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Wineries begin fire recovery without full insurance coverage

2018 promises to be the start of a new era of building facilities that are more fire-safe and getting smarter about policy language. Wineries and growers should review exemptions and limits
by Jessica Zimmer
February 01, 2018

Northern California wineries and growers affected by the October 2017 fires are planning revamped facilities, alternate canopy cover, and insurance policy changes. 2018 promises to be the start of a new era of building facilities that are more fire-safe and getting smarter about policy language.

“We spent far more than we’ll ever collect,” said Steve Ledson, owner of Ledson Winery and Vineyards in Sonoma.

“I have a policy that’s like reading a dictionary. I’m happy right now, but I haven’t gotten to the end result. We’re going to start pruning in January but we could lose some vines. We might not get any crop at all this year.”

Preliminary findings from a wildfire impact study on the North Coast wine industry by the Wine Business Institute (WBI) at Sonoma State University (SSU) indicated the impact of the fires was localized and limited. The WBI surveyed over 200 vineyard and winery stakeholders in Lake, Mendocino, Napa, Solano, and Sonoma counties. 90 percent of affected wineries and grape growers said vineyards would not need to be replanted or replaced. Most wineries that needed to replace vines will replace less than 10 acres.

The WBI’s research further showed 99.8 percent of vineyard acres in the region were not affected. 93 percent of wineries were unaffected. Yet 62 percent of respondents to the survey saw a drop in tasting room sales. 71 percent saw an immediate drop in tasting room traffic when compared with the same period last year. These numbers indicate more wineries may be claiming damages for lost business income than replacement for vines, fruit, equipment, and structures.

Fortunately, an expected construction boom, the donation of over $15 million to affected individuals, and a pick-up in tasting room traffic are expected to encourage growth. The WBI found that starting in November, visitor numbers returned to or exceeded prior year numbers for the same period. Timely insurance payouts, some expedited processes and reduced fees for building approvals, and property tax reassessments will also hasten economic recovery.

“The most significant impact on the North Coast wine industry was an immediate and temporary slow-down of visitors to the region. We believe this was driven by images and reports at the height of the disaster. Fortunately, the numbers show that this trend has corrected and continues to improve. We also have early indications from the broader economy that our regional recovery will be strong. Going forward, our team of economists, industry executives, and scientists will apply these findings in a coordinated plan to ensure confidence among consumer, media, and trade organizations in the quality standards for the 2017 vintage,” said Honore Comfort, wine business executive in residence with the WBI.

Charles Johnston, owner of Helena View Johnston Vineyards in Calistoga, said the disaster changed the way he views policy limits.

“We were under-insured, but we were insured to the point of what might happen in the ordinary cycle in a fire. This was no ordinary event. It was a firestorm that took all the buildings and the modified cave structure. A tree fell through my home. There were seven vehicles and they’re all gone. We lost a good chunk of what we had in barrels and bottles,” said Johnston.

Johnston said he had multiple policies, including replacement insurance of $100,000 for the vineyard.

“We’ll probably run through that and then some. It will take 4 to 5 years to get the vineyard back to where it will be organic,” said Johnston.

A whirlwind effort to restore vineyards

To speed recovery efforts, affected wineries and growers spent the winter removing debris, evaluating vines, and getting permits. Vineyards, especially those that were recently watered, acted as firebreaks to prevent the fires from spreading.

For many, the first step toward recovery was chopping up and carting away burned trees. This task is not covered by many insurance policies. It is required to ensure worker and structure safety.

Scott McLean, deputy chief with CalFire, said updated building standards include having “no dead or dying trees up near a roof, no thick vegetation up against the structure, and (maintaining) 100 feet of defensible space from a structure.”

The loss of redwood and oak trees damaged by the fires is a serious concern for those who relied on the trees’ shade to protect grapes from the sun. Insurance policies typically do not cover tree replacement.

“PG&E crews came onto my property and cut redwoods between 75 and 375 years old. You can’t undo this once it’s done. I absolutely think the lost tree canopy will also result in real risk of erosion,” said Andrew Robinson, winemaker at Seghesio Winery.

Wineries have also been evaluating and replanting vines, installing new irrigation systems, and applying for building permits.

“We have the permits that we’ll need for the next 18 months. It’s also important that we get some ground cover (to prevent erosion). We can build the property to the same size, even though we are not necessarily going to build the same structures,” said Johnston.

Ledson said the structures on his property were not destroyed. Yet he has a lot of cleanup to do.

