Harvard business reports (1930)

56o HARVARD BUSINESS REPORTS thus leaving $11,600 as the average weekly income to be protected by business interruption insurance. The total coverage would then be 52 times $11,600 or $603,200, for which he requested a policy in the amount of $600,000. The insurance agency explained that, in so far as the insurance was concerned, the loss of profits was not essentially different from the loss of expense, and the treasurer was advised, therefore, that if insurance were not carried for the full amount, or $691,600, in case of a claim made as the result of business interruption, the insurance companies could pay only 60%91, or approximately six-sevenths of the actual loss sustained. A new policy was prepared on the basis of $600,000, a partial coverage, because the treasurer believed that amount of insurance was sufficient. Commentary: This case illustrates the use of a form of insurance which has become increasingly important to theater managers. The insurance company was quite correct in its statement that use and occupancy insurance under the standard policies then in use covered total gross receipts less the amount of expense which might be avoided during suspension. This interpretation obviously included a figure for net earnings. On the other hand, the treasurer of the company was correct in his opinion that the proportion of gross receipts which represented profits to the corporation constituted a liability to loss of a different character from that proportion of the gross receipts which represented a return for fixed expense. Failure to secure a net earnings figure may prove embarrassing to a theater, but certainly is not likely to endanger its existence as is a failure to earn a sum sufficient to cover fixed charges. On any logical ground, therefore, it would appear that if the treasurer of this theater wished to obtain a policy which would cover only those charges which would continue in the event of suspension, it should be possible for him to obtain such a coverage. Furthermore, if the treasurer of this theater was in a position in which he could do so and was sufficiently desirous of doing so, it is quite probable that he could have found an insurance company ready to write the form of policy he desired. It should be noted, however, that the usual form of profit insurance policy would not in any way meet the particular desires of the treasurer of the Boylston Theater. A question might be raised as to whether or not, from the point of view of good business policy, the request of the treasurer was well founded, but since this is not a major issue in the case it will not be discussed here. November, 1929 H. T. L.