Colectivo Coffee Roasters, Inc. v. Society Insurance

2022 WI 36SUPREME COURT OF WISCONSIN
CASE NO.: 2021AP463
COMPLETE TITLE: Colectivo Coffee Roasters, Inc., Tandem
Restaurant, LLC
d/b/a The Tandem, Wrecking Crew, Inc., Iron
Grate BBQ
Company, Inc., East Troy Brewery Company, Logan
& Potter, Inc.,
Buckley's Kiskeam Inn, LLC, Other Ones MKE, LLC,
BCT 5, LLC,
Company Brewing, LLC, Bryhopper's Bar & Grill,
LLC,
The River's Bar, LLC, Etcetera by BLH, LLC,
REMBS, LLC,
KRO Bar, Inc., Rivermill, Inc. and Pork's Place
of Kaukana, LLC,
Plaintiffs-Respondents,
v.
Society Insurance, a Mutual Company,
Defendant-Appellant.
ON BYPASS FROM THE COURT OF APPEALS
OPINION FILED: June 1, 2022
SUBMITTED ON BRIEFS:
ORAL ARGUMENT: April 12, 2022
SOURCE OF APPEAL:
COURT: Circuit
COUNTY: Milwaukee
JUDGE: Laura Gramling Perez
JUSTICES:
DALLET, J., delivered the majority opinion for a unanimous
Court.
NOT PARTICIPATING:
ATTORNEYS:
For the defendant-appellant there were briefs filed in the
court of appeals by Janet E. Cain, Heidi L. Vogt, Beth J.
Kushner, Christopher E. Avallone and von Briesen & Roper, S.C.,
Milwaukee. There was a brief filed in response to amicus briefs
for United Policyholders and the Tavern League of Wisconsin by
Janet E. Cain, Heidi L. Vogt, Beth J. Kushner, Christopher E.
Avallone, Laura A. Foggan and von Briesen & Roper, S.C.,
Milwaukee and Crowell & Moring LLP, Washington D.C. There was an
oral argument by Laura A. Foggan.
For the plaintiffs-respondents there was a brief filed in
the court of appeals by Jay A. Urban, Nicole A. Flemming,
Richard W. Schulte and Urban & Taylor, S.C., Milwaukee and
Wright & Schulte, Vandalia. There was an oral argument by Jay
A. Urban.
An amicus curiae brief was filed in the court of appeals by
Jeffrey D. Colman, Gabriel K. Gillett and Jenner & Block LLP,
Chicago for The Restaurant Law Center.
An amicus curiae brief was filed by Andrew B. Hebl and
Boardman & Clark LLP, Madison for the Wisconsin Insurance
Alliance, American Property Casualty Insurance Association, and
the National Association of Mutual Insurance Companies.
An amicus curiae brief was filed by Patrick Murphy, John S.
Vishneski III and Quarles & Brady LLP, Milwaukee and Reed Smith
LLP, Chicago for United Policyholders.
An amicus curiae brief was filed by Patricia L. Jenness,
Marshall Gilinsky, Esq., Nicholas M. Insua, Esq., Rhonda Orin,
Esq. and Michael Best & Friederich LLP, Milwaukee and Anderson
Kill, New York City for the Tavern League of Wisconsin.
2
2022 WI 36NOTICE
This opinion is subject to further
editing and modification. The final
version will appear in the bound
volume of the official reports.
No. 2021AP463
(L.C. No. 2020CV2597)
STATE OF WISCONSIN : IN SUPREME COURT
Colectivo Coffee Roasters, Inc.; Tandem
Restaurant, LLC d/b/a The Tandem; Wrecking
Crew, Inc.; Iron Grate BBQ Company, Inc.; East
Troy Brewery Company; Logan & Potter, Inc.;
Buckley's Kiskeam Inn, LLC; Other Ones MKE,
LLC; BCT 5, LLC; Company Brewing, LLC;
Bryhopper's Bar & Grill, LLC; The River's Bar, FILED
LLC; Etcetera by BLH, LLC; REMBS, LLC, KRO Bar,
Inc.; Rivermill, Inc.; and Pork's Place of JUN 1, 2022
Kaukauna, LLC,
Sheila T. Reiff
Plaintiffs-Respondents, Clerk of Supreme Court
v.
