Title: Continental Ins. Co. v. DNE CORP.
Citation: 834 S.W.2d 930
Docket Number: N/A
State: Tennessee
Issuer: Tennessee Supreme Court
Date: July 20, 1992

834 S.W.2d 930 (1992) CONTINENTAL INSURANCE COMPANY, Plaintiff-Respondent, v. DNE CORPORATION, Defendant-Petitioner. Supreme Court of Tennessee, at Nashville. July 20, 1992. John W. Stapp, IV, Donald Capparella, Manier, Herod, Hollabaugh &amp; Smith, Nashville, for defendant-petitioner. *931 Michael Miller, Maddin, Miller &amp; McCune, Nashville, H. Michael Bagley, Daniel C. Kniffen, Drew, Eckl &amp; Farnham, Atlanta, Ga., for plaintiff-respondent. DAUGHTREY, Justice. Pursuant to Rule 23 of the Rules of the Tennessee Supreme Court, the United States Court of Appeals for the Sixth Circuit has certified two questions to this Court arising out of a declaratory judgment action, in which the plaintiff insurance company asked the federal district court to determine the scope of coverage provided by a business-interruption insurance policy issued to the defendant corporation. By separate order entered simultaneously with this opinion, we have accepted certification of these two questions. Because we conclude that the first question must be answered in the negative, we do not have to address the second question. As noted above, the plaintiff, Continental Insurance Company, filed a declaratory judgment action in the United States District Court for the Middle District of Tennessee, following repeated demands by its insured, defendant DNE Corporation, for reimbursement of its operating expenses under a business-interruption policy issued by Continental Insurance Company. DNE is a Utah corporation engaged in the business of developing transmission and gear products for the automotive industry. It had a plant located in Brentwood, Tennessee, that had been operating at a loss for some period of time prior to December 1988. On the evening of December 23, 1988, the DNE facilities in Brentwood were heavily damaged by a tornado. At that time, DNE was insured under a business-interruption policy issued by Continental Insurance, the pertinent provisions of which are as follows: Business Income means the: The following facts have been stipulated by the parties: The United States District Court held that DNE Corporation was not entitled to any recovery under the business-interruption insurance policy. The court's conclusion was based on its determination that the amount of "business income," as defined in the policy, is determined by adding the amount of "net income" (which may be either a net profit or net loss) to the amount of "continuing normal operating expenses." The district court rejected the interpretation of the policy offered by DNE, which the district court stated as follows: Having found in favor of Continental Insurance on the first issue, the district court did not address the second issue. DNE appealed the district court's ruling to the Sixth Circuit Court of Appeals, which has asked us to resolve the dispositive issue on appeal. Under the terms of the policy, DNE Corporation is entitled to recovery only if it sustained an "actual loss of business income," which is defined as net income that would have been earned had the business not been interrupted and continuing normal operating expenses that were incurred during the interruption of business. It seems obvious to us from the wording of the policy that in any given case, the amount of "business income" will be a number that is the sum of a second number ("net income," which may be either a net profit or a net loss) and a third number (continuing normal operating expenses incurred). The "business income" provision of the policy clearly indicates that the amount of business income is to be determined by adding the second number and the third number together, and not, as contended by DNE, by looking only to the third number and completely ignoring the second number. This is the interpretation given the provision by the district court, and it is in accord with decisions in other cases involving similar issues. *933 The case that is most similar to the current one is Goetz v. Hartford Fire Ins. Co., 193 Wis. 638, 215 N.W. 440 (1927). In that case, the liability of the insurance company that had issued a business-interruption insurance policy depended on the interpretation of the following policy provision: Id. 215 N.W. at 441 (emphasis in original). The Wisconsin Supreme Court noted in Goetz that it must determine the amount of the "actual loss sustained." In this regard, the court stated as follows: Id. The facts of the business operation considered in Goetz were similar to those involved in this case, as can be seen by the following observation of the Wisconsin Supreme Court: Id. The Wisconsin Supreme Court denied the insured any recovery. It determined that the number sought (the amount of "actual loss sustained") was the sum of "net profits," which was a negative