When personal contents or business personal property are damaged or lost in a covered event, most policies require the policyholder to provide an inventory of the damaged or lost items to the carrier. But often, the carrier and the policyholder clash on the level of specificity required and whether the policyholder has submitted adequate proof of ownership or even the pre-loss existence of the listed items.
Policyholders and their representatives should always refer to the policy language to determine the extent of the post-loss responsibilities. The recent case of TBL Collectibles, Inc. v. Owners Insurance Company,1 highlights the importance of doing so.
The insured in TBL Collectibles owned and operated a retail coin and collectibles store, which was burglarized after hours. The items stolen included a floor safe which contained cash and bullion coins.2 The insured reported the loss to the local police department and made a claim under its commercial property insurance policy. The insured did not maintain up-to-date records of the purchases and sales of the coins. At the carrier’s request, the insured provided the following documentation to substantiate the loss:
- A handwritten list of the stolen items that the insured created from memory, which included descriptions, quantities, and costs for each coin;
- the police report, which contained a similar list of the stolen coins created from memory, along with additional items remembered and identified at a later date;
- invoices and deposit slips from a bullion coin dealer/supplier, from which the insured had purchased coins prior to the theft; and
- check copies, cash receipts, and bank statements reflecting the insured’s coin purchases in the four years prior to the theft.
During its investigation, the carrier concluded that the coins would be considered business personal property under the terms of the policy, but determined that the documentation provided did not adequately substantiate the loss. The carrier then retained a forensic accounting firm to inspect the insured’s business records. The accountant who reviewed the records determined that, although the records demonstrated a pattern of coin purchases, the records did not prove the ownership or existence of the specific coins allegedly kept in the safe. The insured was unable to provide further documentation because it did not keep written records of the coins it bought and sold. The insured also explained that many of the stolen items were purchased with cash and the insured did not have receipts.
The carrier denied the claim for the stolen coins. The denial letter, in part, stated: “The documentation you have provided has shown a pattern of purchasing coins, however it has not substantiated the specific coins you are claiming.” The letter quoted from the “Duties In the Event of Loss or Damage” provision of the policy and explained that, based on the policy language, the insured had “a duty to provide complete inventories of damaged and undamaged property” and to “prove the loss.” Citing the purported failure of the insured to comply with that duty, the carrier stated that it was “unable to issue any further payments on [the] claim.”
The insured sued seeking, among other things, declaratory judgment as to whether it had fulfilled its post-loss obligations under the insurance policy. The policy listed eight duties that the insured was required to perform in the event of a loss:
(1) Notify the police if a law may have been broken. (2) Give us prompt notice of the loss or damage. Include a description of the property involved. (3) As soon as possible, give us a description of how, when and where the loss or damage occurred. (4) Take all reasonable steps to protect the Covered Property from further damage, and keep a record of your expenses necessary to protect the Covered Property, for consideration in the settlement of the claim . . . . (5) At our request, give us complete inventories of the damaged and undamaged property. Include quantities, costs, values and amount of loss claimed. (6) As often as may be reasonably required, permit us to inspect the property proving the loss or damage and examine your books and records. Also permit us to take samples of damaged and undamaged property for inspection, testing and analysis, and permit us to make copies from your books and records. (7) Send us a signed, sworn proof of loss containing the information we request to investigate the claim . . . . (8) Cooperate with us in the investigation or settlement of the claim.
In court, the carrier argued that the insured failed to provide a “complete inventory” as required under duty five and asserted that neither the handwritten list nor the police report with the more comprehensive list qualified as a “complete inventory” under the terms of duty five.3 Specifically, the carrier contended that because this is a business policy, the term “inventory” necessarily signifies a detailed and up-to-date record of merchandise consistent with the definition of “retail inventory method.”4 The trial court rejected the carrier’s argument, by explaining:
The term “retail inventory method” does not appear in the policy, and [the carrier] cites no cases that construe “inventories” in duty five to require a policyholder to employ the “retail inventory method” in order to fulfill its duties in making a claim.
