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  The ILCC Legal Division

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TPP-30:
Salvaged Alcoholic Liquors

I. Purpose

This policy establishes guidelines for the sale of salvaged alcoholic liquors which have been damaged as a result of flood, wreck, fire or similar occurrence.

II. Policy

It is the policy of the Illinois Liquor Control Commission (ILCC) to allow the resale of salvaged alcohol by an insurance company, a common carrier, or the duly authorized representative of either, after a determination has been made that proper procedures and safeguards have been followed and approval and release by the Commission.

III. Background

The power to regulate distressed merchandise is given to the Commission under Sec. 5/3-12 of the Liquor Control Act, “Powers and duties of Commission”: (a) The State Commission shall have the following powers, func­tions and duties: (10) To adopt such rules and regulations consistent with the provisions of this Act which shall be necessary for the control, sale or disposition of alcoholic liquor damaged as a result of an accident, wreck, flood, fire or other similar occurrence.

The power given in Sec. 5/3-12 is implemented through the Rules and Regulations of the Commission:

Section 100.150 of the ILCC Rules and Regulations (Regulations) which provides:

  1. Insurance companies or their duly authorized representatives may take possession of alcoholic beverages insured by such companies and damaged as a result of flood, wreck, fire or similar occurrence, for which insurance was provided.
  2. Common carriers or their duly authorized representatives may take possession of alcoholic beverages transported by such carrier and damaged in transit.
  3. Alcoholic beverages salvaged as in paragraphs (a) and (b) may be sold to retail licensees provided the conditions enumerated below shall have been complied with. Alcoholic beverages so salvaged shall be referred to as "distressed merchandise.”
  4. Each container of alcoholic beverages sold pursuant to this rule shall be labeled to identify such goods as distressed merchandise. The letters on the label shall be no smaller than pica type, bold faced, not less than 12 point. The label shall be no less than two inches long and one inch wide, and shall be affixed diagonally over the regular label on each container prior to delivery to any retail licensee. The label once applied shall not be capable of removal without damaging the said label or causing damage to the underlying product label. The following statement shall be printed on the label: "The alcoholic beverages contained herein have been designated distressed merchandise by the Illinois Liquor Control Commission. This container has been salvaged from a fire, flood, wreck or similar catastrophe. This label is not affixed by the manufacturer. Do not remove this label."
  5. Any insurance company, common carrier or representative of either, seeking to sell distressed merchandise shall first obtain a distributor's license from the Illinois Liquor Control Commission. The application shall provide, "The applicant seeks to sell distressed merchandise in Illinois." Retailer's licenses may also be applied for, if the insurance company, common carrier or representative of either seeks to sell alcoholic liquors to consumers in Illinois.
  6. Alcoholic beverages so salvaged outside of Illinois may not be imported into Illinois for purposes of sale pursuant to this rule. Prior to release of distressed merchandise for sale in Illinois, an affidavit by the insurance company's or common carrier's authorized representative must be presented to the Commission stating first-hand knowledge that the distressed merchandise was salvaged from a fire, flood, wreck or similar catastrophe which occurred within the State of Illinois, stating with particularity the time, place and nature of the occurrence, and a complete inventory of the items so salvaged as the quantity, brand names and container sizes.
  7. In the event the tax provided under Sections 8-1 through 8-14 of the
    Act [235 ILCS 5/8-1 through 8-14] is unpaid on the distressed merchandise, the applicant shall make payment of the tax on such merchandise to the Department of Revenue, and evidence of payment must be presented to the Commission prior to release of such distressed merchandise for sale in Illinois.
  8. It shall also indicate on its letter of application to sell such distressed merchandise in Illinois, whether the sale shall be by auction or to a designated licensee. If the sale shall be by auction, the time and place of the auction and the name of the auctioneer or other person authorized to sell such distressed merchandise shall be listed. If the sale is to be made directly to a given licensee or licensees, the name and address of the licensee or licensees, together with the current State retail liquor license number of such licensee or licensees shall be listed. No sale may be made by auction to any person, firm or corporation not licensed under the provisions of the Act.
  9. Written approval and release for sale made hereunder must first be obtained from the Commission. Approval and release as aforesaid shall not be issued until a physical inspection has been made of the merchandise by an authorized representative of the Commission in order to determine that compliance has been had with the provisions of this Rule. After any sale of distressed merchandise shall have been completed, the insurance company, common carrier or their representative shall report in writing to the Commission the name of the licensee or licensees who have purchased the distressed merchandise, the quantities and brand names of such distressed merchandise.
  10. In the event that the insurance company, common carrier by this sale, disposed of less than the entire inventory of distressed merchandise, the written report shall list the remaining inventory, indicating the quantity, container sizes and brand names, the place where such inventory is stored, and the person in control of possession of such inventory.
  11. No distressed merchandise shall be sold in Illinois where the original packages shall have been so damaged as to render the label thereon illegible, or when the substantive labeling requirements under Section 6-7 of the Act [235 ILCS 5/6-7] and under Section 100.70 are not complied with as a result of the damage to the container. (Source: Amended at 18 Ill. Reg. 4811, effective March 9, 1994)