“The buildings got smoke in them, the computers got blown out. Even the windows got filled up with smoke. We have to change all the filters in the automobiles. The fire blew out the electric gate motors. We didn’t just have damage from the fire. We also had damage from the smoke and wind,” said Ledson.

Losses are difficult to estimate

The North Bay fires from October 2017 account for $9 billion in claimed losses, according to data collected by the California Department of Insurance. The amount suffered by wineries and growers remains unknown.

“California law does not require businesses to report specific categories of commercial entities that have suffered losses. (Our report doesn’t) specify information about the number of vineyards or wineries partially or completely destroyed,” said Dave Jones, state insurance commissioner.

22 wineries in Napa, Sonoma, and Mendocino counties suffered direct damage from the fires. Far more saw a drop in visits and sales. Compensation will come from coverage from a wide range of policies, said Janet Ruiz, California representative for the Insurance Information Institute (III). III is a national nonprofit organization dedicated to providing information about insurance.

“Wineries have many different types of insurance coverage, from regular commercial insurance that covers structures, property, casualty, and business interruptions to workers comp, and to homeowners insurance for personal residences on the property. Wineries also buy also add-on crop insurance (to cover grapes and losses in revenue related to them), event insurance for wineries that host meetings or weddings, and farm and ranch insurance, which is a mixture of personal and commercial insurance,” said Ruiz.

Wineries with vineyards buy agricultural insurance. The wine industry has no average policy or coverage amount.

Tips for 2018

Wineries and growers should review exemptions and limits in their former policy.

“Make sure your values are up to date. Sit down with your insurance agent and go through different scenarios based on your reported values. At the time of loss insurers will be pushing to ensure that they have posted adequate loss reserves based partially on your reported values,” said Rob Gall, a managing director in Marsh’s National Property Claims Practice.

Gall said it is hard for insurers early in the loss adjustment process to suggest potential amounts for long-term business interruption losses. Such a task is always difficult. The task is made more problematic because the industry is now stretched thin.

“In 2017, there were the hurricanes, floods, and the fires. There’s only so many adjusters,” said Gall.

New businesses are particularly at risk.

“For a business interruption, the insurer looks back at historical sales, projections planned for the coming year. The insurer may go back one or two years to look at a business’s history. (Estimating actual or potential loss) is harder for people getting off the ground,” said Gall.

Wineries should keep in mind that when there is a serious fire, you can only do so much.

“Our situation was devastating. It wasn’t a situation you can really prepare for. Probably 30 to 50 percent of the vineyard burned. 15 year-old vines completely burned up. In addition, I had to pay the vineyard crew (for the days they could not work). Yet we plan to rebuild. Even though I will not get made even remotely whole (by my insurance policy), I know that the wine business is a very patient business. Nothing happens overnight,” said Robinson.

Robinson advises keeping a backup of records online as well as off-site.

“If there’s a loss, the insurer will want you to produce records of everything held in the structures,” said Robinson.

Good news for insured parties

Insured parties whose property was under a mandatory evacuation order may be exempt from a typical requirement. An insured party is usually required to take preventive measures to reduce an anticipated loss.

“When you have civil authority involved, it’s a case-by-case scenario,” said Dennis Mah, winery team lead for insurer Allianz Global Corporate & Specialty.

In addition, losses from the 2017 fires cannot be the sole factor to determine rates for 2018.

“Insurers must look back over the last 20 years of catastrophes to set new rates. This significantly diminishes the impact of the October 2017 wildfires,” said Jones.

Jones said the Department also believes that insurers have sufficient reserves to pay claims. He added that the Department has received no complaints from insured parties in the wine industry.

“This is the largest and most destructive set of fires in recent history. Recovery will take time. It is going to be a very slow and painful recovery process. But if there are additional protections that businesses and residents need, we’ll definitely suggest those to the legislature. We’ve expedited claim handling. We have deployed detectives into affected areas to investigate scam artists and insurance fraud. And we have issued a notice to public adjusters to remind them of the rules,” said Jones.

Johnston, who is writing a book on his personal and business recovery from the fires, said he believes recovery means turning away from the past.

“If you really want to do it right, you’re not going to build the same thing. We may streamline the way we produce wine. With computer connectivity, we can be a little bit more technical than we used to be,” said Johnston.

Yet Johnston also places a lot of value in tradition.

“The direction of the wine, that is going to stay like a rock. You don’t change what people know you for,” said Johnston.

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