Wisconsin Supreme Court Rejects Business Insurance Coverage for COVID Losses

Wisconsin’s highest court on Wednesday became the third state top court in a row to rule that businesses are not entitled to insurance coverage for losses resulting from the COVID-19 pandemic and government-imposed restrictions on gatherings.

The Wisconsin Supreme Court ruled that neither indoor dining restrictions nor the presence of the virus within restaurants like Colectivo Coffee Roasters triggered coverage under property insurance policies issued by Society Insurance.

The unanimous decision reversed a February 2021 ruling by a Milwaukee judge who allowed Colectivo to proceed with a proposed class action on behalf of businesses insured by Society seeking coverage for financial losses under several clauses of the policies, including for business-income interruption.

But Justice Rebecca Frank Dallet, writing for the 7-0 court, said Milwaukee-based Colectivo, which operates a chain of cafes, had failed to allege that the presence of COVID-19 particles or the loss of the use of its properties created a “tangible harm” necessary to trigger coverage.

Citing the “overwhelming majority” of courts that have ruled in similar cases, Dallet said the presence of COVID-19 cannot constitute a physical loss of property or damage to it because the virus does not alter a property’s appearance or structure.

She said emergency orders the Wisconsin Department of Health Services issued starting in March 2020 at the onset of the pandemic that prohibited in-person dining to slow the spread of the coronavirus likewise did not qualify under Society’s policy as a physical loss of property.

The ruling followed a string of similar decisions by courts nationwide rejecting efforts by businesses to force insurers to cover the billions of dollars in losses they suffered following lockdowns and other restrictions prompted by the pandemic.

Most rulings came from federal courts interpreting state insurance laws, and lawyers for businesses have urged state supreme courts to turn the tide and rule for them.

But in April, the top courts of Massachusetts and Iowa reached the same conclusion as the Wisconsin Supreme Court in interpreting property insurance policies by other insurers.