The Attorney General of the State of Illinois in Opinion No. 26, dated November 16, 1956, states that: (a) Section 7a of Article VI of the Liquor Control Act (“Warehouses”) is not applicable to a salvage company serving numerous insurance companies; and (b) brand names or trade marked liquor which shall become the property of an insurance company as a result of salvage and which is turned over to a salvage company for distribution does not create an ownership interest in the trade mark or brand name in a salvage company which would require registration with the Illinois Liquor Control Commission under Sec. 5/6-9 of the Liquor Control Act, and also require the designation of the geographical area in which salvage company has been granted a right of resale.

And, finally, the Beer Industry Fair Dealing Act (815 ILCS 720/1, et seq. ) provides in Sec. 5. “Prohibited conduct,” that “No brewer shall: (7) Require a wholesaler to assent to any requirement prohibiting the wholesaler from disposing, after notice to the brewer, of a product which has been deemed salvageable by a local or State health authority. Nothing herein shall prohibit the brewer from having the first right to purchase the salvageable product from the wholesaler at a price not to exceed the original cost of the product or to subsequently repurchase the product from the insurance company or salvage company.”

This granting to a brewery the first option to repurchase salvageable products is a self-executing, contractual provision.

IV. Procedures

A. Who May Salvage

Only persons who are authorized by statute or rule shall be allowed to salvage and conduct sales of distressed alcoholic liquors, namely:

  1. Insurance companies or their duly authorized representatives may take possession of alcoholic beverages insured by such companies and damaged as a result of flood, wreck, fire or similar occurrence, for which insurance was provided.
  2. Common carriers or their duly authorized representatives may take possession of alcoholic beverages transported by such carrier and damaged in transit.

B. Request for Approval and Release

The process of securing approval and release shall begin with written notification sent or delivered to the Commission Investigations Division. Such notification shall include the following information:

  1. Name, address and professional capacity of the person, firm or representative making the request.
  2. The date, time and place of the casualty which has resulted in
    the distressed merchandise.
  3. A complete inventory of all distressed merchandise, including the quantity, brand names and container sizes.
  4. A statement of the place and date after the distressed merchandise may be inspected by an agent of the Commission.

C. Inspection and Cleaning of the Distressed Merchandise

Permission is granted with the understanding that each container was cleaned and then affixed with a salvage label appropriately placed in an irregular position so that it can be easily determined that the product is not of first quality.

D. Labeling

  1. Each container (can, bottle, or other original package as defined in the Liquor Control Act) of alcoholic beverage to be sold shall be labeled to identify such goods as distressed merchandise.
  2. The letters on the label shall be no smaller than 12 point and shall be bold faced.
  3. The label shall be no less than two inches long and one inch wide, and shall be affixed diagonally over the regular label on each container prior to delivery to any retail licensee.
  4. The label shall read:

    THE ALCOHOLIC BEVERAGES CONTAINED HEREIN HAVE BEEN DESIGNATED DISTRESSED MERCHANDISE BY THE ILLINOIS LIQUOR CONTROL COMMISSION. THIS CONTAINER HAS BEEN SALVAGED FROM A FIRE, FLOOD, WRECK OR SIMILAR CATASTROPHE. THIS LABEL IS NOT AFFIXED BY THE MANUFACTURER. DO NOT REMOVE THIS LABEL.

