Insurance Changes for the California Wine Industry

The wildfires of late 2019 and 2020 saw some of the most devastating damage to the California wine industry since early settlers started growing their grapes here in the early 1830s. The recent wildfires did more than reshape the topography of California’s wine country. They also restructured how wineries here will be insured amidst a growing number of wildfires in recent years, with each seeing more devastation than the one before.

California wineries are facing yearly premium increases of approximately 300%, and that’s for wineries who can find insurance coverage at all. Winery insurance coverage includes three distinct areas: (a) crop insurance, which covers risk during the grape growing season through harvest; (b) the finished wine product, including bulk wine and cased goods; and (c) other than wine inventory: property, general liability, auto, employee practices.

Condensed and Major Wine Production

In order to fully understand the impact of the insurance challenges facing the California wine industry, we first have to understand how vital the industry is to the state of California, as well as the global wine industry.

Sonoma and Napa are some of the most important wine producing regions in the world with over 800 wineries growing and harvesting grapes for wine production. The wineries in these two areas comprise over 50% of the total retail OF WHAT? of the State of California and make up the fourth largest wine producing area in the world. This makes the current insurance struggles for California winery owners particularly troubling.

With many wineries in Sonoma and Napabeing or underinsured, there is a high level of stress and concern as winery owners brace for the imminent wildfire season ahead.

State Legislation Action

If California wineries lose their produced wine, the entire state will feel the aftershocks as retail and tax revenue will plummet. This makes the insurance challenges of California’s wine country not just a wine industry concern, but a larger concern at the state level.

Currently, California’s FAIR (Fair Access to Insurance Requirements) Plan is standing as a last resort for California’s wineries. It offers protection for both residential and commercial buildings on agricultural properties should insurance claims be denied, be underpaid, or the home or business be uninsured entirely. The FAIR plan is rather limited in what it covers and the amount it will payout should insurance payments fall through. It currently only allows for $3 Million for buildings on agricultural properties in California. While that may seem like a sizable payout for residential dwelling, it will hardly be effective for wineries who’s buildings and wine stock average in the hundreds of millions.

Currently, there is legislation on the California Senate floor to extend the coverage allowed under the FAIR plan but it has not yet passed. Even if it is fast tracked as passed, it will likely not take effect prior to the upcoming wildfire season.

A Tough Road Ahead

While some of the larger California wineries are choosing to self-insure, many wineries do not have that luxury. Some have already closed their doors in the wake of last year’s wildfires. Those who have since reopened their doors are hoping for the best ahead of the wildfire season, but with only two choices – pay the skyrocketed insurance premiums or go without – the future is uncertain and financially straining at best.

Two of the biggest wineries in California – Vintage Wine Estates (VWE) and Kunde Enterprises – have filed lawsuits against their insurance companies who denied $19 Million in damage claims after last year’s wildfires. The lawsuits are not expected to be heard in court until January 2022.

While many smaller wineries cannot afford a legal battle, especially on top of their steep insurance hikes, there is hope that should the court rule in favor of the California wine giants, there may be a trickle down effect in the form of insurance regulations that could greatly benefit the wine industry. Perhaps an insurance restructure is exactly what California needs to keep their prized wineries protected from wildfires.

Need Accounting Help?

If you are in need of accounting assistance as you recover from last year’s wildfire damage and look ahead to this year’s wildfire season – Allen Wine Group can help. Contact us today to get started.

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