Protected against wine fraud? Think again. Court rules “valuable possessions” insurance doesn’t protect against wine fraud and counterfeits.

This case is a piece of the ongoing Kurniawan saga which may not be over anytime soon given reports that there may be up to $550 million in trades and sales conducted based on that potentially fake (let’s be honest, in all probability: fake) wine.

A tech entrepreneur (David Doyle) who’d bought $18 million in wines from Kurniawan filed a claim with Fireman’s Fund Insurance Company seeking reimbursement for a loss under his “Valuable Possessions” policy (think wines, cars, comics, art, and baseball cards) for the money he’d spent on wines from Kurniawan – a convicted counterfeit who found, purchase, and made vintage bottles and filled them with his own wine mixtures, selling them to collectors for outrageous prices mostly based on the trust he’d garnered from being part of the wine collector’s scene over a decade. (Netflix has a really great documentary on this: Sour Grapes). The case is Doyle v. Fireman’s Fund Ins. Co., No. G054197 (Cal. Ct.App. March 7, 2018) (link goes to opinion).

Fireman’s denied coverage stating that there wasn’t a “loss” as that term was used in the policy and the entrepreneur sued. In an opinion citing Shakespeare as deftly as it does insurance contracts, the court ruled that because the policy said it insured against:

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.”

And because a loss insured against was:

That is, the plain language of the “PERILS INSURED AGAINST” provision makes it clear that Fireman’s Fund was insuring against “direct and accidental loss … to covered property[.]” The word “loss” modifies the subject phrase “covered property” by way of the preposition “to.” Fireman’s Fund was insuring against any losses to the wine; Fireman’s Fund was not insuring against any losses to Doyle’s finances or to his unrealized expectations as to the value of the wine he had purchased.

Then there would be no loss to the wine in this case because the fake wine was always fake and it wasn’t destroyed nor was it damaged – the loss was to Mr. Doyle’s finances:

When Doyle purchased the wine from Kurniawan it was counterfeit. The wine remained counterfeit (and essentially worthless) throughout the entire coverage period of the policy. Perhaps Doyle has a valid claim against Kurniawan for fraud. However, Doyle cannot reasonably expect his Fireman’s Fund “Valuable Possessions” property insurance policy to reimburse him for his multiple purchases of wine from Kurniawan, which was essentially valueless at the time of purchase. … Indeed, when it comes to property insurance, diminution in value is not a covered peril, it is a measure of a loss.

The insurance contract for property insurance doesn’t protect against fraud, just property damage. In the words of the opinion – “Doyle did not buy a provenance insurance policy; Doyle bought a property insurance policy.”

** But wait – there’s a little ray of sunshine – interestingly the Court stated in a footnote that “The parties settled a related claim regarding ‘a mutual mistake of fact as to the value of what was being insured, and a corresponding overpayment of premiums ….’ ” Which means that there’s some cold comfort in potentially recouping what you overpaid the insurance company if you find yourself the victim of a fraudster who swapped your Chambertin for something from Trader Joe’s.

*Thanks to Abigail Sexton at NULaw for bringing this opinion to our attention!