'Grape' expectations: Insuring California's wine country as risks rise

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 corporate mission. Regardless of your roots, threats to your business survival abound, from a variety of human, economic and natural causes.

The recent catastrophic fires in California’s fabled wine country mark the second natural disaster in the past few years, including a magnitude 6.0 earthquake in 2014 causing at least $500 million in economic damage. The impact from the fires is even more significant considering the lost business at wineries, hotels and restaurants: estimates range from $1 Billion to $6 Billion.

Altogether, the Northern California fires are the deadliest and costliest in the state’s history. It appears that our region’s semi-Mediterranean climate is likely here to stay. With that reality in mind, we must become better prepared in terms of disaster planning and emergency response and learn our lessons from the most recent events.

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

Related: Climate change related losses and other event-driven litigation risks

Know the risks

As wine sales and popularity continue to grow in the uber-competitive U.S. market, the necessity of an “enterprise-wide” risk management approach becomes a worthwhile 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?

• Liquor Liability incidents arising from tasting room operation or special events.
• Grapes on the vine or in process suffer from smoke taint.
• Leakage, spillage, or accidental mixing damages wine in the 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 & 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” and computer malfunctions, including intentional tampering of programming equipment.
• Utility or refrigeration outage.
• Supply chain and 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.

Related: 2018 marks third straight year of above-average catastrophic activity

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 then lies in the details, and proper risk management guidance is essential.

Although many of today’s insurance policies have become standardized and have been tested in court, many policy forms are non-standardized or manuscript. These non-standard forms require special attention to uncover all of their coverage terms, conditions, limitations 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; a term unfamiliar in common business practice.

By way of example, valuation at time of loss is critical. Bottled winery products should be valued at price they could have been sold for as case goods. In the case of bulk wine, the value should reflect the market price of replaceable “bulk wine” of like kind and quality, market value, or the price it could have been sold for…all details that must be determined before a loss occurs.

Identifying the biggest threats

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. Within that process, the broker must 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 client’s 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 business owners should seek to find a broker or risk management consultant who provides a truly consultative risk management approach, rather than merely a transactional process driven primarily by the sale of insurance products. The former is proactive and engaged down the time continuum … the later resides merely ‘in the moment’ and is reactive by comparison.

Michael McNulty is managing principal and wine and beverage practice leader at EPIC Insurance Brokers and Consultants. He can be reached at mike.mcnulty@epicbrokers.com.

Related: Deadly California fires result in $9B in insured losses