We have a question about the meaning of some language in the Businessowners loss payment condition. The condition states that, whatever the amount of settlement, the insurer "will not pay you more than your financial interest in the Covered Property." We are uncertain about the meaning of "financial interest." If an insured has business personal property or real property that cost "X" and later the replacement of the same property costs "X+Y," presumably the financial interest is "X+Y." Also, if the insured has a mortgage for a percentage of "X+Y," we think that the insured's financial interest is still "X+Y." If our interpretation is correct, what is the purpose of the "financial interest" provision?

Kansas Subscriber

This provision is indeed puzzling, although it is logical that the insured is entitled to receive the value of "X+Y" in the situations you have presented.

Perhaps the answer lies in the fact that the policy was designed for the relatively unsophisticated (in matters of insurance) operator of a small commercial enterprise. Insurable interest has always been limited to financial interest, and the statement in question may represent no more than the drafters' wish to curtail unrealistic expectations. In the same way, forms promising all risks or open perils protection carry an exclusion of "wear and tear" even though wear and tear, being inevitable, is not a "risk" that would otherwise be covered.

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