Apart from the air of romance that surrounds it and the sensual and intellectual pleasure to be derived from its end result, the business of wine making is not all that different from any other manufacturing business. Raw materials need to be obtained and processed, and the final product needs to be packaged and sold. Inventories need to be transported and stored. Loss is always a possibility at every stage.
On October 12, 2005, a fire broke out in a 240,000 square foot former Navy torpedo storage facility in Vallejo, California. That facility did not contain torpedoes, however. Rather, as its new name -- Wines Central -- suggests, the building had been converted for the storage of wine. Lots and lots of wine. Wine produced by Napa and Sonoma County wineries large and small. Wine awaiting shipment to consumers, shops, and restaurants, as well as "library" wines from past vintages. Some 500,000 cases of wine, most of it destroyed or irreparably damaged.
Tom Wark, a public relations professional specializing in working with the wine industry, writes the daily Fermentation weblog, and has covered the story from the outset. His initial report, with a link to the San Francisco Chronicle's coverage, is here, on October 13. A few days later, Tom reported on the possibility (or likelihood) that the fire was the result of arson. On November 1, he posted a collection of photos of the scene, vividly depicting the extent of the damage done. The fire-breathing bear logo on the orange cases of RH Philips' Toasted Head Wines in the fifth photograph down is sadly ironic.
Now, Tom is reporting on the difficulties that some of these unfortunate winemakers are having trying to collect on their insurance, linking to a December 18 article by Julissa McKinnon in the Napa Valley Register. The title of the article tells more than a little about the writer's -- and the insured winemakers' -- point of view:
Begin with fledgling winemaker Allan Christensen, whose first-ever vintage Napa Valley Viognier, which was to have been released under the Amazon Ranch label, is no more:
'We paid the insurance and now they're finding little tiny loopholes to get out of paying us the money. If we don't get paid at all, we'll be out of business,' said Christensen, explaining that any future profit from this year's vintage is already spent. It will pay their outstanding bills of making the now-extinct 2004 vintage.
Christensen insists his insurance is balking at reimbursing them, 'based on a technicality.'
Though the couple paid a premium to insure all of their wine, their policy specified the location where the wine was to be stored -- the Christensen's home, not a warehouse in Vallejo, Christensen explained.
The 'site-specific' policy would have covered the couple's wine at a different location, had the couple merely notified the insurance company of the change.
But of course that's not what happened. Instead a fire happened. Followed by a heated and ongoing dispute.
Next, a lawyer comments:
Joe Whalen, an attorney with Farella Braun & Martel who specializes in insurance matters said he's encountered several wineries wrangling with insurance companies over similar 'site-specific' clauses. Like the Christensens, some of Whalen's clients paid premium costs to insure all of their wine, but their policies locked them into specifying how much wine would be kept in their winery and how much in the storage facility. Whalen argues such policies are inconvenient for wine businesses who move product between their winery and storage all year long.
'What I'm seeing happening is even though they have all the value on their policy, they don't have the exact right amounts of wine at Wine Central and at the winery,' Whalen said.
Some insurance companies are starting to take the hard-line stance that they will only reimburse clients for the quantity of wine that was, according to the fine print, designated for the warehouse.
'To a lot of people this is very unfair and it doesn't make sense to them when they paid a premium. They're asking what does it matter if I have a little more in the warehouse than last year?'
And no insurance-related story would be complete without some snappy patter from a self-styled consumer advocate, such as attorney Ray Bourhis:
'Insurance companies slip out the back, Jack, every single time,' Bourhis said, making a reference to Paul Simon's 1975 hit '50 Ways to Leave your Lover.'
'The one thing that's predictable about insurance is they're always looking for an excuse not to pay or pay less than they owe.'
Bourhis said it's standard practice for some insurance companies to misrepresent their policies, first when they're selling a policy and especially once a disaster strikes.
'They write their policies in gobbledy-gook so people don't understand it and they can tell people what it means,' he said, adding 'There are no consequences if people are stupid enough to accept what their insurance tells them. If they lie and say you're not covered there's no consequences if people just say "Gee whiz, I guess I'm stuck."'
