Is that a real 1959 Clos Saint-Denis? Your vintage wine may not be real . . . and you probably aren’t covered for the loss.

A California court of appeal recently held a wealthy wine merchant (connoisseur is almost certainly too gracious a term here) could not recover for his financial loss when he discovered his “vintage” wine was actually counterfeit. Doyle v. Fireman's Fund Ins. Co., No. G054197, 2018 Cal. App. LEXIS 187 (Ct. App. Mar. 7, 2018)

The present case begins with another case, that of wine fraud Rudy Kurniawan, convicted in 2013 of counterfeiting rare vintage Burgundy wines. Some estimate that Kurniawan sold as much as $150 million in fake wine from 2002-2012. It is perhaps the largest counterfeit wine scam of all time. Furthermore, much of his scam wine has not even been removed from the market and is still being sold to this day.

Which brings us to the unfortunate Doyle, our plaintiff. From 2007 onward, Doyle purchased nearly $18 million in “rare” and “vintage” wines from Kurniawan. These wines were insured under a “Valuable Possessions” policy with a coverage limit of $19 million. Naturally, following Kurniawan’s arrest and conviction, Doyle tendered his loss Fireman’s Fund Insurance Co. However, Doyle’s insurer denied the claim arguing that there was no loss under the policy.

How can a now worthless $18 million investment not possibly qualify as a loss? First, as with all insurance questions, look to the policy language.

As the court of appeal summarized:

The Fireman's Fund insurance policy at issue in this case is a preprinted “Scheduled Valuable Possessions Policy,” which covers various items of valuable personal property such as jewelry, furs, and fine art. The policy also covers: “‘Collectibles’, meaning wine. . . . The “PERILS INSURED AGAINST” provision of the policy provides: “We insure for direct and accidental loss or damage to covered property caused by an ‘occurrence.’” The policy defines an “‘occurrence’” as “a loss to covered property which occurs during the policy period . . . and is caused by one or more perils we insure against.” The policy does not define the term “loss.”

Fireman’s Fund no doubt recognized Doyle’s sunk resources in the counterfeit wine but pointed out that under the express terms of the insurance policy, there was no loss to the property. To put it another way, while the wine may not be worth the amount Doyle paid for it, “the wine is in the exact same condition now that it was in when [Doyle] first insured it[,]” thus Doyle’s financial loss was not a result of anything that happened to the wine he purchased, he simply purchased (and insured) worthless wine.

The court ultimately agreed with Fireman’s Fund, noting that Doyle’s financial loss was not a covered peril under the policy. Nothing actually happened to the wine from the time of purchase until its discovery as counterfeit, Doyle unfortunately became aware of the true nature of his property.

Wine scams are increasingly common, especially in wine famous California. Recently, a wine importer based out of Berkeley, Calif. Was sentenced to 78 months in prison and ordered to pay $51.5 million in restitution for running what was essentially a wine-club Ponzi scheme.

In this case, Doyle purchased a property insurance policy. This makes sense most of the time with respect to property; if a policyholder’s home is destroyed then the policy will cover paying for repairs or rebuilding. However, this type of policy will not cover an item’s intrinsic value.

However, when a piece of property is rare and unique, or purports to be, then there may be financial losses that occur other than physical harm. For instance, art collectors purchase what is known as provenance insurance policies to protect their investment when a piece of art may have been stolen in the past and the true owner seeks to recover their stolen work. These policies typically are particularly important when ownership may be in dispute for art work created before 1945, when the Nazis looted much art.

Doyle may have been able to protect himself through the purchase provenance insurance.

At Kerr & Wagstaffe LLP, our attorneys specialize in insurance policyholder rights. To learn more about the attorneys and their insurance practice, please explore the links at the top of this page.