COMMENTARY FROM COUNSEL

The Wisconsin Supreme Court sided with Society Insurance in holding business are not entitled to coverage for losses due to COVID-19 and government-imposed lock downs. This unsurprising but frustrating result for policyholders is a win for insurers and the opinion brought Wisconsin into alignment with the overwhelming majority of jurisdictions that have considered the issue.

The origins of the case go back to the early days of the pandemic, when state- and county-wide directives forced bars and restaurants around Wisconsin to shut their doors. With restrictions on in-person dining dramatically impacting the bottom line, businesses in the hospitality industry sought coverage for business-income interruption under their property insurance policies. Ultimately, a group of Wisconsin businesses, led by Colectivo Coffee Roasters, sued Society Insurance seeking coverage for financial losses caused by the lock downs.

After a Milwaukee County Judge allowed the suit to proceed, Society appealed to the Wisconsin Supreme Court. The primary issue before the Court was 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. The Court answered that question in the negative.

Writing for a unanimous Court, Justice Rebecca Frank Dallet found the policy language required there be some sort of physical loss or damage to property to trigger coverage. In other words, there must be a “tangible harm” “that requires the property to be repaired, rebuilt, or replaced.” Applying that standard to the impact of COVID and related gathering restrictions, Dallet explained that although a restaurant “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.”

Colectivo argued that courts in about half the states that have considered the issue sided with policyholders. However, Justice Dallet wrote that the “overwhelming majority” of courts agree that COVID-19’s presence does not amount to property damage under the terms of Society’s policy nor do temporary in-person dining restrictions constitute property loss. In support of that proposition, Dallet cited to federal cases in California, Connecticut, Illinois, Mississippi, Texas, Virginia, West Virginia, Wisconsin, and the District of Columbia. While not cited in the Court’s opinion, the top courts in Massachusetts and Iowa recently reached the same conclusion as the Wisconsin Supreme Court in their interpretation of property insurance policies from other insurers.

For now, the clear trend in both federal and state courts goes against coverage for business losses due to COVID. That said, the stakes are extremely high and this litigation shows no sign of slowing down; there will undoubtedly be new arguments in favor of coverage put before courts around the country. Stay in touch with legal counsel so you and your agencies can adequately advise business clients on the scope of their coverage in the wake of the pandemic.