David Doyle v. Fireman’s Fund Insurance Company

In Doyle v. Fireman’s Fund Ins. Co., 21 Cal.App.5th 33 (March 7, 2018), the California Fourth District Court of Appeal affirmed the trial court’s order dismissing a breach of contract lawsuit filed by David Doyle against Fireman’s Fund in connection with a claim made under a first party property policy for coverage of the fraudulent sale of purported rare wine. Doyle was a rare wine collector and had purchased $18 million of purportedly rare, vintage wine, from a wine broker, Rudy Kurniawan. Subsequently, Kurniawan was arrested and convicted of fraud and sent to prison for 10 years in 2013. Kurniawan had apparently been filling empty wine bottles with his own wine blend and had been affixing counterfeit labels to the bottles.

After learning of Kurniawan’s conviction, in 2014, Doyle filed a claim seeking reimbursement from his first party insurer, Fireman’s Fund, for the losses he sustained as a result of purchasing wine from Kurniawan. After conducting an investigation, Fireman’s Fund denied Doyle’s claim based on the determination that he had not sustained a loss of property insured by the Fireman’s Fund policy. Rather, Doyle had sustained financial loss due to Kurniawan’s fraudulent sale of worthless wine.

After Fireman’s Fund’s declination of coverage, Doyle filed a complaint alleging various causes of action against Fireman’s Fund, including breach of contract. In response, Fireman’s Fund filed a demurrer to Doyle’s complaint. The trial court sustained the demurrer and dismissed Doyle’s complaint. Thereafter, Doyle filed an appeal of the trial court’s order dismissing his lawsuit against Fireman’s Fund.

In affirming the trial court’s order dismissing Doyle’s lawsuit, the Court of Appeal described the Fireman’s Fund policy as follows:

The “PERILS INSURED AGAINST” provision of the Fireman’s Fund insurance policy Doyle purchased provides: “We insure for direct and accidental loss or damage to covered property… .” (Italics added.)

. . .

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’, trains, and other private collections of rare, unique or novel items of personal interest including memorabilia.” 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’” 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”.

The “EXCLUSIONS—LOSS NOT INSURED,” portion of the policy lists various exclusions such as, “Wear and tear, gradual deterioration, latent defect or inherent vice.” The policy also provides that: “If wine is covered … , the following exclusions also apply: a. Failure to use reasonable care to maintain all heating, cooling or humidity control equipment in proper operating condition … ; b. Improper handling or storage; c. Consumption; or d. Normal shortage, leakage, spillage, evaporation, dissipation, spoilage or deterioration, all usual and customary to wine.

The Court of Appeal emphasized that in order for potential coverage to be triggered under the Fireman’s Fund policy, the wine sold to Doyle by Kurniawan must have sustained physical injury. However, in this instance, the wine did not sustain any type of physical injury. Rather, Doyle sustained a financial loss as a result of purchasing worthless, rather than rare, wine.

In affirming the trial court’s decision, the Court of Appeal reasoned as follows:

Property Insurance is a type of insurance with its own historical development, and which is now available to cover ‘just about any type of property that exists in the modern world.’ The self-evident point is that property insurance is insurance of property. While in the modern setting ‘just about any type of property’ may be insured, the insured item must nonetheless be property. [Simon Marketing, Inc. v. Gulf Ins. Co. (2007) 149 Cal.App.4th 616, 622-623].

Given this premise, the threshold requirement for recovery under a contract of property insurance is that the insured property has sustained physical loss or damage. [Citation.] ‘The requirement that the loss be “physical,” given the ordinary definition of that term is widely held to exclude alleged losses that are intangible or incorporeal, and, thereby, to preclude any claim against the property insurer where the insured merely suffers a detrimental economic impact unaccompanied by a distinct, demonstrable, physical alteration of the property.’” [Simon Marketing, Inc. v. Gulf Ins. Co., supra, 149 Cal.App.4th at p. 623].

Here, Doyle has not pleaded a breach of contract claim that can be proven at trial because nothing happened to the covered property (i.e., the wine that Doyle purchased and insured). 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 not insuring against any losses to Doyle’s finances or to his unrealized expectations as to the value of the wine he had purchased. [See California Fair Plan Assn. v. Garnes (2017) 11 Cal.App.5th 1276, 1288-1289] [the phrase “total loss to a structure” in a fire insurance statute “unmistakably contemplates a quantum of physical damage … and excludes the sort of economic analysis employed by” the plaintiff].

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.