. “When you buy insurance for something and they say, ‘Well, you think you bought it for this reason, but we're not gonna insure you anyway,’ you get angry.”
