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As demand for high-priced vintages grows, so does demand for
wine insurance.
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Wine connoisseurs would rather drink their bottles than get a
claim check, so insurers help them protect their collections
from damage and spoilage.
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Buy, Hold or Cellar
Insuring vintage investments may be
hard to swallow for some, but it’s absolutely essential
if you don’t want to become the next ‘Big Wine
Caper.’
By
Carrie Williamson
The crime had the makings of a mystery novel for the Robb
Report set.
In the affluent Silicon Valley town of Atherton, Calif., a
venture capitalist returned from a New Year’s vacation in
the first days of 2007 to his gated multi-million dollar home
on Fair Oaks Lane, a quiet cul-de-sac. To the horror of both
his wallet and palate, he found $139,000 worth of vintage wine
missing from his climate-controlled cellar. A total of 454
bottles had vanished, including a rare $11,000 magnum of 1959
Château Pétrus and a vertical of red Bordeaux
representing an unbroken line of more than 20 years.
The average price of a stolen bottle: an astonishing $3,000.
No common cat burglar, this thief was one discerning
oenophile.
The heist became known as “The Big Wine
Caper.”
Stocking Up
On a Saturday morning in spring, tables draped with starched
white linen and stacked with trays of canapés face the
auctioneer at Christie’s Fine and Rare Wines auction at
New York’s Rockefeller Center. In the back of the room a
bartender serves fresh juice, sparkling water and champagne.
There is the pop of a cork. To the amusement of the bidders,
the auctioneer pauses and imitates the sound by flicking the
back of his index finger against the side of his mouth.
A buff guy in a black tee shirt, jeans and pointy boots
never removes his shades. A silver-haired lady sits
attentively, glasses perched on her nose. A balding man with
long strands of the hair he has left and bright red socks
studies the catalogue like a racing form.
Amateur and serious collectors, wine brokers and the
curious, wine auctions draw an eclectic crowd and an exclusive
group of insurers and brokers helping wealthy collectors pursue
and protect their passions.
On each side of the room, tapestries of half-clad people
dancing merrily in the woods hang from the walls behind the
dark wood consoles where rows of jacketed salesmen and women
arm the phones for call-in bidders.
A case of ’95 Opus One goes for $2,370. An absentee
bidder gets two bottles of 1990 Cristal for a bargain $700.
After a bit of witty banter with the auctioneer whose accent
reflects his Savile Row-like pinstriped suit, Mr. Red Socks
ceases bidding on a lot of Château Lafite-Rothschild,
eliciting a “Sure? You were tempted weren’t
you?” It is a convivial yet businesslike atmosphere.
Lots from the private cellars of well-known collectors
create spirited bidding. But with the storage habits of other
sellers a mystery and counterfeit labels on the rise, buying
wine, even prestigious vintages, is not a sure thing.
[Page 2 of 6]
One thing is for sure: With record sales of over $71 million
in 2007 at Christie’s alone, demand is soaring. And with
a case of 1985 Romanée-Conti fetching $237,000, the most
expensive case of Burgundy ever sold at auction, collectors are
willing to pay for it.
“It is a global phenomenon,” says Rik Pike of
Christie’s New York. “There has been a substantial
increase in wine investment over the last four or five years
mirroring the rise in prices for blue chip wines. There are
major collectors in North America and Europe and also a large
collecting community in Asia, a significant and important
market.”
London is setting the tone for prices, says Doug Fauth, the
owner of Tribeca Wine Merchants in the trendy Manhattan
neighborhood of the same name. “A 2000 Pétrus, which
sells for $4,250, is selling at well over $5,000 in
London.”
Fauth deals in wines of the highest provenance and those
rarely offered outside of the vineyard mailing lists. “I
sell directly to some of the largest collectors in the United
States and Canada with average cellars of 50,000 to 200,000
bottles,” says Fauth. “It is a relatively small
group of primarily Bordeaux and Burgundy collectors, but the
average value of their cellars is in the millions if not tens
of millions of dollars.”
Echoing Pike he continues, “My collectors are always
looking for the top vintages. Pétrus, Lafite, Mouton. Cult
wines from California—Harlan, Bryant, Colgin. They buy
every vintage, which creates more value to the collection. Like
Chinese antiquities and 20th century paintings, only one to two
percent of wines in the world are the great wines.
