Gates v. State Auto. Mut. Ins. Co – Case Brief Summary (Tennessee)

In Gates v. State Auto. Mut. Ins. Co., (196 SW3d 761 [Tenn Ct App 2005]), the insured sought payment for business interruption losses sustained when a tornado damaged its building and forced it to close for several months; the restoration period at issue ended when the damage was fixed.

The nature of its business was "rent to own" furniture contracts, whereby customers purchased furniture on installment.

As damages, the insured sought the entire value of the sales contracts that would have been signed during its period of restoration, even though most of the payments under those contracts would have become due after the restoration period.

The insurance company argued that because the policy provided that it would pay for the "actual loss" of business income sustained during the period of restoration, the insured was entitled only to the payments that would have been received during the restoration period.

Thus, if a hypothetical purchaser, but for the tornado, would have bought an $1,800 bedroom suite during the restoration period at $100 per month for 18 months, the issue was whether the insured would be entitled to the value of the entire contract, or only $100 for each month during the restoration period.

The court granted judgment for the insured, finding that the insurer's interpretation of the term "actual loss of business income," considered with the nature of the insured's business, would defeat the purpose of business interruption insurance, which was to place the insured in the position it would have occupied had the interruption not occurred.