Civil Rights
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A pair of wine collectors caught up in a Ponzi scheme got some disappointing news from the 10th Circuit last week: Their insurance policy doesn’t cover bottles of wine that were never delivered.
Fine wine purchasers Malik and Seeme Hasan placed orders with John Fox, president of wine merchant Premier Cru, for roughly 15 years before Fox pled guilty to wire fraud – admitting that he had been running a Ponzi scheme. Premier Cru sold wine from its Berkley, California warehouse and retail store as well as through “wine futures,” where customers could pre-order wines to be delivered at a later date.
The trouble was, many of these pre-ordered bottles didn’t exist. Fox admitted to selling $20 million worth of wine he knew the company could never deliver, leaving over 4,000 customers feeling like sour grapes.
The Hasans sought to recover some of their losses, estimated to be over $600,000, from their “Private Collections” insurance policy. The policy covered direct physical loss or damage to “valuable articles,” defined as personal property the policyholder owns or possesses. However, although their insurance company’s Private Collections policy covered new acquisitions at the time of purchase, the plan did not cover fraud.
The plaintiffs argued that the funds they paid to Premier Cru were used to purchase specific bottles of wine, and that the failure to deliver meant the bottles must be lost or damaged. However, the District Court found, and the court of appeals affirmed, that because there is no proof that Fox actually purchased any wine on the plaintiff’s behalf, there was no direct physical loss.
I guess you can’t miss what you never had.