TENTH CIRCUIT HOLDS THAT $1.7 MILLION IN WINE LOST DUE TO PONZI SCHEME IS NOT COVERED BY INSURANCE POLICY
U.S. Court of Appeals, 10th Cir.: Plaintiffs Malik and Seeme Hasan are fine-wine purchasers who, for fifteen years, ordered wine from Premier Cru, a wine merchant in Berkley, California. Plaintiffs placed their orders through Premier Cru’s president John Fox. Premier Cru sold two types of wine: (1) wine physically present at its Berkley warehouse, and (2) wine that was not in possession but which it promised to deliver to its customers at a later date (known as pre-arrival wine).
Premier Cru, however, was not actually ordering or delivering much of the pre-arrival wine that it promised. Although Fox represented to customers that Premier Cru had already contracted with suppliers, he knew that it actually would not obtain much of what it sold. In August 2016, Fox pled guilty in federal court to wire fraud arising from this Ponzi scheme.
Plaintiffs sought to recover their losses under a Private Collections insurance policy obtained by Defendant AIG Property Casualty Company to cover their wine collection and other valuables. The policy insured against “direct physical loss or damage to valuable articles….” The term “valuable articles” is defined as “the personal property you own or possess….” The policy provided $2,000,000 in coverage for wine. Plaintiffs argue that in purchasing coverage they relied on AIG’s website describing its Private Collections policies, which stated that “new acquisitions are immediately covered at the time of purchase.” They also claim to have relied upon a coverage highlight sheet distributed by AIG which stated that coverage extended to “in transit items.” The policy did not contain coverage for fraud.
Plaintiffs submitted a claim to AIG for $1,707,985 – the asserted market value of the 2,448 unrecovered bottles of wine. AIG denied coverage on the basis that Plaintiffs did not “own or possess” the wine as required under the policy, and thus did not suffer direct physical loss or damage to wine owned or possessed by
them. AIG further explained that their claim was for a loss of money instead of wine, which was not insured under the policy.
Plaintiffs sued AIG under multiple causes of action. AIG moved for summary judgment, arguing that Plaintiffs did not own or possess the wine, and even then, Plaintiffs could not show any “direct physical loss or damage” as required under the policy. The district court agreed and granted AIG’s motion.
On appeal, Plaintiffs argued that, unlike other of Premier Cru’s customers, Fox had actually used their money to purchase and allocate the
specified 2,448 bottles which they purchased. They thus purchased bottles which they have not yet received. According to Plaintiffs, those bottles must have been lost or damaged, and are therefore covered by the policy. The Tenth Circuit Court of Appeals stated that the problem with Plaintiffs’ argument was the absence of evidence that Fox had actually purchased the ordered bottles for Plaintiffs. This was congruent with Fox’s admissions of fraud under the Ponzi scheme. As such, the Court agreed with the district court and affirmed the grant of AIG’s motion for summary judgment.
Hasan v. AIG Property Casualty Co., 935 F.3d 1092 (U.S. Court of Appeals, 10th Cir., decided August 27, 2019, not yet released for publication in the permanent law reports).