Society Insurance, a Mutual Company,
Defendant-Appellant.
DALLET, J., delivered the majority opinion for a unanimous
Court.
APPEAL from an order of the Circuit Court for Milwaukee
County, Laura Gramling Perez, Judge. Reversed and remanded.
¶1 REBECCA FRANK DALLET, J. Colectivo Coffee Roasters
and other bars and restaurants experienced substantial losses as
a result of the COVID-19 pandemic and related government
No. 2021AP463
restrictions on in-person dining. This case is about whether
those losses are covered by a property-insurance policy issued
by Society Insurance. Specifically, the questions here
are: (1) 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; and
(2) whether the presence of COVID-19 on a bar or restaurant's
property caused the bar or restaurant to suspend its operations,
thereby entitling it to coverage under the policy's
contamination provision. We conclude that the answer to both
questions is "No," and therefore reverse.
I
¶2 This case began in the early days of the COVID-19
pandemic. In early February 2020, Colectivo purchased an
insurance policy from Society.1 The policy provides that Society
"will pay for direct physical loss of or damage to" Colectivo's
buildings, permanently installed equipment, and other "business
personal property." When such direct physical harm occurs, the
policy covers not only that harm but certain other losses
resulting from it. Two types of losses are relevant here, each
Although several bars and restaurants are plaintiffs here,
1
only Colectivo's policy is in the record. Throughout this
litigation the parties have treated Colectivo's policy as
representative of the other plaintiffs' policies. We do the
same. We also refer to all plaintiffs collectively as
"Colectivo."
2
No. 2021AP463
covered by its own provision. The first is the "business-
income" provision, under which Society is required to pay for
"the actual loss of business income [Colectivo] sustain[s] due
to the necessary suspension of [its] 'operations' during the
'period of restoration.'"2 The second is the "extra-expenses"
provision, which covers expenses incurred "during the period of
restoration," that Colectivo would not have incurred but for the
direct physical harm, and that are "necessary" to "avoid or
minimize the suspension of business and to continue operations".
¶3 The policy also contains provisions that cover lost
business income and extra expenses incurred as a result of
contamination on the property or an order by a civil authority
preventing Colectivo from accessing its property.3 The policy's
2 "Operations" and "period of restoration" are defined in
the policy. "Operations" means "[the insured's] business
activities occurring at the described premises." "Period of
restoration" means "the period of time that begins with the date
of direct physical loss or damage caused by or resulting from a
covered cause of loss . . . and ends on the date when the
property . . . should be repaired, rebuilt or replaced with
reasonable speed and similar quality."
3 The policy uses "business income" and "extra expenses"
both as titles for coverage provisions and as types of losses.
When the contamination provision refers to business income and
extra expenses, it does so only to identify types of
losses: "The definitions of Business Income and Extra Expense,
contained in the Business Income and Extra Expense Additional
Coverages section shall also apply to the additional coverages
under this section." The policy defines lost "business income"
as the "net income . . . that would have been earned or incurred
if no physical loss or damage had occurred." An "extra expense"
is defined, in relevant part, as an "expense incurred to avoid
or minimize the suspension of business and to continue
operations."
3
No. 2021AP463
"contamination" provision covers the costs to "clean and
sanitize [Colectivo's] premises, machinery and equipment" when
Colectivo's "operations are suspended due to 'contamination,'"
defined as a "defect, deficiency, inadequacy or dangerous
condition in [Colectivo's] products, merchandise, or premises."
