JUMP TO: THE FACTS | THE INVENTORY EXCLUSION | THE CONCLUSION

The inventory exclusion precludes an insured from proving an employee theft loss solely by reliance on inventory calculations, independent of other proof of actual employee theft. A recent decision of the Court of Appeals of Kentucky, Khazai Rug Gallery, LLC v. State Auto Property & Casualty Insurance Company, provides a good example of the application of the inventory exclusion, and makes important findings with respect to whether it is appropriate to infer a connection between a demonstrated instance of employee theft and another similar instance for which there is insufficient independent evidence.


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In our March 24 post, we summarized the decision of the U.S. District Court for the Middle District of Alabama in W.L. Petrey Wholesale Co., Inc. v. Great American Insurance Company. In that decision, the Court applied the Great American policy’s Inventory Shortages exclusion in holding that no coverage was available to the

In W.L. Petrey Wholesale Co., Inc. v. Great American Insurance Company, the U.S. District Court for the Middle District of Alabama granted summary judgment dismissing a claim under Great American’s Employee Dishonesty coverage. The Court held that the Inventory Shortages exclusion applied to the loss, notwithstanding that the insured (“Petrey”) had been indemnified by