E. Licensing Procedure

  1. An insurance company, common carrier or their representative, seeking to sell distressed merchandise to retail licensees shall first obtain a distributor's license from the Commission.
  2. An insurance company, common carrier, or their representative, seeking to sell distressed merchandise to consumers in Illinois, shall first obtain a retailer's license from the Commission.
  3. Application filed with the Commission shall provide that, "the applicant seeks to sell distressed merchandise in Illinois."
  4. An affidavit executed by an agent or employee of the insurance company, common carrier, or representative, with first hand knowledge of the content of the affidavit, must be accompany the license application, and shall contain the following:
    1. that the distressed merchandise was salvaged from a fire, flood, wreck or similar catastrophe which occurred within the State of Illinois;
    2. the time, place and nature of the occurrence;
    3. a complete inventory of the items so salvaged, including the quantity, brand names and container sizes.
    4. indicate whether the sale shall be by public auction or private sale to a designated licensee.
      1. if the sale shall be by auction, the time and place of the auction and the name of the auctioneer or other person authorized to sell such alcohol shall be listed.
      2. if the sale is private, the date of the sale, the name and address of the purchases, and if a retail liquor licensee, the current State retail liquor license number, shall be listed.
  5. Written approval and release for sale must be obtained from the Commission prior to sale. Before such approval and release shall be given, an authorized agent of the Commission will conduct a physical inspection of the salvaged alcoholic beverages.
  6. No sale may be made by auction to any person, firm or corporation not licensed under the provisions of the Act.

F. Written Report after Sale

  1. After any sale of salvaged alcoholic beverages, the insurance company, common carrier, or representative shall report in writing to the ILCC:
    1. the name and address of any licensee, and/or any consumer, who made purchases.
    2. quantity, brand names and container sizes purchased.
  2. In the event that the insurance company, common carrier, or representative has disposed of less than the entire inventory of salvaged alcoholic beverages, the written report shall list:
    1. the remaining inventory, indicating the quantity, brand names and container sizes which remain.
    2. the place where such inventory is stored, and
    3. the name and address of the person in possession or custody of such remaining inventory.

G. Taxes

In the event the tax provided under Sections 8-1 through 8-14 of the Act [235 ILCS 5/8-1 through 8-14] is unpaid on the distressed merchandise, the applicant shall make payment of the tax on such merchandise to the Department of Revenue, and evidence of payment must be presented to the Commission prior to release of such distressed merchandise for sale in Illinois.

H. Prohibited Sales

  1. No alcoholic beverages which has been salvaged outside the State of Illinois may be imported into this state for the purpose of sale of salvaged alcohol.
  2. No salvaged alcoholic beverages may be sold if the original packages has been damaged so as to render the label illegible, or where the substantive labeling requirements under 235 ILCS 5/6-7 and Section 100.70 of the Regulations are not complied.

I. Format of Approval and Release

(Date)

(Insurance companies, common carrier or their duly authorized representatives)

(Address)

Dear (name):

The Commission has completed its inspection of the following lot(s) of distressed alcoholic beverages as requested, and those products may be sold or disposed of as salvaged merchandise.

(Identify Lot(s), identify address where lot is located)

If the sale is to be made to a retail licensee or licensees, the licensee’s name, address, and current state retail liquor license number shall be provided to the Commission with the total inventory of products so sold. If the sale is by auction, the time, place, and the name of the auctioneer or other person authorized to sell such distressed merchandise shall be submitted to the Commission.

Reports of sale shall be filed with the Commission within a reasonable period of time after the sale. Reports of distressed merchandise not sold shall likewise be filed with the Commission which report shall contain a full inventory of the remaining merchandise, indicating the quantity, brand names and container sizes which remain; the place where such inventory is stored; and the name and address of the person in possession or custody of such remaining inventory.

Sincerely,
(Name)

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