Insurance Coverage and Bad Faith

On June 1, 2022, in a unanimous opinion, the Supreme Court of Wisconsin ruled that several restaurants were not entitled to business interruption insurance coverage for their alleged losses due to the inability to use their indoor dining space as a result of COVID-19 government restrictions on indoor dining.

This decision comes less than two months after the Massachusetts Supreme Judicial Court affirmed a decision that denied business interruption coverage to Boston area restaurants as a result of shutdown orders issued by the Governor of Massachusetts.

Colectivo Coffee Roasters and other bars and restaurants made claims for business losses as a result of the COVID-19 pandemic and related government restrictions on in-person dining, which were denied by their insurers for lack of “direct physical loss” and the lack of physical presence of the COVID-19 virus on bar or restaurant property.

In ruling in favor of the insurers, the Wisconsin Supreme Court stated that  “[a]n insured suffers a physical “loss” of its property when the property is “destroyed” or affected to such an extent that it cannot be repaired. In order 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, that is, it must alter the property's tangible characteristics.” The Wisconsin Supreme Court followed the majority of other courts nationwide in holding that 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.”

As to the Governor of Wisconsin’s shutdown order, the Court reasoned that “although Colectivo could not use its dining room for in-person dining for a period of time, the dining room was still there, unharmed and it was not physically lost or damaged. Without such a harm, the policy's business-income and extra-expense provisions do not apply.” With respect to the civil authority provision of the policy, the Court ruled that Colectivo did not identify any physical loss of or damage to its property or a surrounding property such that business income or extra expense coverage could not be extended thereunder.

Lastly, the Court affirmed the ruling of no coverage under the contamination provision of the policy for three reasons. First, Colectivo did not suspend its operations due to the presence of COVID-19; it did so because of the governor’s orders. Second, the governor’s orders did not prohibit access to Colectivo's property; they restricted how the property could be used. Third, the governor’s orders did not prohibit Colectivo from producing its products; they prevented it only from serving its products for in-person dining.

Following last month’s similar ruling from the Massachusetts Supreme Court, this latest ruling from the Wisconsin Supreme Court may mark a trend among state supreme courts in finding no business interruption coverage for alleged Covid-related losses, an already well-established nationwide trend in the federal courts.