Expert Editorial

Your treasured winery may be borne of a recent family vision, carefully nurtured to newfound popularity and success … or a coveted legacy, handed down from generations before you, whose brand and reputation are the cornerstones for your company mission. Regardless of your roots … threats to your business survival abound, from a variety of human, economic and natural causes.

Just for example, the recent catastrophic fires in California’s fabled wine country mark the second natural disaster in three years for the area, which was hit by a magnitude 6.0 earthquake in 2014 causing at least $500 million in economic damage, according to the US Geological Survey. The economic impact from these fires will be significant, when you consider the lost business at all the wineries, hotels and restaurants … estimates range from $1 Billion to $6 Billion. Altogether, the Northern California fires are the deadliest in the state’s history.

If history is to be our guide, this region’s semi-Mediterranean climate is likely here to stay. As such, we should become better prepared for disaster planning and emergency response and learn from the lessons of the most recent events:

  • More than 160,000 acres burned in Sonoma, Nap, and Solano counties
  • Across Northern California, 42 people died including 23 in Sonoma County alone and many were trapped and unable to flee from the raging firestorm
  • Dozens of people still missing and unaccounted for
  • Approximately 8,400 structures were destroyed
  • At least two dozen wineries in Napa, Sonoma and Mendocino counties were partly or fully destroyed
  • The vast majority of grapes in the region were already harvested before the fires began
  • The grapes that remained were largely Cabernet Sauvignon. Cabernet Sauvignon in the Napa Region can sell for more than $7,000 a ton
  • While some vineyards were able to finish out the harvest season, others weren’t so fortunate. Those most affected may take five years to grow back their vines

In addition to pre-loss disaster planning and emergency preparedness, you’ll need post-loss crisis management resources, coupled with a comprehensive package of winery insurance coverage to protect you from the financial losses associated with damaged crops, spoiled wine, injury to employees, lawsuits and other unforeseen events that might wipe out your treasured business.

As wine sales and popularity continue to grow in the U.S., “enterprise-wide” risk management becomes a worthy investment in time and money. Wineries have many unique risk characteristics, spread across their entire enterprise, including:

  • Agriculture
  • Manufacturing
  • Retail
  • Wholesale
  • Hospitality

What can go wrong?

  • Guests on your property slip and fall
  • Liquor Liability from tasting room or special events
  • Grapes in transit are damaged due to collision or overturn
  • Grapes on the vine suffer from smoke taint
  • Leakage, spillage, or accidental mixing damages wine in process
  • Insecticides used on grape crops drift onto neighboring properties
  • Product Contamination and Recalls
  • Business interruption and ongoing expenses after a covered (or uncovered) property loss
  • Trademark, Copyright or Patent infringement
  • Cyber events damaging real property and equipment, impairing process flow
  • Potential bodily injury from Cyber-related equipment failures
  • Winemaking equipment or agricultural equipment breakdown
  • Directors and Officers claims for “wrongful acts” from competitors, creditors, regulators and employees
  • Employee claims for harassment, discrimination and wrongful termination
  • Wildfires, insect infestation and plant diseases 
  • Wine in storage and spillage or leakage, from a variety of causes including “human error”
  • Utility or refrigeration outage
  • Supply chain or logistics problems or delay
  • Transportation and trucking exposures
  • Ingress/Egress issues due to a fire or other disaster
  • Civil Authority prohibits access to your property or business

It’s only when a claim arises that the true quality of your insurance program is properly tested

Dating back to the 17th century at Edward Lloyd’s coffee house in London, merchants and businessmen have endeavored to mitigate their loss and hedge against uncertainty, relying upon insurance protection as a vital component to their risk management strategy.  The challenge herein lies in the details, and therefore, proper risk management guidance is essential.

Although many of today’s insurance policies have become standardized and tested in court, many policy forms are non-standardized or manuscript and require special attention to be fully aware of the coverage terms, conditions and exclusions. Often times in application, insureds become dismayed or frustrated by the adjustment of their claims due to terms of art, or features such as co-insurance, unfamiliar in common business practice.

By way of example, valuation at time of loss is critical. Bottled winery products, should recognize value as price it could have been sold for as case goods.  And for Bulk wine, the market price of replaceable “bulk wine” of like kind and quality, market value, or the price it could have been sold for.

With regards to impaired or damaged stock and materials, does coverage include picked or crushed grapes, wine in process or wine in any stage of fermentation? What about bottled wine, wine in cooperage or finished stock held in storage or for sale?  Stock of others in your care, custody or control?   What about the barrel racks themselves, subject to damage from earthquake? Better check to confirm … the devil may reside in the details!

To best IDENTIFY threats to an organization, the consultative broker will assemble a strategic team from across the insured’s enterprise. CEO, CFO, operations, vineyard, cellar, environmental health and safety, logistics, sales, etc., are all at the table. A risk matrix should be created to develop a hierarchy of risks and to give priority to those threats with the greatest magnitude.

Effective risk management as a process requires a consultative and collaborative environment to thrive. In this process, the broker should thoroughly understand the nature of his clients’ business and be driven towards results. Think ROI, as there is clearly an investment here, in terms of each clients’ time and money. These results should be clearly defined at the onset of the business engagement, and measurable. The broker’s role is to facilitate the resources required for his/her client to meet these key objectives. Today’s winery owners should seek to find a broker or risk management consultant who provides a truly consultative risk management approach, rather than merely a transactional insurance process driven primarily by the sale of products. The former is proactive and engaged down the time continuum … the later resides “in the moment” and is reactive by comparison.

Mark NiebuhrExpert Editorial
by Mark Niebuhr, Senior Vice President, EPIC Insurance Brokers and Consultants

Mark Niebuhr is a senior vice president at EPIC Insurance Brokers and Consultants, a retail property, casualty insurance brokerage and employee benefits consultant. He started his career in the insurance industry with the Royal Insurance Co. in 1977 and moved on to the brokerage side in 1981. Since that time, he’s worked with both regional and national brokerages, providing risk management and insurance expertise to a variety of middle market companies across the nation. Niebuhr is a native Californian and a graduate of California State University, Chico.