Does the term computation include a physical inventory?

Illinois Subscriber

A

Whether the inventory shortages exclusion may be invoked in regard to this loss is not necessarily clear. Courts in various jurisdictions are not in accord on the issue. In any event, arguments for coverage might be made.

A review of cases interpreting the inventory shortages exclusion illustrates that how the exclusion will be interpreted depends upon the jurisdiction in which the case is brought. Three basic positions on the issue exist. Some courts allow the introduction of inventory computations only as corroborative evidence of both the fact and the amount of loss; there must be direct and independent evidence of employee dishonesty for any portion of any claim to be paid. Other courts permit the use of inventory computations to prove the entire amount of the loss where there is some independent evidence, even if only circumstantial, of employee dishonesty. Still other courts hold that unit-basis inventory comparisons are not “inventory computations,” within the meaning of the exclusion, so that such comparisons may be used to prove both the existence of the loss and the amount.

Therefore, whether there is coverage for the loss described will depend upon the position adopted by the Indiana courts (none of the cases I know of are from Indiana ).