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[T]here is nothing in the phrase “complete inventories” in duty five that requires [the insured] to tender a pre-existing and up-to-date record of purchases and sales. [T]he dictionary definition of “inventory” is “a detailed list of assets,” “an itemized list of current assets,” or “the quantity of goods or materials on hand,” Inventory, BLACK’S LAW DICTIONARY (10th ed. 2014); Inventory, MERRIAM WEBSTER’S COLLEGIATE DICTIONARY (11th ed. 2007), indicating that an “inventory” is simply a list of items.
285 F.Supp.3d at 1199.
The court further explained that:
[T]he phrase “complete inventories” contemplates more than a single record of purchases and sales. The phrase appears to require an insured to provide separate “inventories” of both damaged and undamaged property—a task that would be impossible before a loss occurs. Further, because the term “complete” is most naturally read as modifying both types of “inventories,” an insured satisfies its obligations under duty five by providing, at the insurer’s request, a complete inventory of damaged property and a complete inventory of undamaged property.5
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This conclusion is further supported by duty five’s use of the term “include.” Duty five states: “give us complete inventories of the damaged and undamaged property. Include quantities, costs, values and amount of loss claimed.” Because the word “include” instructs the policyholder how to create the “complete inventories” (i.e., make sure the inventory includes quantities, costs, etc.), it supports an interpretation of duty five that the inventories are created after the loss. Use of the word “include” as a directive is inconsistent with [the carrier’s] interpretation since, under [the carrier’s] theory, the inventory already exists. Directing the insured on what to include in the “inventories” makes sense only if the inventories are created after the loss.
285 F.Supp.3d at 1199-1200 (footnote added).
As an alternative argument, the carrier also maintained that even if an “inventory” can be created from memory, the court should conclude that the insured did not satisfy the post-loss obligation because the insured had provided no documentation substantiating the ownership or existence of the specific coins allegedly stolen. The court also rejected this argument, explaining:
This argument is unavailing for two reasons. First, [the carrier] does not point to any policy language requiring the insured to provide such documentation. Although insurance policies sometimes contain a provision requiring the insured to produce documentation substantiating the claimed loss,6 the policy in this case contains no such requirement. Second, . . . the record shows that [the insured] did produce documentation to substantiate the existence and ownership of the stolen coins. These documents included bank statements and check copies, which established a pattern and practice of buying bullion coins of the type allegedly stolen from the safe. [The carrier] argues that this documentation does not substantiate the existence and ownership of the exact coins stolen, but [the carrier] fails to identify any express or implied term in the insurance policy requiring an insured to provide that level of proof in support of a claim.
285 F.Supp.3d at 1200-1201 (citation omitted, footnote added).
The court concluded that, because the insured supplied the carrier with a list (created from memory after the burglary) of the stolen coins, the insured satisfied the obligations under the plain language of the insurance policy. In many jurisdictions, failing to satisfy the post-loss obligations can preclude coverage and ultimately payment of claims. So, following a loss, policyholders and their representatives should be careful to note what the policy requires them to submit as part of an inventory.
1 TBL Collectibles, Inc. v. Owners Ins. Co., 285 F.Supp.3d 1170 (D. Colo. 2018).
2 “Bullion coins” are described as coins that do not have a face value and are not in current circulation; the value of these coins is based on the value of the gold or silver from which they are made.
3 The carrier conceded that the insured had complied with duties one through four and six through eight.
4 To support this contention, the carrier cited the following definition of “retail inventory method,” allegedly found in Black’s Law Dictionary (2nd ed.), “[t]he estimated value at the end of an inventory procedure that is based on retail price and cost. Includes the following steps: (1) maintaining detailed records of stock and prices, (2) computation of cost to retail percentage, (3) estimation of price of goods remaining against price of goods sold and (4) conversion of the estimation of inventory at a retail price as compared to the cost price.”
5 In this case, it was undisputed that the carrier had not requested a complete inventory of undamaged property (i.e., items not stolen).
6 Citing Walker v. State Farm Fire & Cas. Co., No. 16-cv-00118, 2017 WL 1386341, at *5 (D. Colo. Feb. 23, 2017), as an example of an insurance policy requiring insured to provide inventory of stolen property and to “[a]ttach to the inventory all bills, receipts, and related documents that substantiate the figure in the inventory.”