Gustafson's Dairy, Inc. - Page 23

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          for fiscal years 1988 and 1989 because the cost of cows                     
          increased.  Petitioner estimated that it would receive a                    
          slaughter price of $400 for each cow.  Thus, petitioner's board             
          had a reserve of $3,300,000 in fiscal year 1987 (6,000 cows x               
          $550), and $3,900,000 in fiscal years 1988 and 1989 (6,000 cows x           
          $650) to cover losses to the dairy herd in the event of disease             
          or other disaster.                                                          
                    b.   Liability Insurance                                          
               Petitioner bought commercial liability insurance and funded            
          a reserve for self-insurance for risks above $5,000,000 in the              
          years in issue.                                                             
               During the years in issue, petitioner was covered by                   
          Insurance Company of North America (INA) primary liability                  
          insurance policies.7  Petitioner had the following commercial               
          liability insurance policies:                                               




          7 Some of petitioner's insurance policies provided per                      
          occurrence coverage and others provided aggregate coverage.  A              
          per occurrence policy pays up to the amount of the policy for               
          each covered loss.  An aggregate policy pays no more than the               
          amount of the policy during the policy period regardless of the             
          number of claims.                                                           











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