Unfortunately, the top wines continue to go up in price because
the demand far outstrips what is out there.”
Motive has clearly been established for “The Big Wine
Caper.”
Vinegar and Broiled
The $1 million wine collection at legendary Brennan’s
Restaurant in New Orleans’ historic French Quarter was
not spared the wrath of Hurricane Katrina. After a month
without power and with temperatures that reached 130 degrees in
the cellar located in the former slave quarters, the 35,000
bottles were “vinegar and broiled,” as co-owner
Teddy Brennan lamented in a 2006 interview on National Public
Radio.
“We used to have what was considered probably the
finest wine cellar between Texas and Florida and Louisiana and
Chicago,” he continued. Although the restaurant stocked
$20 bottles to accommodate tourists, prices went as high as
$5,000. “We had some wines back there that weren’t
even on the wine list, like a magnum of 1870 Château
Lafite that doesn’t exist. I mean there might be three or
four more in the world.”
Brennan’s brothers and the chefs rode out the storm,
eating and drinking in style in an effort to stem the waste.
“They drank a lot of Pétrus, but they didn’t
drink the old, old vintage,” Brennan told the NPR
reporter. “I wish I had told them about it on the phone
from Dallas. I should have said, ‘You ought to drink that
1870 Lafite.’”
“We were covered by insurance, but some of that stuff
you just can’t replace.”
[Page 3 of 6]
Wine Insurance—Covering for Biblical and Modern
Times
Wine insurance. It’s like living in Biblical
times—flood, fire, earthquake. Mix in the modern day
calamities of counterfeiting and theft-for-profit, and it is
the perfect storm of worry for insurance underwriters and
brokers.
James Kane, president of HUB International Personal
Insurance in Chicago, encourages collectors to “deal with
carriers that are familiar with the specifics of the
exposure.” According to Kane, AIG, Chubb and
Fireman’s Fund are the major players in the wine
insurance market. “All three write homeowners policies
that are broad enough to cover most collections and also
provide scheduled coverage,” he says. If there is a
particular issue that increases exposure, like a collector
regularly shipping expensive cases of wine from Europe, Kane
may turn to Lloyd’s or XL “because the pricing is
more favorable because they are more comfortable with
it.”
While the nuances of each company’s coverage vary,
they are united by their emphasis on risk management.
“The way you assess the risk, you take into account a lot
of things you normally wouldn’t,” says Ron Fiamma,
director of Private Collections, AIG Private Client Group.
“We have a whole team of loss prevention specialists who
work to make sure collections are properly stored.”
When a policyholder was building a new home, AIG sent out
experts to do a safety assessment that included a temperature
control system for the custom wine cellar. The system used
parts from a German manufacturer.
“We determined that it was more cost effective to
pre-purchase $4,000 worth of spare parts to have on hand if the
system broke down rather than risk losing the entire collection
if the parts didn’t arrive within a few days,” he
says. Upon AIG’s recommendation, the client purchased the
spare parts. “Since AIG does cover mechanical breakdowns,
which depending on the company and type of policy are not
always covered, this was key to avoiding a payout in the
millions.” The client could also rest assured that he
could save his collection of rare vintages, which Fiamma says
is much more important to this kind of client than a claim
check.
Wine insurers advise customers on how to store their
collections to avoid damage.
Peter Spicer, communications manager of Chubb Personal
Insurance, has seen “massive collections stored in
moldering boxes under attic stairs”—something that
should make any serious wine drinker, let alone wine insurers
wince.
Aiming to “prevent loss in the first place,”
Spicer says, Chubb sends out a collector specialist who
assesses temperature, humidity, light, the storage facility,
where the cellar is located within the home, and if there is an
alarm system. “We try to help them understand how they
can protect their wine,” says Spicer. “For
instance, in earthquake-prone areas we recommend using racking
systems specifically designed for seismic events. We’ve
even used infrared cameras to assess the overall house and help
look for electrical arcing, missing insulation and water
leaks.”
Fortunately, for Brennan’s and others with storied
collections of rare wines living in hurricane-prone areas,
flooding may not spell the end of a good wine before its time.
