Summary judgment denied in ruined wine claim

K Vintners was a winemaker that had a production contract with Goose Ridge. One winter, K Vintners was greeted with unwelcome news: the vintage cabernet sauvignon it had received from Goose Ridge in 2020 had problems: the wine had a higher-than-normal volatile acidity, meaning the wine was becoming more vinegar-like, in addition to a deficit of sulfur dioxide. These problems made the wine unsellable, forcing K Vintners to recall almost 321,000 cases of the spoiled wine.

K Vintners exercised its right to demand arbitration under its contract with Goose Ridge. The company blamed Goose Ridge’s fermentation process, arguing it had allowed oxygen to invade the process and thereby ruined the wine.

Goose Ridge, however, claimed that K Vintners required use of a specific type of bottle closure that created the avenue for oxygen to enter the process. Goose Ridge’s wine expert also attributed the spoiled wine’s increased volatile acidity to weather conditions outside of Goose Ridge’s control, such as smoke, frost, and extreme heat. Before the formal arbitration process began, however, the parties settled the matter. Nothing in the settlement agreement referenced factual findings.

Settlement Coverage

Goose Ridge had three insurance policies in effect at the time of the motion for arbitration: two CGL policies–one primary and one umbrella–from Eagle West Insurance, and an excess liability policy from Ohio Casualty Insurance. The policies shared very similar policy terms and exclusions, but they differed in the coverage available. Eagle West’s policies obliged the insurer to both defend and indemnify Goose Ridge, while the Ohio Casualty policy contained only the duty to indemnify.

Initially, both insurers refused to provide any kind of coverage for the arbitration. Eagle West later changed its mind and assumed the duties of defense and indemnity for Goose Ridge. Ohio Casualty was unmoved. The insurer claimed there was a policy exclusion for property damage arising out of or any part of Goose Ridge’s product: the wine.

Goose Ridge sued Ohio Casualty for breach, negligence, bad faith, and violations of the state Consumer Protection and Insurance Fair Conduct Acts. The winemaker also requested a judicial declaration that Ohio Casualty was obligated to provide indemnity. Both Goose Ridge and Ohio Casualty filed a motion for summary judgment in their own favor.

At the outset, the court recognized the “Eight Corners” rule, a bedrock principle of insurance litigation that states coverage is determined by looking at the “four corners” of the policy at issue and the “four corners” of the complaint. In this case, however, since Goose Ridge was seeking coverage for a settlement, the court was also able to consider the settlement agreement and any undisputed facts found in it.

The “Your Work” Exclusion

The policy exclusion for “[Goose Ridge’s] Work” specified that coverage was unavailable for “[p]roperty damage to ‘your product’ arising out of it or any part of it.” The policy defined “your product” as “goods or property, other than real property, manufactured, sold, handled, distributed or disposed of by . . . you [and] containers (other than vehicles), materials, parts or equipment furnished in connection with such goods or products” (emphasis added). “Property damage” referred to “(a) physical injury to tangible property, including all resulting loss of use of that property; or (b) loss of use of tangible property that is not physically injured” (emphasis added).

Using these policy definitions, Ohio Casualty maintained that coverage for the settlement was unavailable because the problem with the wine “arose out of” Goose Ridge’s “product.” The insurer cited a case from the Supreme Court of Washington for support. In Toll Bridge Auth. v. Aetna Ins. Co., 773 P.2d 906 (Wash. 1989), four pedestrian passengers were disembarking from a ferry when a driver, who also needed to exit the vessel, struck them after driving over a vehicle block despite a crew member’s order to wait. The court determined that the ferry’s policy did not cover the damages because, even though the direct cause of the injuries was the errant driver, the accident had occurred while the ferry was unloading, and the policy contained an exclusion for the loading and unloading of a watercraft.

The judges in the present case were skeptical of the comparison. The Toll Bridge court had determined that damages “arising out of” a particular event stretched beyond the bounds of damages “caused by” or “resulting from” an occurrence.

Based on the case records, the court for the present case could not determine, with any degree of certainty, what occurrence had soured K Vintner’s wine. Ohio Casualty pointed to the arbitration demand filed by K Vintners and argued Goose Ridge had acted negligently. Though the judges admitted this theory was certainly plausible, Goose Ridge had proffered two alternate causes of loss that were equally possible. As stated by Goose Ridge’s expert, the grapes used to make the unsellable wine had suffered frost and smoke damage before being delivered to Goose Ridge to be made into wine. The expert also observed that the particular style of stopper K Vintners had required Goose Ridge to use, which were not made or designed by Goose Ridge, had been made in such a way that air could trickle through the stopper and into the wine. If the bad grapes were the problem, the “product” was defective before Goose Ridge obtained control of it, and Goose Ridge’s wine-making process had not been the issue. Or, if the issue lay in the stopper, Goose Ridge had adhered to its contract with K Vintners in using it and could hardly be blamed for an issue with the stopper itself.

This uncertainty drew a clear line between the instant case and the facts in the Toll Bridge case cited by Ohio Casualty. In Toll Bridge, the cause of the occurrence was crystal clear: the vehicle driver injured the pedestrians after driving over a vehicle block. In this case, however, the court could not make such a determination. The damages to the wine could have been caused by Goose Ridge’s winemaking process, but it was just as likely that the grapes had already been damaged when Goose Ridge received them, or that the stopper K Vintners ordered Goose Ridge to use had been poorly designed. In any case, the loss could have been caused by an occurrence outside the scope of the “your work” exclusion.

Conclusion

Since the exact cause of the loss was unknown, it created an issue of material fact that could not be resolved by summary judgment. The motions for summary judgment were denied.

Editor’s Note: The outcome of this case is heavily fact-dependent. If Ohio Casualty is correct, that Goose Ridge’s winemaking process was to blame for the spoiled wine, then coverage would not apply to Goose Ridge’s settlement with K Vintners. However, if Goose Ridge is correct, and the issue was with the grapes themselves or the poorly designed wine stopper, then the damages were completely independent of the winemaking process. If the damages were caused by circumstances or events outside of Goose Ridge’s control, then the “Your Work” exclusion would be inapplicable, and the settlement would be covered.

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