number, and the amount of "fixed charges and expenses." Inasmuch as the sum was a negative number, no recovery was allowed. Another very similar case is United Land Investors, Inc. v. Northern Insurance Company of America, 476 So. 2d 432 (La. App. 1985). In that case, the business-interruption insurance policy provided that the insured could recover for a loss of "earnings." "Earnings" was defined in the insurance policy as follows: Id. at 435. As in the current case, the policy at issue in United Land Investors provided that the number representing the amount of "earnings" consisted of a second number, the amount of "net profit," combined with a third number, the amount of "payroll expense, taxes, interest, rents and all other operating expenses." Under the facts of that case, the second number (net profit) was minus $48,023, and the third number (all operating expenses) was $168,640. The Court in that case determined that the number sought ("earnings") was the sum of the second and third numbers, or $120,617. The court rejected the contention of the insured that the second number (net profit) should be ignored because it was a negative number and that the number sought should consist of the third number alone (all operating expenses). In this case, DNE Corporation urges us to reject the rulings in Goetz and United Land Investors and adopt instead the approach taken by the Washington Supreme *934 Court in Washington Restaurant Corporation v. General Insurance Company of America, 64 Wash. 2d 150, 390 P.2d 970 (1964). We conclude that DNE's reliance on that case is misplaced. Although the facts of the insured's business operations were similar to those involved here, the provisions of its business-interruption insurance policy were completely different. The court in Washington Restaurant Corporation described the facts in that case as follows: Id., 390 P.2d at 971. Under the terms of the insurance policy involved in Washington Restaurant Corporation, the insured could recover for the first $3,000 of "gross earnings" during the applicable period of time. Unlike the policies at issue in the instant case and the other cases described above, the key term, "gross earnings," was not defined in the insurance policy. The Washington Supreme Court was thus free to interpret that term and did so as follows: Id. at 973. According to the testimony of accountants, the "gross earnings" figure for the period of time in question was $7,445. The Washington court allowed a recovery for the first $3,000 of "gross earnings." Given the complete lack of similarity between the insurance policy provisions contained in Washington Restaurant Corporation, supra, and those involved in this case, we conclude the holding in that case is irrelevant to the construction of the policy in this case. As the federal district court noted in its memorandum opinion in this case: Contrary to the general rule, the interpretation advocated by DNE Corporation (i.e., ignoring "net income" whenever there is a net loss) would put the insured, in all cases when there is a net loss, in a better economic position from having had its business interrupted than it would have occupied had there been no interruption of its business operations. Such an interpretation would obviously be inconsistent with the purpose of providing insurance, as well as with the decisions in other cases involving similar issues. We therefore conclude that the amount of "business income" under the insurance policy provision involved in this case should be determined by adding the amount of "net income" and the amount of "continuing normal operating expenses." Under this approach, if "net income" is a positive number (which will occur whenever there are net profits), the amount of "business income" will be the sum of two positive numbers, and the insured will be entitled to recover that amount. If, however, "net income" is a negative number (which will occur whenever there is a net loss), the amount of "business income" will be the amount of "continuing normal operating expenses" reduced by the amount of the net loss. If, as under the facts of this case, the amount of the net loss that would have been incurred had there been no business interruption exceeds the amount of normal operating expenses actually incurred, the resulting number is a negative number, *935 and there can be no recovery for an "actual loss of business income." Because the amount of DNE's "business income" in this case is, in fact, a negative number and there can be no recovery under the policy issued by Continental Insurance, it is unnecessary for us to address the second certified question. We therefore advise the United States Court of Appeals for the Sixth Circuit that the answers to the questions certified to us are as follows: The Clerk will transmit this opinion and the accompanying order in conformity with Rule 23. REID, C.J., and DROWOTA, O'BRIEN and ANDERSON, JJ., concur.