Since the reporter either could not find, or did not try to look for, an insurer spokesperson to respond to these overbroad and likely unfounded accusations -- although the story does include a generally favorable view of the claims experience from the proprietors of Napa's excellent ZD winery -- it falls to Decs&Excs to suggest that "loopholes" and "fine print" and "gobbledy-gook" are not really at fault in this case.
Business property insurance policies, more or less universally, insure only property at specific locations. The insuring agreement of a typical business property policy will provide something on these lines:
We will pay for direct physical loss of or damage to Covered Property at the premises described in the Declarations caused by or resulting from any Covered Cause of Loss.
The policy will probably also cover property off of the identified premises if it is "newly acquired," and possibly provide coverage for some property "off-premises," but that additional coverage will nearly always be subject to a reduced limit, typically a maximum of $100,000 for newly-acquired property and only $10,000 for off-premises property. If an insured is looking to protect large quantities of off-site inventory, it is necessary to purchase additional coverage, for an additional premium and with separate coverage limits, to protect against that loss.
Why? Because the promise an insurer makes is, in essence, "When something bad happens to you, we agree to have the economic consequences shift to us," and -- having agreed to take on a risk that would otherwise fall on the insured -- the insurer naturally wants to have some confidence that it can accurately predict the likelihood of a loss occurring and the probable severity of that loss if it occurs, and that it is being paid a premium that accords with that level of risk. When property is located on the insured's own business premises, the insured has an incentive -- self-protection -- to take reasonable steps to prevent damage or destruction. When property is moved off-site, and placed in the hands of strangers, that incentive and the ability of the insured to take direct risk-limiting action is significantly reduced. Warehouses pose particular peril, as described in the IRMI volume on Commercial Property Insurance:
There are a number of special problems that contribute to large warehouse fires. One problem is inherent to warehouses -- making the most efficient use of the storage space that is available. Unfortunately, the configurations that are most efficient from the warehouse manager's viewpoint can be the most destructive in a fire situation. Limited access to the building, narrow aisle spaces, the use of shelving, and certain rack configurations can hamper efforts to put out a fire once it has started.
Warehouses are usually large open areas, with relatively high property values per square foot of floor space. All of the property in a large open area, wit no fire walls to stop a fire from spreading, can be destroyed in a single fire.
These sorts of problems were present in abundance in the Wines Central fire, as noted by the San Francisco Chronicle's report in October:
The blaze could not be controlled by firefighters because the Mare Island building -- a 1942 structure that once housed Navy torpedoes -- had steel doors and 3-foot-thick concrete walls and a concrete roof that could not be penetrated.
So it is not at all unreasonable for an insurer to want to know "what is located where" when it issues and maintains a policy, since a simple change of location can have an enormous impact on the risk the insurer is agreeing to assume. Location clauses, generally, are not "loopholes" or "technicalities," but rather are essential defining features of the contract between insurer and insured.
If the insurance agents and brokers through whom the winemakers purchased their coverage did their jobs well, all of this should have been explained when the policies were originally written, with an emphasis on the wineries' own responsibility to (a) be aware of where their property was located and (b) be aware of the extent to which that property might or might not be covered at various locales. (Questioning the management at Wines Central about the extent, if any, to which their insurance would protect their customers' stored inventory would have been a good idea as well.)
The economic losses to these wineries are potentially devastating -- to say nothing of the emotional toll on the winemakers and their families, and the aesthetic losses to wine lovers everywhere, for which there can be no insurance. It is understandable that the victims of this catastrophe are unhappy. No doubt there is at least some poor or incompetent claims handling going on in at least some of these cases -- not because insurers are out to cheat their insureds, but simply as a consequence of the ordinary incidence of error in human behavior generally. All told, however, it is more than slightly unfair for the victims to take their unhappiness out on their insurers and those insurers' claims staffs, the majority of whom are, within the bounds of their agreements, genuinely trying to help.
[Photo by Marcin Wyzmulek, via stock.xchng.]