When the contamination "results in an action by a public health
or other governmental authority that prohibits access" to the
property and causes Colectivo to suspend its business
operations, the policy covers lost business income and extra
expenses Colectivo incurs during that suspension period. The
"civil-authority" provision provides coverage when a "civil
authority . . . prohibits access" to Colectivo's property due to
direct physical harm to a surrounding property, even if
Colectivo's property itself suffered no such harm.
¶4 Not long after Colectivo purchased its policy from
Society, Department of Health Services Secretary-Designee Andrea
Palm issued several emergency orders aimed at stopping the
spread of COVID-19. Orders Nos. 5 and 12, issued in March 2020,
prohibited in-person dining at all bars and restaurants,
although take-out and delivery services were allowed to
continue. Colectivo lost business income as a result of its
compliance with those restrictions, and some of the other
plaintiffs that served only alcohol closed altogether, as local
laws prohibited them from offering take-out service. Colectivo
filed a claim with Society to recover its lost income, which
Society denied on the grounds that Colectivo had not suffered a
"direct physical loss." Rather, in Society's view, Colectivo's
4
No. 2021AP463
use of its property was restricted, but the property was not
lost or damaged.
¶5 Colectivo then filed a class-action complaint against
Society seeking declaratory and injunctive relief, as well as
damages for breach of contract. It alleged that it had been
"forced . . . to cease [its] operations" because of Palm's
orders and the potential presence of COVID-19 on its property.
Colectivo asserted that the "presence of any COVID-19 particles
renders items of physical property unsafe," thereby causing
"direct physical harm, direct physical damage, and direct
physical loss to property." Accordingly, Colectivo argued that
Society was required to compensate it for that harm as well as
the business income it lost because of that harm. Likewise, it
alleged that Palm's orders "prohibited the public from accessing
[its] restaurants, thereby causing the necessary suspension of
[its] operations," which triggered the business-income, extra-
expense, and civil-authority provisions of the policy.
¶6 Society filed a motion to dismiss the complaint,
arguing that Colectivo had failed to allege any direct physical
loss of or damage to its property, so none of the policy's
coverage provisions applied. The circuit court denied that
motion, concluding that Colectivo had sufficiently alleged a
physical loss of its dining area due to both the likely presence
of COVID-19 on Colectivo's property and Palm's orders
prohibiting in-person dining. The court of appeals permitted
Society to appeal the circuit court's non-final order. Society
5
No. 2021AP463
then filed a petition to bypass the court of appeals, which we
granted.
II
¶7 We review de novo the circuit court's denial of
Society's motion to dismiss. See Data Key Partners v. Permira
Advisers LLC, 2014 WI 86, ¶17, 356 Wis. 2d 665, 849 N.W.2d 693.
We accept as true all well-pleaded facts in Colectivo's
complaint, as well as reasonable inferences from those facts,
but we draw our own legal conclusions regarding how they apply
to the Society insurance policy. See id., ¶¶18–19.
¶8 The interpretation of an insurance policy is a
question of law that we review de novo. Am. Fam. Mut. Ins. Co.
v. Am. Girl, Inc., 2004 WI 2, ¶23, 268 Wis. 2d 16, 673
N.W.2d 65. Our goal is to give effect to the parties' intent,
construing the policy as it would be understood by a reasonable
person in the same position as the insured. Id. If, based on
the facts in the complaint, "it is clear that the policy was not
intended to cover the claim asserted, the analysis ends there."
See id., ¶24. Only if the complaint establishes an initial
grant of coverage do we analyze whether any exclusion provisions
apply. See id.
III
¶9 Colectivo asserts that Society must cover Colectivo's
alleged damages under the policy's business-income, extra-
6
No. 2021AP463
expense, civil-authority, and contamination provisions.4 We
analyze the former three provisions together because they share
a similar prerequisite for coverage: they apply only if there
has been a physical loss of or damage to either Colectivo's
property or a surrounding property. We then address the
contamination provision, which applies if a "dangerous
condition" on Colectivo's property caused Colectivo to suspend
its operations or a governmental authority to "prohibit access"
to the property.
