A $2.5 million whiskey loss at a New York distillery has brought insurance policy language and collapse coverage to the forefront in a closely watched federal court decision.
Vale Fox Distillery, a whiskey producer in Poughkeepsie, New York, suffered a major loss on December 19, 2023, when metal racks holding dozens of barrels of whiskey collapsed in its distilling room. The collapse caused sixty barrels to fall, breaking fifty-two of them and resulting in the loss of aging single malt whiskey. The lost whiskey, if bottled and sold, would have been worth more than $2.5 million. The incident also damaged the interior wall of a storage room.
Vale Fox notified Central Mutual Insurance Company of the loss the same day. The distillery had purchased an Industrial Processing insurance policy from Central Mutual. The policy stated that Central Mutual “will pay for direct physical loss of or damage to Covered Property at the premises… caused by or resulting from any Covered Cause of Loss.” Covered Property included “Business Personal Property,” which itself included “Stock.” “Stock” was defined as “merchandise held in storage or for sale, raw materials and in-process or finished goods, including supplies used in their packing or shipping.” The policy provided a $5,652,000 limit in coverage for “Personal Property of Insured Including ‘Stock.’”
The dispute focused on the policy’s “Additional Coverage – Collapse” provision. This clause stated that coverage applied only to “an abrupt collapse as described and limited in D.1. through D.7.” It further provided that the insurer would pay for direct physical loss or damage to Covered Property caused by abrupt collapse of a building or any part of a building, if such collapse was caused by, among other things, “[u]se of defective material or methods in construction… but only if the collapse is caused in part by… Weight of people or personal property.” The policy also stated that if personal property abruptly falls down or caves in and such collapse is not the result of abrupt collapse of a building, coverage applies if the collapse was caused by a cause of loss listed in 2.a. through 2.d., the personal property is inside a building, and the property is not of a kind listed in 4.
Central Mutual denied coverage after its engineer, J.S. Held Engineering Services, determined that the racks failed due to “incomplete fusion in the welds between the side supports and the connecting bars,” which was considered defective, and that the weight of the barrels contributed to the collapse. The insurer cited policy exclusions for wear and tear, corrosion, and hidden or latent defects.
The court found that the collapse was caused by defective welds and the weight of the barrels, as detailed in the April 8, 2024, report from J.S. Held. The judge ruled that the policy’s collapse coverage applied to the racks and barrels, and that the general exclusions did not override the specific collapse coverage. The court stated that the only reasonable interpretation of the policy was that “construction” referred to the construction of the collapsed property itself, not just the building.
The court granted Vale Fox’s motion for judgment on the pleadings as to coverage but denied summary judgment on the valuation of the lost whiskey. The policy’s “Manufacturer’s Selling Price (Finished ‘Stock’ Only)” provision was found to be ambiguous regarding whether the lost whiskey qualified as “finished ‘stock’.” The court left the valuation issue for further proceedings.
The case highlights the importance of precise policy language and how courts may interpret collapse and exclusion clauses in commercial property insurance disputes.
