CP 99 05-Distilled Spirits And Wines Market Value

CP 99 05–DISTILLED SPIRITS AND WINES MARKET VALUE

(June 2019)

 

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INTRODUCTION

This endorsement is added to risks that have stocks of wines and distilled spirits. It recognizes that wines and distilled spirits usually appreciate in value over time compared to most property that depreciates as it ages. It should not be considered as a replacement but as an addition to the valuation clause of the coverage form or policy.

SCHEDULE

The location of the premises and building where coverage applies must be entered on the endorsement schedule. A check must be entered for each listed building and premises for Distilled Spirits or Wines (or both) because that check identifies the value clause that applies to the property at the building and premises. Limits are not on the schedule because the limits on the declarations apply and this endorsement does not change them.

DISTILLED SPIRITS MARKET VALUE

1. All bottled spirits are valued based on the market price as of the date and location of loss. As with any valuation clause, the insured's discounts or expenses are subtracted from the valuation. The loss adjustment does not include them because they have not yet been incurred.

 

Example: John’s Appalachian Whiskey is not as appreciated close to home as it is elsewhere. The market price is $25 per bottle at stores close to its West Virginia bottling plant but can be as much as $80 per bottle in California. When a covered cause of loss destroys a California-bound shipment that had not left the plant, John submits the claim based on the California value of $80 per bottle. However, the loss settlement is based on the $25 value per bottle at the location where the loss occurred.

 

2. All spirits stored in bulk and not yet bottled are valued at the bulk market price as of the date and location of loss. All discounts and expenses are subtracted from this valuation.

 

Example: Continuing the loss scenario above, John also submits a claim for his bulk storage that was damaged at the same time. His claim is based on the $80 per bottle value. He is even more disappointed this time when he receives only $15 per bottle because it is stored in bulk and that amount is the current equivalent bulk market value in that area.

 

There is an exception to this valuation for spirits aged in wood barrels. These spirits cannot be replaced with similar kind and quality and the distiller usually holds them to bottle and sell at a future date. This group is divided into older and younger bulk spirits.

3. All older, irreplaceable bulk spirits are valued at the market price per proof gallon of bottled distilled spirits considered equivalent as of the date and location of loss. Unpaid taxes, any taxes pending return from the Internal Revenue Service (IRS), and the costs to convert the bulk spirits to bottled spirits are subtracted from the valuation.

 

Example: John has been aging a small quantity of whiskey in oak barrels for 10 years. His valuation is based on what distilled spirits experts believe it is worth because this whiskey is considered irreplaceable. An appraisal establishes the value at $150 per gallon. However, John does not receive the entire amount when the loss occurs, because taxes and the costs of conversion from bulk storage to bottles must be subtracted from the valuation.

 

4. All younger, irreplaceable bulk spirits are valued using a combination of the second and third techniques listed above. The basic approach is to use the bulk market price as of the date and location of loss and then add to it the pro-rata market price difference between the two approaches.


 

Example: John also has a small quantity of whiskey that has been stored in oak barrels for just two years. Although he planned to age it for 15 years, the covered loss destroyed it. The claims investigation determines that it would have the same value as the older whiskey, so the loss is settled as follows:

  • Bulk storage equivalent value per bottle: $15.00
  • Older, irreplaceable equivalent value per bottle: $150.00
  • The pro rata value difference is $150.00 minus $15.00 equals $135.00 divided by two equals $67.50
  • $15.00 added to $67.50 equals $82.50 per gallon.

John receives a settlement of $82.50 per equivalent gallon, subject to a reduction for taxes and the costs of conversion from bulk storage to bottles.

 

5. When the insurance company makes a payment to an insured or other party that includes taxes, any rights the entity has to recover those taxes transfer to the insurance company.

WINE MARKET VALUE

1. Bottled wine is valued at the case goods price at the time and location of loss.

2. Bulk wine is valued at the least of either the price it would sell for at the time and location of loss or at the market price of wine of similar kind and quality at the time and location of loss.

3. These valuations are further reduced by the amount of any unpaid taxes, discounts, and expenses. However, the values do include state, county, and local taxes that the insured must pay.

4. When the insurance company makes a payment to an insured or other party that includes taxes, any rights the entity has to recover those taxes transfer to the insurance company.

 

Example: John prepaid $7,500 in taxes on the destroyed wine. The insurance company includes the $7,500 in its settlement with him. However, he must give the insurance company his rights to request a return of the prepaid taxes.

DEFINITIONS

This endorsement has five definitions.

1. Bottled Winery Products are wines or other winery products either in a bottle or to be bottled.

2. Bulk wine is any wine or winery product not included in the definition of bottled winery products.

3. Irreplaceable Bulk Distilled Spirits must age in wooden barrels, not be replaceable with similar kind and quality, and the distiller must hold them to sell as bottled spirits.

4. Older Bulk Distilled Spirits are irreplaceable bulk distilled spirits that represent the weighted average age of the bottled spirits to which the bulk spirits would have been converted.

 

Example: John’s Appalachian Whiskey sells distilled whiskey aged for 5, 10, and 15 years. The specific whiskey for which the damaged spirits would have been used is 10 to 15 years of age. The weighted average is 12.5 years. If the destroyed spirits are older than 12.5 years, the settlement is based on the older bulk distilled spirits. If they are less than 12.5 years old, settlement is based on younger bulk distilled spirits.

 

5. Younger Bulk Distilled Spirits are irreplaceable bulk distilled spirits other than those defined as Older Bulk Distilled Spirits.