A
¶10 The provisions of Society's policy on which Colectivo
relies, with the exception of the contamination provision, all
require Colectivo to allege a direct physical loss of or damage
to either its property or a surrounding property. Although
Society's policy does not define "direct physical loss of or
damage to" property, our prior cases interpreting similar
language establish that physical losses and physical damages
refer to different degrees of tangible harm. An insured suffers
a physical "loss" of its property when the property is
4 Colectivo also argues that it is entitled to coverage
under the policy's "sue and labor" clause, which requires
Colectivo to keep a record of its expenses related to a covered
loss or damage and to take reasonable steps to prevent further
damage. By its plain text, however, this provision does not
provide coverage; it merely lays out certain obligations
Colectivo has "in the event of loss or damage to covered
property." See also In re Soc'y Ins. Co. COVID-19 Bus.
Interruption Prot. Ins. Litig., 521 F. Supp. 3d 729, 745 (N.D.
Ill. 2021) (reaching the same conclusion).
7
No. 2021AP463
"destroyed" or affected to such an extent that it cannot be
repaired. See RTE Corp. v. Md. Cas. Co., 74 Wis. 2d 614, 624,
247 N.W.2d 171 (1976). Such a loss occurs, for example, when a
building burns down and must be rebuilt. See, e.g., Park
Terrace, LLC v. Transp. Ins. Co., No. 2010AP2432, unpublished
op., ¶4 (Wis. Ct. App. Dec. 1, 2011). Physical "damage" is harm
to the tangible characteristics of the insured property that
does not rise to the level of a physical loss. See Wis. Label
Corp. v. Northbrook Prop. & Cas. Ins. Co., 2000 WI 26, ¶¶29–31,
233 Wis. 2d 314, 607 N.W.2d 276; see also Sandy Point Dental, PC
v. Cincinnati Ins. Co., 20 F.4th 327, 332 (7th Cir. 2021). So a
roof that is dented by hail but remains functional has incurred
physical damage because "[t]his denting changes [its] physical
characteristics." Advance Cable Co., LLC v. Cincinnati Ins.
Co., 788 F.3d 743, 747 (7th Cir. 2015). By contrast, a product
that is merely mislabeled has suffered no physical damage
because its tangible characteristics are unchanged. See Wis.
Label Corp., 233 Wis. 2d 314, ¶¶31–33.
¶11 That definition of "direct physical loss of or damage
to" property is consistent with how the phrase is used in
Society's policy. See Day v. Allstate Indem. Co., 2011 WI 24,
¶28, 332 Wis. 2d 571, 798 N.W.2d 199 (insurance policy terms are
interpreted "in the context of the policy as a whole"). The
policy provides that business-income and extra-expense coverages
are limited to losses resulting from a physical loss of or
damage to the property that are incurred during the "period of
restoration." The "period of restoration" is the time during
8
No. 2021AP463
which the property is "repaired, rebuilt or replaced with
reasonable speed and similar quality." Thus, 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. See, e.g., Sandy Point Dental, 20 F.4th
at 333.
1
¶12 Colectivo argues that it suffered a physical loss of
or damage to its property in two ways: (1) because of the
"presence of COVID-19 particles" on its premises; and (2) it
lost the use of at least some of its property because of Palm's
orders closing restaurants. We reject both arguments because
neither alleges a tangible harm to Colectivo's physical property
necessary to trigger coverage.
¶13 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."
See, e.g., Sandy Point Dental PC v. Cincinnati Ins. Co., 488
F. Supp. 3d 690, 693–94 (N.D. Ill. 2020) (collecting cases),
aff'd, 20 F.4th 327 (7th Cir. 2021). The virus does not
necessitate structural "repairs or remediation"; it can be
removed from a surface with a disinfectant. See Uncork & Create
LLC v. Cincinnati Ins. Co., 498 F. Supp. 3d 878, 883–84 (S.D. W.
