Our Client’s Problem

The insured was a dealer in motorized vehicles.  When a fire gutted the building, the insured submitted a large claim for destroyed inventory.  The vast majority of it was comprised of large quantities of items in just a few inventory stock numbers.  The insured documented the claim with an inventory report generated using an off-the-shelf accounting software package that was known for its ability to be easily manipulated without leaving an apparent document trail.  There were material discrepancies between the inventory according to the computerized inventory reports and the inventories reported on the company’s tax returns.

Robson Lenhart, PC’s Approach

To start, we donned coveralls, took the inventory report and waded into the fire debris to physically inspect and count what remained of the claimed inventory.  Focusing on the few categories that comprised so much of the claim, we observed that the quantities in the debris fell far short of the quantities claimed.  Then, we reviewed the transaction detail of the claimed items and noticed that these few items with such large claimed quantities were, according to the inventory system, acquired within just two weeks before the fire.  However, by looking at dates recorded by the system, but not shown on the reports, we found that the entries that added these quantities to inventory were made in the few days following the fire.  We continued to follow the document trail back to prior inventories, vendor invoices and sales invoices and found that these quantities added to inventory after the fire far exceeded the quantities that the insured had ever purchased.  We assisted counsel in conducting the insured’s examination under oath, during which the insured made false statements about a number of material aspects of the claim and documentation.


The Client’s Result

Our client filed suit in a declaratory judgment action against the insured, asserting breach of contract due to the insured’s apparent material misrepresentations in submitting the claim.  In a court-ordered mediation, the case settled for a small fraction of the amount claimed.  Our client resolved the case for a very reasonable sum and avoided the expense of a costly trial.


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