Court finds inventory-loss exclusion is not a basis for summary judgment A corporation that included 105 hospitals and 20 surgical centers among its subsidiaries discovered it was missing somewhere between $8 million and $12 million worth of linens, including surgical gowns, bed sheets and pillow slips. The loss was discovered in 1998, when the corporation conducted a physical inventory of hospital linens upon changing vendors to oversee the laundering and maintenance of linen stocks. The corporation concluded that its loss was attributable to the previous vendor's inventory mismanagement and other acts of misfeasance and malfeasance. That vendor's contract with the corporation ran from Jan. 22, 1996, to May 1, 1998.

The corporation sought recovery for its losses from a number of insurers from which it had obtained commercial property insurance. These policies had special (“all-risk”) causes of loss forms. After all of the carriers declined to pay the alleged losses, the corporation sued them.

The insurers generally denied that a loss or losses had occurred within the meaning of their policies. One defense they raised was the exclusion in their policies for losses that can be demonstrated only by taking inventory or by other means that produce no physical evidence of what happened to the property. On the basis of this exclusion, the trial court issued summary judgment in favor of the insurers. The corporation appealed.