9
No. 2021AP463
Va. 2020), aff'd, 27 F.4th 926 (4th Cir. 2022). Likewise,
COVID-19 does not render property "inherently dangerous" or
"uninhabitable" in the same way as "ongoing rockfalls" or
wildfire smoke might, because COVID-19 is not a "physical peril
that ma[kes merely] entering a structure hazardous." See
Biltrite Furniture, Inc. v. Ohio Sec. Ins. Co., No. 20-CV-656-
JPS-JPS, 2021 WL 3056191, at *4 n.4 (E.D. Wis. July 20, 2021).
Rather, the danger of the virus is to "people in close proximity
to one another," not to the real property itself. Id.; see also
Uncork & Create, 498 F. Supp. 3d at 884.
¶14 As for Palm's orders, although they restricted
Colectivo's use of its property, Society's policy makes clear
that a loss of use is distinct from physical loss of or damage
to property. For instance, in a provision regarding personal
property, the policy expressly covers damages for both the loss
of or damage to that property as well as the loss of the use of
that property: "We [Society] will pay . . . damages because of
direct physical loss or damage, including loss of use, to
[invitees' personal property] caused by accident and arising out
of any covered cause of loss." By contrast, the policy
provisions on which Colectivo relies omit any loss-of-use
language, instead covering only a "direct physical loss of or
damage to" the property. One may think of the business-income
provision as indirect loss-of-use coverage, but that does not
change the fact that a prerequisite for that provision is still
a direct physical loss or damage. "Loss of use" is thus
distinct from a "direct physical loss or damage," and
10
No. 2021AP463
Colectivo's argument fails because it conflates the two. See,
e.g., Green Beginnings, LLC v. W. Bend Ins. Co.,
No. 20-CV-1661, 2021 WL 2210116, at *5 (E.D. Wis. May 28, 2021)
("'Direct physical loss' does not include the temporary loss of
use of the insured's property."), appeal filed, No. 21-2186 (7th
Cir. June 25, 2021); Real Hosp., LLC v. Travelers Ins. Co. of
Am., 499 F. Supp. 3d 288, 295–96 (S.D. Miss. 2020).
¶15 The federal district court case on which Colectivo
primarily relies makes that same mistake, while also
misinterpreting "period of restoration." See In re Soc'y Ins.
Co. COVID-19 Bus. Interruption Prot. Ins. Litig., 521
F. Supp. 3d 729 (N.D. Ill. 2021). That case involved similar
plaintiffs who raised similar claims as in this case: they were
restaurants and bars who could not offer in-person dining
because of COVID-19-related government orders and who had filed
insurance claims under the same Society policy. The district
court concluded that a reasonable jury could find that the
plaintiffs had suffered a "physical loss" under the policy
because they were "limited from using much of their physical
space." See id. at 742. It also rejected Society's argument
that the definition of "period of restoration" precluded the
plaintiffs' claims, explaining that the period of restoration
defined only the timeframe for which business-income expenses
would be covered. Additionally, the court noted that because a
restaurant could "repair" its dining room by installing certain
safety features or "replace" its "lost" dining space by
expanding its dining room, the definition of "period of
11
No. 2021AP463
restoration" was "consistent with interpreting direct physical
loss of property to include the loss of physical use" of that
property. See id. at 742–43.
¶16 We disagree with that reasoning for two reasons.
First, the district court's interpretation ignores the language
in Society's policy distinguishing a loss of use from a direct
physical loss and is inconsistent with our previous cases
interpreting "physical loss." And second, to restore property
is to "bring [it] back to . . . [its] former or original state,"5
not to alter its condition, as the district court's proposed
measures would. 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. See Sandy Point Dental, 20 F.4th at 332–34. Without
such a harm, the policy's business-income and extra-expense
provisions do not apply. See 10E, LLC v. Travelers Indem. Co.
of Conn., 483 F. Supp. 3d 828, 836 (C.D. Cal. 2020) ("Plaintiff
only plausibly alleges that in-person dining restrictions
interfered with the use or value of its property——not that the
restrictions caused direct physical loss or damage.").
