Northern Paamese and Southeast Ambrym, two languages of Central Vanuatu, share a set of sound changes involving vocalization and loss of *l. One subpart of this sound change results in loss of *l word-initially before nonhigh vowels. An interesting aspect of this sound change is that it appears to apply in all word classes except verbs. Indeed, Crowley (1997) suggests that Northern Paamese *l-loss is a clear case of sound change with grammatical conditioning. In this paper we suggest that phonological and morphological aspects of verbal inflectional paradigms have given rise to the apparent exceptionality of *l-loss in these two languages. Phonological factors result in continuation of *l, while the structure of inflectional paradigms has given rise to analogical restoration of initial /l/ in all verbs where it is expected to be lost. Under this analysis, initial *l-loss can be seen to have applied without exception, and without grammatical conditioning.