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Posts Tagged ‘wine’

Winemakers Decan’t Warn a Consumer About Every Risk

Posted on: May 16th, 2018

A Pour Result for Plaintiffs’ Attorneys in California, but a Grape Win for Vintners

By: Robyn Flegal

In May 2018, the California Court of Appeals refused to revive a class action lawsuit claiming wines made by fifteen winemakers should contain an arsenic warning. The lawsuit was originally filed in 2015, alleging that these wines exposed consumers to arsenic in violation of California law. The panel of the California Court of Appeals held that the alcoholic beverage warning on these wines sufficiently notified customers about the potential risks associated with consuming the wine, despite the lack of a specific arsenic warning.

California’s Proposition 65—the safe drinking water and toxic enforcement act of 1986—protects the state’s drinking water sources from being contaminated with chemicals known to cause cancer, birth defects, or other reproductive harms. Prop 65 requires businesses to disclose exposures to such chemicals to Californians.

The appeals court held that the Office of Environmental Health Hazard Assessment requires companies to disclose one chemical for each health risk. Thus, because the alcoholic beverage warning alerted customers that wine could result in cancer and reproductive harm, the additional arsenic warning was unnecessary. The failure to provide a separate arsenic warning was therefore not a violation of the regulations.

Companies doing business in California should be aware of Proposition 65 and the labeling and disclosure requirements thereunder. For more information, please contact Robyn Flegal at [email protected] or any of FMG’s Commercial Litigation Professionals.

Devil Wine not a “Peril Insured Against”

Posted on: April 3rd, 2018

By: Eric P. Benedict

A California Appellate Court recently ruled that a wine dealer’s fraud was not covered under a collector’s “Valuable Possessions” property insurance policy after the collector discovered that millions of dollars in “rare” wine bottles were sold to him under false pretenses.  Over several years, David Doyle purchased nearly $18 million in what he believed to be rare, vintage wine from Rudy Kurniawan. Instead, Kurniawan had been selling Doyle his own blend, disguising it as various rare vintages. In 2013, Kurniawan was convicted of fraud and sentenced to 10 years in prison. Doyle was left with a storage facility filled with nearly-worthless wine. Doyle then filed a claim with his insurance carrier under a “Valuable Possessions” policy with a blanket limit of $19 million. In pertinent part, the policy insured against “direct and accidental loss or damage to covered property caused by an ‘occurrence.’” After the carrier denied coverage because there was no covered “loss” under the policy, the collector filed suit against the carrier for breach of contract. Doyle argued that the policy provided coverage for all insurable risks, “whether anything physical happened to the wine or not.” In response, the carrier argued that no “loss or damage to covered property” occurred because the wine was in the exact same condition that it was when it was first insured.

In Doyle v. Fireman’s Fund Insurance Company, the Court of Appeal of California agreed with the carrier and the trial court concluding that Doyle’s claim was not covered by his “Valuable Possessions” property insurance policy because the wine did not sustain any physical loss or damage. After noting that valuable goods such as rare wine were otherwise covered under the policy, the Court explained that the fraud was not a “peril insured against” under the policy. In the Court’s words, “the wine collector is stuck with the devil wine without recompense. A Shakespearean tragedy, to be sure.”

The Court of Appeal of California explained that because property insurance is, by definition, insurance of property, the “threshold requirement for a recover under a contract of property insurance is that the insured property has sustained physical loss or damage.” The Court reasoned that in the property insurance context, the word “loss” does not include claims where the insured “merely suffers a detrimental economic impact.” According to the Court, under the terms of the policy, the carrier was not insuring Doyle’s financial health or his unrealized expectations about the “vintage” wine he had amassed. The Court went on to explain that when the Doyle purchased the wine, it was already counterfeit and it remained counterfeit from the day he insured it through the day he filed his claim. Thus, no loss had occurred.

The Court then clarified that while diminution in value may be a measure of loss in the property insurance context, it is not a covered peril in and of itself. This case highlights the important distinction between covered property and covered perils in the property insurance context. While Doyle sought to insure his property against some perils, such as theft, abnormal spoilage, or fire, he was not covered by his property insurance for Kurniawan’s fraud or Doyle’s own failed investment. While Doyle claimed that the absence of a fraud exclusion in the policy evidenced coverage, the Court noted that it did not need to analyze the absence of a fraud exclusion, because the collector failed to carry his initial burden of showing that the occurrence was within the basic scope of insurance coverage.

With sympathy for consequences of Kurniawan’s actions, the Court quoted Shakespeare’s Othello and reminded Doyle that “the robbed that smiles steals something from the thief.”

If you have any questions or would like more information, please contact Eric Benedict at [email protected]