Colectivo Coffee Roasters, Inc. v. Soc'y Ins.

401 Wis.2d 660

974 N.W.2d 442

2022 WI 36

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 Kaukauna, LLC, Plaintiffs-Respondents,

v.SOCIETY INSURANCE, a Mutual Company, Defendant-Appellant.

No. 2021AP463

Supreme Court of Wisconsin.

Oral Argument: April 12, 2022

Opinion Filed: June 1, 2022

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.

DALLET, J., delivered the majority opinion for a unanimous Court.

REBECCA FRANK DALLET, J.

¶1 Colectivo Coffee Roasters and other bars and restaurants experienced substantial losses as a result of the COVID-19 pandemic and related government 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 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 "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 No. 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 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 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-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 "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...