There’s No Use Crying Over Spilled Milk - But What About Spilled Wine?
If you’re a winery owner in California, you probably felt like a good cry after the recent Southern Napa Valley earthquake. The same might be true for underwriters with clients in the winery business, some of whom are still counting their losses.
On the other hand, the quake will likely lead to more winery owners reviewing their insurance coverage. But what are the main underwriting and policy issues associated with events like this?
First, there’s seasonality. Timing is everything in the wine business and this event occurred at the critical start to the harvest season. Pinot noir and white varietals were being processed, while merlot and cabernet grapes were still on the vine. If processing and fermentation equipment is damaged and wineries cannot process, there may be an increased Business Interruption (BI) exposure at this time of the year.
The Napa event resulted in damage to approximately 120 wineries and agricultural businesses, according to Decanter.com, with the closure of 12 wineries - some of which were not fully operational three weeks after the earthquake. What if the event had been much more damaging and many more facilities were closed? How likely would “make-up” be then?
The valuation of wine is challenging because the price of a bottle depends on many factors, including the type of grape, production and aging methods, winery reputation and consumer demand. White wines are generally less complex, and therefore command less value than reds. Whites age on average anywhere from nine months to three years, as opposed to red wines, which need 18 months to five years to mature.
Older vintage and rare wines can be aged for many years and individual bottles may be worth thousands of dollars. A collector’s bottle of 1787 Chateau Margaux once belonging to Thomas Jefferson was considered a work of art, and was insured for $225,000, though deemed to be undrinkable. Such variations in value pose obvious challenges for underwriters and adjusters.
In Napa, cases of wine from the Silver Oaks Winery, for example, are valued at $1,300/case and oak barrels contain close to 25 cases. That puts the value of one barrel at $32,500, plus the value of the barrel itself. Recent articles put the value of an average pinot noir at $16,000/barrel - though it can be much higher in an area such as Napa Valley, which produces fine wines rather than bulk wine (think Opus One versus Two Buck Chuck). Additionally, many wineries are in historic buildings, which create other valuation challenges.
Insureds need to be sure that their property coverage adequately addresses their exposures. Typically, valuation for stock-in-process/aging wine is not the selling price unless specifically addressed via wording/endorsement or specialized policies. So it’s important for underwriters to verify the wording and valuation of wine storage at various stages of the process.
Look for my next blog where I’ll discuss policy endorsements and extensions, plus loss prevention steps.