“In many cases when there is a flood, if it is not a
violent flood, the wine may remain intact,” says Spicer.
“There is depreciation of the value because of the damage
of the labels. But we assess that on a case by case
basis.”
An Ounce of Prevention—High-Tech Cellaring
Evan Goldenberg, owner of Design Build Consultants in
Greenwich, Conn., builds high-end custom wine cellars ranging
from $50,000 to $500,000, many of which are so elaborate and
spacious you wouldn’t recognize them as wine cellars if
not for the racks of bottles.
Goldenberg says wine cellars have gone high-tech, a welcome
advent for insurers, auction houses and collectors.
“Years ago the focus was on refrigeration only,” he
says. “If you were lucky they would put in a high/low
temperature alarm.” Now his company can monitor each
client’s wine cellar in 30-second intervals with a
digital electronic controller that sends data to the Internet.
“Each client can log onto the Web site and see the
temperature and humidity in real time,” he says.
“We can produce provenance on how well the wine was kept
versus someone leaving old cases of Bordeaux in their moldy
basement and selling them. We want to make sure that they
aren’t selling vinegar.”
[Page 4 of 6]
And what about that vinegar? What would happen if Mr. Red
Socks had purchased the lot of 1966 Lafite-Rothschild only to
open a coveted bottle, take a sip and find out it had gone
bad?
“Corkage is not covered,” Spicer responds.
“If there is no mechanical breakdown and the bottle
isn’t good, well, too bad.”
The insurers often refer clients to companies that offer
comprehensive wine collector services, including helping people
understand when it is the right time to drink specific bottles
of wine.
The Haves Versus the Sort-of-Haves
The staggering prices of prestigious vintages at auction and
through wine brokers would make one believe that there are
millions of dollars of wine stocked in every wine cellar.
However, the different types of coverage generally reflect the
different types of collectors.
Wine underwriters insure private collections in several
ways. For his sophisticated collectors with blue chip vintages,
Kane recommends that they keep an inventory and insure their
wine collection or at least their most expensive bottles,
separately with “valuable articles coverage,” VAC
for short.
The all-risk policy, which has no deductible, includes
coverage not always found in a homeowners policy, such as
coverage for flood damage, “mysterious
disappearance,” spoilage resulting from a rapid
temperature change due to loss of power or a mechanical
breakdown that causes equipment to malfunction. Coverage for a
$250,000 collection could run from $1,000 to $1,150 a year.
For serious collectors who regularly buy at auction houses
and through dealers in London, Singapore and Hong Kong,
purchasing VAC is especially important. “VAC is worldwide
coverage, and coverage kicks in as soon as they purchase the
wine,” says Spicer. Depending on whether the collector
has an existing VAC policy or a newly acquired policy, the
amount of coverage and time allotted for transport to their
cellar will vary.
What about the sort-of-haves—the person who
isn’t collecting verticals of Bordeaux and $11,000
magnums of Château Pétrus but does have a well
stocked cellar?
“We provide blanket coverage and name a $100,000
limit, applying up to $10,000 for any bottle,” Spicer
says. “This is also a nice feature if the collector is
changing out their wine collection regularly.” Yes, there
are those lucky few who uncork their precious bottles of
Pétrus so fast there is no time to schedule them.
Finally, there is standard contents coverage under
homeowners insurance. A $1 million dollar policy will offer 50%
coverage for contents and is subject to a deductible. So for
certain types of losses, such as fire, theft and water damage
(a hot water heater bursts, not a flood), the collector will
have coverage right up to $500,000 for their wine. They
actually do get some coverage for spoilage, limited to $5,000
with a $250 deductible, but it covers only for spoilage caused
by these certain types of losses. “The downside is that a
person can pretty quickly tap out their contents limit,”
Spicer says. “If there is a loss, they will have to make
choices about what they will use the insurance to
replace— wine, jewelry, art, furs.”
[Page 5 of 6]
Collectors ultimately purchase a policy based on their own
comfort level. “The guy that really likes his Cakebread
chardonnay and stores his cases in his house will schedule
$12,000 for wine and cover it all,” Kane says. On the
other hand, Kane has also had a client with a $40 million house
and a $50,000 wine cellar who was perfectly comfortable
covering his collection with his homeowners policy. “A
$50,000 impact is significant, but it doesn’t alter his
lifestyle.”
