Wine claims can require special handling and adjusters should be aware of some of the issues that can impact the value of a collection.
According to a recent American International Group Inc. (AIG) study of wine insurance claims over 10 years, water damage from burst pipes or storms and power outages that disable wine cellar cooling systems are the most significant threats to fine wine collections in the United States.
The threats to wine
The AIG internal study analyzed damage claims from AIG Private Client Group clients in the U.S., who include some of the world's top wine collectors, from 2004 to 2014 to educate wine enthusiasts about how best to preserve and protect the value of their wine collections. The study shows the top five claims received by AIG during the period, by percentage:
Water damage: 26%
Power outage: 25%
Natural catastrophe: 18%
Katja Zigerlig, vice president of Art, Wine and Jewelry insurance for AIG Private Client Group, explains that as people get more interested in wine, they become more knowledgeable very quickly. They learn that wines become more expensive as they get older and closer to the optimum age for drinking, particularly with a very good California cabernet or the very expensive French and Italian wines.
“The great thing about wine is that it's one of the easiest collectibles to insure,” Zigerlig adds, “and the insurance is very important because wine is fragile and vulnerable to risk.” Most clients have a blanket policy that allows them to take an average of the cost of the valuable bottles. The policy also includes a maximum price per bottle. She explains that it's common to have a $50,000 blanket policy and a $10,000-per-bottle maximum, although coverage can range from $10,000 to $10 million. The blanket works best for most collectors because inventory comes in, is laid up for 10 to 20 years, and goes out through consumption, parties or gifting, she adds.
Smart home technology can help
Unlike the collecting behavior pertaining to other tangible assets such as collector cars, fine art or jewelry, wine enthusiasts are not as aware of the vulnerabilities tied to their passion. Unfortunately this could lead to disappointment at claim time, as most homeowners policies specifically exclude coverage for perishables such as wine. A good wine insurance policy, Zigerlig says, includes features to protect wine collections, such as coverage for loss from flood, storms or earthquake; equipment breakdown; new acquisitions; and for bottles in transit.
Most of AIG's private clients with wine collections are in California, followed by Florida. For these clients, the risk of a power outage for wine coolers or climate-controlled rooms is high. Zigerlig believes that having smart home technology — especially a system that warns of power failure or a significant drop in temperature — can help reduce the severity of loss and may affect a client's rates. This is important for clients who travel or own several homes. Ideally, the smart home system will maintain temperatures and alert someone like a home manager in case of any catastrophic failure.
Some clients store their wine in off-premises, climate-controlled storage units, and they obtain insurance on the units. “But the storage unit policy probably doesn't cover a catastrophic loss for collectibles, and wine in transit usually isn't covered,” Zigerlig explains. “An additional concern is accidental breakage. For example, if a client is having a party and someone drops a case of expensive wine while moving it from the cellar to the kitchen, the loss is covered with a collectible wine policy.”
Giving wine as gifts
There are a few key things givers should keep in mind when sending fine wines as gifts to collectors, Zigerlig says. Wine can be compromised whenever it is on the move, and transit also can subject bottles to temperature fluctuations. “It's best to minimize those potential hazards,” she explains. “Rather than sending a wine from city A to city B, find out if a local wine shop in or near city B has that wine, thereby eliminating the long ‘commute.’ Or, consider purchasing wine gifts directly from a winery. Wineries are well versed in shipping particulars and can also inform you whether the state you are sending to accepts shipments of alcohol.” Otherwise, she recommends that you work with a reputable wine shop that is also experienced in shipping wine, which is usually overnight express service.
Collectors who are traveling with wine also need to minimize extensive jostling and temperature extremes. If you’re traveling by plane, Zigerlig advises that you wrap the bottle in a specially padded wine tote that can be sealed — numerous options are available from a good wine shop. “If I transport a bottle in my luggage,” she says, “I put that tote into an additional plastic bag, and wrap it in bulky sweater or shirts for additional cushioning. There are also TSA-approved professional wine totes that are insulated and can hold up to six bottles.” If you’re traveling in a car, she recommends that you put the wine into a cooler, keep it cushioned so it doesn't move around, and keep it temperature controlled.
Guests can be a concern
Clients with wine collections often entertain, and they may have house guests for extended periods of time. Some clients with multiple residences may rent out some properties or allow guests to use the house on the beach in the islands for a few weeks, for example. In those situations, Zigerlig says, “Lock your cellar or wine cooler and remove particularly valuable bottles.”
She also recommends that wine collectors have a clause in any rental agreement that the wine is “off limits” to tenants. If the people using the property are guests or family members under an informal arrangement, it's important to let them know that the wine is off limits as well.
Agents should ask about hobbies, collectibles
Many agents with high net worth clients often visit the clients at home to review policies and coverage needs. The wine is usually in storage in the basement or another part of the residence, however, and the agent may not be aware of its existence. “The best thing agents can do is to ask their clients whether they have special collections or about their hobbies,” Zigelig says. “The agents will then learn about many items, including wine, that should have specific coverage.”
“I also advise agents and brokers to review the policy limits with clients at least annually,” she says. The value of a collection accumulates over several years, and the cost to replace it can be exorbitant.
Zigerlig has become a wine collector herself, and she travels extensively. The wine collection coverage provides her with great peace of mind. She knows the collection will always be protected whether she's home or not.
Top ways to mitigate risk to wine collections
To help wine collectors mitigate risks, AIG Private Client Group developed a list of wine storage best practices that collectors — and would-be collectors — need to know.
Avoid placing wine cellars by walls next to the laundry room, the boiler room, the bathroom or other rooms containing numerous water pipes.
Avoid storing wine near areas subject to vibrations (washer, dryer or home theater).
Keep all bottles at least 8 inches off the ground to avoid potential flood damage.
Don't store chemicals, paint or odorous materials near the collection.
Avoid storing wine near heat sources and sunlight.
Ensure glass walls, windows and doors in the wine cellar are double-paned and airtight.
For earthquake-prone areas, seismically retrofit the wine cellar, properly secure wine racks and minimize storage height.
Make certain your wine cellar includes a vapor barrier that controls humidity — install gaskets and floor sweeps around the door and use sealed plastic boxes for outlets, switches and fixtures.
Purchase a high-quality wine cellar cooling system that is ducted, split or through-the wall, and that controls both temperature and humidity. Ensure the system is appropriately sized for your wine cellar.
Have back-up parts for the cooling system in the event that there is a malfunction (that is, back-up condensing unit, back-up evaporator and back-up HVAC technician).
Have a back-up generator for your home and have it directly power your cellar or wine storage unit.