Accumulated Stocks Clause

Purpose

If a business holds a stock of finished goods, it can temporarily offset a production shortfall after a loss by selling from that stock – the loss of turnover is thereby deferred, not avoided, because the stock is then no longer available and must eventually be replenished. Without a specific provision, an insurer could argue that no measurable loss occurred within the indemnity period. The accumulated stocks clause corrects this by providing for an “equitable allowance” to reflect this deferred effect.

Effect and limits

The clause only applies where a loss of turnover actually occurs, or will inevitably occur – even if that loss falls after the end of the indemnity period, or where additional costs are instead incurred to replenish stock in time (in which case the increased cost of working cover typically applies). Originally limited to finished goods, more modern wordings also extend to raw materials and work in progress. Assessing the “equitable allowance” must be done on a case-by-case basis and remains a recurring point of dispute in claims adjustment, since neither insurer nor insured should gain an unwarranted advantage from the other’s mitigation response.

Negotiation and practice

For businesses with seasonal trading patterns or strategic stockholding (for example to cushion supply disruptions), the clause is an important element of loss-assessment logic and should not be deleted without careful review. In negotiation, it is worth clarifying whether the clause remains limited to finished goods or also extends to raw material and work-in-progress stock, since this materially affects loss calculation for manufacturing businesses.