A distillery is entitled to coverage under its commercial insurance policy after its barrel racks collapsed, causing whiskey purportedly worth $2.5 million to leak, a federal judge ruled.

In The Vale Fox Distillery LLC v. Central Mutual Insurance Co., the U.S. 2nd District Court in Manhattan ruled that several exclusions cited by the insurer did not bar coverage for the Poughkeepsie, New York-based small-batch whiskey maker.

Vale Fox stored 60 barrels of single malt whiskey on metal racks. In December 2023, the racks collapsed, breaking 52 barrels that contained whiskey that had been aging for at least three years, court papers say.

An engineering report later revealed that the racks failed because of defective metal welds, among other issues.

The company filed a claim under its industrial processing policy with Central Mutual, but the insurer denied it, stating it did not meet several requirements under the “collapse” clause in the policy, including that the loss was not caused by the building’s collapse or a construction defect in the property.

The court ruled that the clause in the policy providing coverage when “personal property abruptly falls down or caves in and such collapse is not the result of the abrupt collapse of a building” triggers the claim.

In addition, the construction defect coverage is not limited to defects in the construction of the building itself, the court ruled.

The ruling adds to existing case law on the collapse clause and “provides another blueprint for policyholders that face a similar basis for denial,” said Alexander Sugzda, a partner at Cohen Ziffer Frenchman & McKenna, who represented Vale Fox.

The insured value of the whiskey is also in dispute and remains to be determined.

A representative for Central Mutual did not respond to a request for comment.