Kunde and Vintage Wine Estates (VWE) have filed suit against their insurers at Sonoma County Superior Court collectively seeking approximately $20 million in losses. The wineries claim their insurers wrongfully refused to pay for smoke taint damages caused by the October 2017 Northern California wildfires. The wineries are represented by Latham & Watkins against defendants National Surety Corporation (Allianz) and certain London Insurers.
For both wineries compounds from smoke generated by the wildfires permeated the wine products destroying the marketability of the wine. The claims exceed $7 million for Kunde and $12 million for Vintage Wine Estates.
The core of the dispute centers on what is covered by the wineries “all risk” insurance coverage, when the smoke damage occurred, on the vine or in production, and who bears the burden of proof for that.
The court filing states that “Notwithstanding the broad coverage promised to Plaintiffs with no clearly applicable exclusions, Defendants have refused to indemnify Plaintiffs for damage to their wines caused by the October 2017 wildfires in Sonoma County, Napa County, and the surrounding areas.”
According to the wineries the damage occurred when smoke from the wildfires infiltrated the winemaking process and contaminated the wines. During the October 2017 concurrent fires in Napa, Mendocino, and Lake Counties, the air quality in the affected areas reached hazardous levels, the most dangerous on the EPA scale, which included significant levels of smoke and other particulates.
The filling states that “VWE’s employees and winemakers tasted and sampled grapes from the vineyards during the course of the Wildfires and did not taste any smoke taint or other quality concerns. However, subsequently, VWE’s employees and winemakers tasted and sampled wine that was in process during the course of the Wildfires, which did have smoke taint and other quality concerns.”
The “all risk” coverage carried by the wineries would supposedly not cover damage that occurred on the vine, but any damage not explicitly excluded that occurred during the winemaking process. The filing points out that many insurers providing “all-risk” coverage to California wineries have subsequently responded to this increased risk exposure by adopting an absolute exclusion for contamination to grapes, juice, and other wine due to wildfires and related smoke taint. However, policies issued to the wineries prior to the wildfires not contains any such exclusions.
In their refusal to the loss Allianz claimed that “the smoke taint which damaged the wines resulted directly from the grape’s [sic] exposure to smoke from the wildfires while they were still on the vines and did not result from exposure to smoke during the production process.” And a consultant hired by the London Insurers, concluded that the damaged wine was “made with grapes that suffered appreciable smoke taint damage/exposure while the grapes were still on the vine.”
Vintage Wine Estates refutes the consultant’s claims and asserts that with an “all risk” policy the burden to prove the smoke taint damage occurred only after the grapes were harvested does not rest with them, but it is incumbent on the defendant to show that the damage happened while the grapes were still on the vine.
By Kim Badenfort