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A major fire that destroyed the wine stocks of dozens of commercial wineries in California sharpened the focus on insurance policies and risk management techniques to mitigate the exposure.
For wineries, the ramifications of losing years of wine stocks were thrust to the forefront by the October 2005 fire at a Vallejo, Calif., warehouse where dozens of wineries stored their products. The arson led to significant losses for many wineries and a sizable loss for the insurance industry, said Robin Reever, a Pleasanton, Calif.-based senior commercial underwriter for Chubb Corp., a major insurer of winery business.
The 240,000-square-foot facility was operated by Wines Central L.L.C. and licensed by the Bureau of Alcohol, Tobacco, Firearms and Explosives.
The eight-alarm fire caused an estimated $10 million in structural damage, according to the ATF.
Estimates of the total loss were projected as high as $100 million, although how much of that was related to the wine stocks is unclear, market and government sources say.
The Vallejo, Calif.-based facility had the capacity to hold more than 1.2 million cases of wine. It was home to an unknown number of cases of library wines or staged release wines, which are wines set aside to be released at a future date and are often more valuable and expensive than current vintages.
Although winery fires are relatively infrequent, they can cause substantial losses, as wineries often have $100 million worth of inventory, said Gary Delucchi, vp, of St. Helena Insurance Associates, an independent insurance agency in St. Helena, Calif. "The primary loss from an insurance standpoint is the loss of the wine itself," rather than damage to the buildings, he said.
Fireman's Fund Insurance Co., which has been insuring wineries for about 50 years, is a major market for winery coverage. Most of its severe losses for warehouse fires have occurred at offsite locations, said Steven Bones, product director for the Novato, Calif.-based insurer.
The Vallejo warehouse fire had a major impact on Fireman's Fund and other insurers, Mr. Bones said. "It was a huge wake-up call for the industry," he said.
Justin Vineyards & Winery had wine stock stored in the Vallejo warehouse, but the winery weathered the situation fairly well because it had adequate coverage, said Cheryl Wieczonek, vp, finance, human resources and risk management for the Paso Robles, Calif.-based winery.
But some other winery owners were not as fortunate, she said. "A lot of people got into trouble because they didn't have policies that covered the selling price of the wine," she said.
The Vallejo fire underscored the importance of valuing the wine based on the projected selling price rather than the bulk value or basic costs of the fruit, insurers say.
Fireman's Fund encourages wineries to account for their wine stocks at peak value to ensure they are properly insured against the true value of any losses, Mr. Bones said. "Valuation has become a big issue," he said.
In addition, the fire emphasized the importance of taking basic risk management precautions, insurers and winery owners say. While most facilities are built to strict building codes that minimize the risk of fire, the Vallejo warehouse fire was particularly damaging because the building did not have a sprinkler system.
The key lesson Justin Vineyards & Winery learned from that fire was to ensure that all of its facilities had sprinkler systems, Ms. Wieczonek said. "That's definitely something we look at now," she said.
Ensuring that a winery has listed all of its onsite and offsite storage locations on its insurance policies is also important. Some wineries did not have the Vallejo storage facility listed on their insurance policies and ran into coverage disputes, brokers and winery owners say.
The fire also taught policyholders the importance of spreading risk by not having their entire wine stock stored in one location, said Tonya Beaulac, vp, underwriting, for Napa Specialty Insurance Services L.L.C. in Napa Valley, which focuses on small to midsize wineries.
And for insurers, the fire highlighted to need to track accumulations to see whether multiple policyholders use the same storage facilities, said Barbara Herbert, agricultural product specialist for Seattle-based Unigard Insurance Group, which writes winery coverage primarily for midsize wineries. "It was a wake-up call for a lot of carriers that work with wineries," she said.
Commercial wineries have exposures other than fire risks, but claims for those risks are less frequent and less costly, insurers say (see story, page 12). Wineries are generally able to secure comprehensive coverage from the specialty insurers writing the coverage, although weather-related risks are typically excluded, insurers and brokers say.
"The coverages have improved and the pricing is competitive," Mr. Delucchi said. Insurers "keep trying to tailor the package more and more for what the wineries' needs are."
In response to the growing emphasis on accurately valuing wine stocks, Fireman's Fund launched a policy last September that offers coverage and valuation options for buildings, wine products and other property against a variety of perils. The policy can also cover other unique winery risks, such as expenses incurred when a defect, such as contamination or mislabeling, causes the withdrawal of a wine.
About a dozen insurers write winery business, though Chubb, Fireman's Fund and John Sutak Risk Services--a San Francisco-based brokerage and program administrator for an insurance program for wineries and vineyards--are the major markets for winery coverage, said Suzie Reynolds, a vp with surplus lines broker and general agent M.J. Hall & Co. Inc. in Stockton, Calif., and owner of the Reynolds Family Winery in Napa, Calif.
"I think this class of business is a pretty profitable business for insurers," she said.
Many commercial wineries, though, are underinsured because they do not want to pay high insurance premiums, Ms. Reynolds said. "The insurance isn't cheap, especially if you want to be insured adequately," she said.