The loss is covered but the loss payment is — zero!
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Tornados ripped through the community and damaged or destroyed many structures, including those occupied by DNE Corporation. DNE had prepared for such a day by purchasing business income coverage. When the loss was presented to Continental Insurance Company, DNE was informed that while coverage did apply, loss payment was zero.
What went wrong? The problem was really quite simple. When the tornados struck, DNE was operating at a significant loss. Their business loss was so substantial that it actually exceeded DNE’s operating expenses. Since the policy defines business income as profit or loss plus operating expenses, once the business loss exceeds the operating expenses, there is no business income loss. This is because DNE had no business income at the time of the loss.
DNE must have been confused. It had done the right thing by purchasing business income coverage and paying the premium. DNE believed the insurance company was too rigid and should have adjusted the operating expense and the profit or loss amounts separately. If that had been done, DNE could at least have its continuing expenses covered as it attempted to get back on its feet.
The courts sided with Continental’s position and stated that the policy was unambiguous. The insurance policy was designed to return the insured back to the same condition it was in prior to the loss. Granting any business income payment would have improved DNE’s existing situation instead of returning it to the condition that existed prior to the loss.
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