Modern Mischief
While the Federal Bureau of Investigation doesn’t have
any hard data on the subject, anecdotal evidence shows that
counterfeit wines are on the rise. Billionaire William Koch is
shaking up the wine industry with several lawsuits he has
filed, including one against two prominent Chicago wine
companies accusing them of selling him over $1 million dollars
in counterfeit wine, some of which was purported to be from
Thomas Jefferson’s cellar. While the FBI did investigate
the case, no criminal charges were filed, so it remains to be
seen how things will pan out in civil court.
Insurers have not really been focused on discerning whether
the bottles they insure are counterfeit.
“What they’ve been more focused on is whether a
wine cellar is temperature controlled or not, and fire hazards
and floods,” Goldenberg says. “Systems conking out
when there aren’t backup generators.”
At certain values, Chubb will ask customers to show receipts
for very expensive wine, Spicer says, “but we rely on the
value a customer shows us. We are not looking for a detailed
appraisal until over $10,000, and then we will ask for
additional documentation.”
High-tech devices are helping collectors keep closer tabs on
their fine wines. The latest are radio frequency identification
(RFID) tags.
“Collectors used to rely on bar codes, but now some
people are having a digital chip the size of the head of a pin
affixed to the bottom of the wine,” Spicer says.
“As the customer leaves the wine cellar with the bottle
they can scan the bar code so they can keep up with what is
missing. With RFID they can essentially do a whole room scan
and understand what the inventory is without having to
individually scan.”
Wine insurers offer varying levels of consultative services
from outside companies to select customers who have complex
household needs that address security issues. “Domestic
servants create a higher level of risk, so we provide
complimentary background checks to these select
customers,” says Spicer. “We also provide
consultative services to help minimize turnover. Happy
employees are a method of defense and provide security. Of
course, you can’t beat a good alarm system.”
Ironically says Kane, “Most clients do not take
advantage of these services.”
Despite the hoopla over counterfeit wines and high-profile
thefts, Spicer says most claims are much more mundane.
“Breakage. Damage to shipment during transport, the most
vulnerable time.”
[Page 6 of 6]
Whodunit?
Since there were no signs of forced entry, and a person
would need both a code and a key to enter the house, the police
figured the Silicon Valley wine caper was an inside job.
“We got cameras and placed them strategically so there
wasn’t anywhere in the cellar you could go without being
seen,” says Detective Sergeant Joe Wade of the Atherton
police.
The police watched on a live feed and saw the housekeeper
and her boyfriend rummaging around. He picked up a few bottles
but didn’t take anything.
A couple of days later when Wade noticed the camera pointed
to the wall, the police checked the cellar and found that 12
bottles of wine worth $350 each were missing. They got a search
warrant and found the bottles at the boyfriend’s
house.
In a “C.S.I.” twist to the case, the police
confiscated a computer. “What we found when we were
looking on the computer were all of these searches on
winezap.com,” says Wade. “Winezap.com allows you to
input the specifics of the vintage and get a ballpark price for
how much a particular bottle of wine costs. We tracked every
missing bottle through his winezap.com searches.”
Both the housekeeper and her boyfriend were charged with
burglary, conspiracy and possession of stolen property, and
both had criminal records for theft-related offenses.
The cellar did not have an alarm system or barcodes or RFID
tags on the bottles. In a nod to the risk management emphasis
of wine insurance policies, Wade says, “If you want to
keep your wine safe, you almost have to take these kinds of
measures. Some people slip through the cracks. Some people who
seem trustworthy in the beginning turn out not to be. Cameras
proved to be very helpful.”
In the end, only the boyfriend was sentenced to four years.
“The court really says that a person’s home is his
castle,” Wade says in response to the stiff sentence.
Wade, whose own interest in wine collecting was piqued
during the investigation, muses, “Somewhere there are
still 454 bottles of wine floating around out there. I’ll
always be looking for a 1959 magnum of Château
Pétrus.”
Williamson is travel editor. Carrie.Williamson@LeadersEdgeMagazine.com
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