2
¶17 The civil-authority provision likewise does not apply.
Unlike the business-income and extra-expense provisions, which
require a physical loss of or damage to Colectivo's property,
5 https://www.merriam-webster.com/dictionary/restore.
12
No. 2021AP463
the civil-authority provision requires a physical loss of or
damage to someone else's. It also requires an "action of civil
authority that prohibits access" to Colectivo's property because
of the physical damage to the other property. Colectivo argues
Palm's orders "caus[ed] the necessary suspension of [its]
operations," thus "triggering" the civil-authority provision.
Colectivo, however, has identified no other property in the
"immediately surrounding" area that suffered a physical harm.
See In re Soc'y Ins. Co., 521 F. Supp. 3d at 743–44. Plus,
Palm's orders did not prohibit access to Colectivo's property.
In fact, the orders explicitly allowed customers to access the
property to order, pick up, and pay for Colectivo's food or
drinks, provided that they stay six feet apart from others and
did not use Colectivo's property for in-person dining.
¶18 Because Colectivo has identified no physical loss of
or damage to its property or a surrounding property, the losses
it alleges are not covered by the business-income, extra-
expense, or civil-authority provisions.
B
¶19 We now turn to Colectivo's claim that it has coverage
under the policy's contamination provision. The policy defines
"contamination," in relevant part, as a "dangerous condition in
your products, merchandise or premises." If the contamination
causes Colectivo to suspend its operations and "results in an
action by a public health or governmental authority that
prohibits access to the [property] or production of
13
No. 2021AP463
[Colectivo's] product," Society will pay for related business-
income and extra-expense losses. Colectivo argues that it is
entitled to coverage under this provision because the possible
presence on its property of COVID-19 particles created a
dangerous condition. It asserts that Palm's orders responded to
that condition by barring access to its property, which
prohibited the production of its product.
¶20 The contamination provision does not apply here for
three reasons. First, as Colectivo concedes in its complaint,
it did not suspend its operations due to the presence of
COVID-19; it did so because of Palm's orders. Indeed, despite
the continuing presence of the virus, in-person dining
operations were no longer prohibited after the court invalidated
Palm's orders.6 Thus, assuming the presence of COVID-19
particles constitutes "contamination," that contamination did
not cause Colectivo to suspend its operations, as the policy
requires. Second, and as discussed above, Palm's orders did not
prohibit access to Colectivo's property; they restricted how the
property could be used. And third, Palm's orders did not
prohibit Colectivo from producing its products; they prevented
See Wis. Legis. v. Palm, 2020 WI 42, 391 Wis. 2d 497, 942
6
N.W.2d 900.
14
No. 2021AP463
it only from serving its products for in-person dining.7
Accordingly, Colectivo has failed to sufficiently allege an
initial grant of coverage under the contamination provision.
See In re Soc'y Ins. Co., 521 F. Supp. 3d at 744–45.
IV
¶21 We conclude that Colectivo fails to state a claim for
coverage under the Society policy's business-income, extra-
expense, civil-authority, or contamination provisions.
Accordingly, we do not address whether any of the policy's
exclusion provisions apply. See Am. Fam. Mut. Ins. Co., 268
Wis. 2d 16, ¶24. We therefore reverse the circuit court's order
and remand the cause with instructions to grant Society's motion
to dismiss.
By the Court.—The circuit court's order is reversed, and
the cause remanded.
7 This third reason applies equally to the plaintiffs here
that serve only alcohol and, at least at the beginning of the
pandemic, did not have the option of serving their products via
take-out or delivery. As Emergency Order No. 12 stated, so long
as they were "permitted by state law and municipal ordinance,"
carryout sales of alcohol beverages could continue. And where
such sales were prohibited by state law and municipal ordinance,
it is those laws and ordinances that prohibited the plaintiffs
from serving their product, not Palm's orders or COVID-19.
15
No. 2021AP463
1