Property Insurance Requires a Physical Loss to Property

Insured Who Purchased Valueless Property Cannot Collect from Insurer Because he was Defrauded

On a rare occasion, a court will fall prey to a need to be poetic. It happened in California when the Court of Appeal started off its insurance coverage opinion with: “O thou invisible spirit of wine, if thou hast no name to be known by, let us call thee devil!” (Shakespeare, Othello, act II, scene 3.)

Presented with a most unfortunate tale of a villainous wine dealer who sold millions of dollars’ worth of counterfeit wine to an unsuspecting wine collector. When the wine collector discovered the fraud, he filed an insurance claim based on his “Valuable Possessions” property insurance policy. The insurance company denied the claim. The wine collector sued for breach of contract. The trial court ruled in favor of the insurance company, sustaining its demurrer and the Court of Appeal reviewed the decision in David Doyle v. Fireman’s Fund Insurance Company, G054197, Court Of Appeal Of The State Of California Fourth Appellate District Division Three (March 7, 2018).

Considering that the insured, Doyle, was the victim of a Shakespearean tragedy, it was limited to dealing with the terms and conditions of the insurance contract.


David Doyle is a collector of rare, vintage wine. His “world-class” wine collection is housed in a wine storage facility in Laguna Beach. Starting in 2007, Doyle insured his wine collection against loss or damage by purchasing a “Valuable Possessions” policy from Fireman’s Fund Insurance Company (Fireman’s Fund), with a blanket policy limit of $19 million. Doyle went on to purchase eight annual renewal policies.

During the eight years that Doyle was insured under the policy, he purchased close to $18 million of purportedly rare, vintage wine from Rudy Kurniawan. But a law enforcement investigation revealed that for many years Kurniawan had apparently been filling empty wine bottles with his own wine blend and had been affixing counterfeit labels to the bottles. In 2013, Kurniawan was convicted of fraud and was sent to prison for 10 years.

In 2014, Doyle filed a claim seeking reimbursement from Fireman’s Fund “for the losses he sustained” due to Kurniawan’s fraud. After gathering documentation and conducting an investigation, Fireman’s Fund denied all coverage stating there was no covered “loss” under the policy.

Doyle sued alleging breach of contract, among other causes of action. As relevant here, Fireman’s Fund filed a demurrer, which the trial court sustained without leave to amend.


The “PERILS INSURED AGAINST” provision of the Firearm’s Fund insurance policy Doyle purchased provides: “We insure for direct and accidental loss or damage to covered property ….” (Italics added.)

In this appeal, Doyle argued that the policy provides “broad protection against all insurable risks, which include crime-related losses to [his] investment whether anything physical happened to the wine or not.” (Italics omitted.) Conversely, Firearm’s Fund argued that no “loss or damage to covered property” occurred; that is, “the wine is in the exact same condition now that it was in when [Doyle] first insured it.”

There was no question Doyle indeed suffered a financial loss but there was no loss to his covered property.

The Valuable Possessions Insurance Policy

The Fireman’s Fund insurance policy at issue in this case is a preprinted “Scheduled Valuable Possessions Policy,” which covers various items of valuable personal property such as jewelry, furs, and fine art. The policy also covers: “‘Collectibles’, meaning wine, sports cards, dolls, model trains, and other private collections of rare, unique or novel items of personal interest including memorabilia.”

The “PERILS INSURED AGAINST” provision of the policy provides: “We insure for direct and accidental loss or damage to covered property caused by an ‘occurrence.'” The policy defines an “‘occurrence'” as “a loss to covered property which occurs during the policy period . . . and is caused by one or more perils we insure against.” The policy does not define the term “loss.”

Legal Analysis

Property insurance is a type of insurance with its own historical development, and which is now available to cover the risk of loss of just about any type of property that exists in the modern world. The self-evident point is that property insurance is insurance against the risk of loss of property.

Given this premise, the threshold requirement for recovery under a contract of property insurance is that the insured property has sustained physical loss or damage. The requirement that the loss be “physical,” given the ordinary definition of that term is widely held to exclude alleged losses that are intangible or incorporeal, and, thereby, to preclude any claim against the property insurer where the insured merely suffers a detrimental economic impact unaccompanied by a distinct, demonstrable, physical alteration of the property.

Here, Doyle has not pleaded a breach of contract claim that can be proven at trial because nothing happened to the covered property (i.e., the wine that Doyle purchased and insured) still exists in his cellars in intact bottles.

Fireman’s Fund only insured against the risk of physical loss to the wine. It was not insuring against any losses to Doyle’s finances or to his unrealized expectations as to the value of the wine he had purchased.

When Doyle purchased the wine from Kurniawan it was counterfeit. The wine remained counterfeit (and essentially worthless) throughout the entire coverage period of the policy. Perhaps Doyle has a valid claim against Kurniawan for fraud. Doyle cannot reasonably expect his Fireman’s Fund “Valuable Possessions” property insurance policy to reimburse him for his multiple purchases of wine from Kurniawan, which was essentially valueless at the time of purchase.

Indeed, when it comes to property insurance, diminution in value is not a covered peril nor is it a risk of loss insured against, it is a measure of a loss.

Doyle suffered a diminution in value—he lost the money he had invested in his wine collection—because of the fraud committed by Kurniawan.  The policy Doyle purchased only insured him against potential harms to the wine itself, such as fire, theft, or abnormal spoilage. Doyle did not insure himself against any potential financial losses.

The Court of Appeal concluded that Doyle failed to establish that any type of financial loss, including fraud, comes within the scope of the property insurance policy he purchased. That the policy does not specifically list fraud as an exclusion is irrelevant. Moreover, we are making our decision based on the clear and explicit language in the covered perils provision of the insurance policy; that is, we do not find the contract terms to be ambiguous.

Doyle’s expectations at the time of contracting based on extrinsic parol evidence does not change the wording of the policy. Although parol evidence may be admissible to determine whether the terms of a contract are ambiguous  it is not admissible if it contradicts a clear and explicit policy provision.

Finally, the court offered to Doyle a small piece of wisdom from the Bard of Avon: “The robbed that smiles steals something from the thief.” (Shakespeare, Othello, act I, scene 3.)

The judgment was affirmed because the court’s fault, as Shakespere’s “Timon of Athens”   said “Every man has his fault, and honesty is his”. An honest man may never recover for the fraud perpetrated upon him from a property insurance policy.


Property insurance does not insure property, as every lawyer should know, it only insures against certain risks of loss to specifically identified property. Since the property, the risk of loss of which was insured, was not damaged by any stated risk of loss, there could be no coverage. When the fraudster was convicted the value of the wine diminished but the wine was not damaged.

© 2018 – Barry Zalma

This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States.  The court decisions have been modified from the actual language of the court decisions, were condensed for ease of reading, and convey the opinions of the author regarding each case.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant  specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at and

Mr. Zalma is the first recipient of the first annual Claims Magazine/ACE Legend Award.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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