Our insured, a restaurant owner, has had a business income loss. He has applied for recovery of payroll, plus tips that would have been paid to servers. Business income insurance promises to cover "normal operating expenses incurred, including payroll." Are tips considered part or payroll?

Florida Subscriber

Since the business income form does not define "payroll," the insured is entitled to the most favorable interpretation in common usage. Webster's New Collegiate Dictionary defines "payroll" as (1) the actual list of persons to be paid and the amounts due, (2) the total of the sums on the list, and (3) the sum of money required to meet the payroll. None of these definitions, however, bolsters the insured's argument that tips should be included in "payroll."

The current language of the business income form might give the insured some help. The form promises to cover "continuing normal operating expenses incurred, including payroll." "Operating expenses" are those expenses "necessary to resume 'operations' with the same quality of service that existed just before the (damage)." The insured is, of course, the best judge of that.

However, the insured will find resistance when presenting his case. An experienced claims adjuster will normally dispute expenses that do not necessarily continue. Therefore, if the insured claims recovery not only for payroll, but for tips as well, the adjuster will probably deny this portion of the loss. The argument will be that, during the time the business is shut down, the servers have no clientele to serve.

To summarize, even though current policy language is not as rigid as it once was, traditional interpretation is against the insured. A court of law might buy the insured's argument; however, it is doubtful the insurance company will do so.