When an insured's building was destroyed by fire, a dispute arose over his business interruption insurance claim. The building was used for commercial renting. The issue was whether or not depreciation of approximately $15,000 was properly deducted by the insurer's adjuster from gross rents that were prevented by the destruction of the building. The item was included with non-continuing expenses such as water, power, cleaning and the like.

A trial court determined that depreciation was a continuing expense and should not be deducted from recovery under the policy. The matter was reversed on appeal and was then appealed to the Illinois Supreme Court.

Loss of income coverage, in pertinent part, applied to: "....the reduction in rents, less charges and expenses which do not necessarily continue during the period of untenantability."

The insured argues that depreciation was a tax credit rather than an expense ''....because no funds are expended which reduce the amount of rents actually received." The insurer contended that depreciation was "....an expense or charge which does not necessarily continue during the period of the loss...." It should, therefore, be deducted from total prevented gross rents, along with other non-continuing expenses, in arriving at a settlement.

The high court said: "The insured property was destroyed, such that depreciation could no longer be subtracted from the value of the building." It agreed with the insured in concluding that "....under the loss of rents provision in the contract, depreciation is solely a tax device which is not a non-continuing charge or expense." It could not be deducted from the prevented gross rents.

The appellate court was reversed and the circuit (trial) court affirmed in favor of the insured and against the insurer.

(GREVAS, Appellant v. US FIDELITY AND GUARANTY CO., Appellee. Illinois Supreme Court. Docket No. 73127. October 15, 1992. CCH 1993 Fire and Casualty Cases, Paragraph 3986.)