Vintelligence

A Hinsdale Cellars Exclusive
Collection Protection: Insuring Custom Wine Cellars 

By Marc Lazar
Cellar Advisors

In last month’s article, I mentioned the meteoric rise in collectible wine sales in recent years.  Given this rate of acquisition, I asked, “where is all the wine going?”  Hopefully a few readers are a bit more organized, or endeavoring to be so after reading about various tips for collection management.  This month we are going to discuss an equally important topic -- protecting the treasured contents of your custom wine cellars.

In my own business and in speaking with wine and insurance industry professionals, I see how even with millions being spent to acquire the best fine and rare wines, collectors often overlook essential protection for their investment.  In the US, wine cellars are commonly uninsured, or just as often, underinsured.  There are many reasons for this gap in coverage and just as many reasons why such coverage is so very important.

The Problem

Wine insurance is tricky for several reasons.  First and foremost, wine is a consumable product.  Unlike art, jewelry or classic cars, the entire purpose of a collection housed in a wine cellar is to provide the owner with a magical drinking experience.  Furthermore, even unopened wine is perishable, with a finite “shelf life.”  These factors make some insurance underwriters nervous.  How does one know if a bottle is actually worth anything?  How are we expected to value a cellar if the contents are constantly changing? These questions are often raised, but as wine becomes more popular the insurance industry is gaining insight and understanding about the needs of collectors.

A principle to keep in mind when considering wine insurance is spoilage.  Among collectors, the enemies of wine are well known.  Extremes of heat and humidity, UV light, vibration and of course breakage are the major insurable risks to a bottle.  Wine that was poorly made, corked or otherwise flawed from contamination or a winemaking error is not an insurable loss.  However, insurance companies often consider all these events to be spoilage and worry how to define it.  In the absence of good information, spoilage is often excluded from personal property coverage.  For these reasons, it is important to educate yourself and your agent that the type of spoilage we are concerned about is largely environmental.  A policy that doesn’t cover heat damage, dried out corks or breakage is essentially useless.  As we discussed in the article on collection management, a good, custom wine cellar or storage facility addresses these common concerns and create as safe an environment as possible.

Another part of the “problem” is the logistics of wine collecting.  Besides environmental concerns, bottles are heavy, fragile and often moved several times before ultimately reaching a collectors home cellar.  Given the vagaries of state liquor laws, you should never expect to have adequate coverage when using a common carrier such as FedEx or UPS.  A quality wine policy will have provisions for wine in storage and transit.  In this scenario, you are protected as soon as the wine becomes your property.  The trip from wine shop to home can be a long one, but if the wine is paid for it still should be covered. 

The final concern about wine insurance is coverage limits.  I have dozens of clients who mention that their wine is covered under traditional homeowner’s policies.  Even if true in theory, they often come to find that wine would fall under miscellaneous personal contents in the home.  Combined with the common scenario of underestimating the value of a collection, we see many collectors may only have $50,000 of personal contents coverage and several hundred thousand dollars worth of wine alone.  And remember, personal contents includes other household goods as well!  An accurate valuation is the first step to assuring sufficient coverage limits. 

The Solution

As nuanced as wine collecting can be, good insurance is actually quite simple.  The first step is to decide whether you are looking for a stand alone wine policy or a broader homeowner’s package that has special provisions for collectibles.  There are benefits to each path.  For many wine cellar owners who are collectors, there may be a long history of good customer service with an existing insurance carrier.  The thought of moving home, auto and other insurance products to a different carrier can be daunting.  If the only issue is a wine collection, a stand alone policy may be best.  Larger insurance brokerages are often familiar with these products and they offer broad coverage of wine at home, in transit and are usually tailored to include standard perils such as theft, breakage, loss and more specific concerns like environmental extremes and flooding.  Coverage is usually based on a declared value and individual bottles are only scheduled if they exceed a set value, usually $10,000-$15,000.  Expect to pay between 40 to 80 cents per $100 of coverage depending on your location, collection value and specific needs.

If you are looking for a more comprehensive insurance package and want wine stored in custok wine cellars to be included with other household collectibles, several carriers have begun developing specialty packages.  In these, a traditional homeowner’s type coverage is combined with high personal property limits and special features for collectors such as storage, transport and environmental coverage.  Generally speaking these bundled policies are slightly less expensive than a stand alone wine policy, but do require a more complex set of paperwork.  Leaders in the market include Chubb Group and Fireman’s Fund Insurance Company.  Both companies cater to a high net-worth clientele with complex insurance issues.  The true test of a policy is service at the time of a claim. Cellar Advisors has clients who have had trouble-free claims with both of these carriers. 

Regardless of which type of insurance you choose, look for basic features that address the most common concerns.  Along with those mentioned above, make sure your policy offers some coverage flexibility.  Most include 10-20% more than your declared value.  This can be an important provision for an active collector since you don’t want to call your insurance agent every time you buy a new case of wine.  Also, do not forget to consider the value of pre-arrival, futures or undelivered wine that you may own.

A Note on Storage

Many collectors have told me that they don’t need insurance. They say their most valuable bottles are not kept in a home-based custom wine cellar but, rather, in a wine storage facility that offers insurance.  Given that I own such a facility, this makes me very nervous.  When shopping for our coverage, I was offered sub-standard products by several prominent carriers and brokers.  If you rely on insurance offered by a storage facility, ask to read the policy declaration and be sure that the events most risky to wine are covered.  Particular concerns are fire (heat and water damage), extended power interruption, flood and earthquake, all of which are occasionally excluded.