Insights
Publications

Mitigating the Uncertainty of Smoke Taint in Wine Grapes

October 25, 2021 Articles
American Vineyard

Smoke taint has dominated the worries of the California wine industry recent years. With unsettled climate conditions and continued droughts, there is no reason to think that smoke taint will not continue to be a significant concern for the foreseeable future. In 2017 and 2020, California growers and wineries both had to scramble to adapt as they found that existing science, customs and contractual arrangements left them ill-prepared to deal with the smoke taint challenge. Avoiding a similar situation once smoke taint inevitably strikes again means understanding the problem and having a strategy in place to address it.

What is smoke taint?

Drinking smoke-tainted wine has been compared to tasting a campfire or an ashtray: most would agree that these are not desirable attributes for wine. These off flavors are caused by volatile phenols that are released by plant matter when it burns. The volatile phenols bond with sugars in the grapes, which produces glycosides. Unlike volatile phenols, glycosides are not volatile, so the smoky quality cannot be smelled or tasted.

The Problem of Uncertainty

During a typical crush, grapes are harvested in the field, delivered to the winery crush pad, inspected, accepted if there are no obvious signs of defects, and the fermentation process begins. If the winery buys the grapes from a grower, acceptance typically obligates the winery to pay the grower, with payment due shortly after harvest, or in installments, the first shortly after harvest and the second a few months later.

However, one of the biggest challenges of smoke taint is its latency. In effect, volatile phenols hibernate: Glycosides become volatile as the wine is fermented and aged and smoke can then be smelled and tasted. It is hard to predict when this will occur, making it difficult to detect, plan for and mitigate the risk of smoke taint during the usual wine making process.

Compounding the uncertainty, there is no universally accepted definition of smoke taint in the industry. Different laboratories and wineries rely on different levels of different chemical markers. Relying on taste and smell is inherently subjective, painfully obvious in some cases, subtle and hard to discern by some palates in others.

Contract Approaches

Ultimately, uncertainty breeds trust and relationship issues best solved in the grape purchase contract. Parties negotiating grape contracts should consider:

  • Identifying smoke taint using specific chemical markers (perhaps periodically revisited in good faith during the contract as industry knowledge evolves) or using truly neutral subjective evaluators 
  • Using tiered pricing depending on the levels of chemical markers found
  • Incorporating processes that recognize smoke taint’s latency by delaying acceptance of suspect grapes
  • Allowing suspect grapes to be processed for the grower’s account
  • Including a holdback of some portion of the purchase price
  • Some combination of the above


Don’t Overlook Insurance

Growers and winemakers should review their insurance policies in detail before and after smoke taint strikes and consider working closely with a broker or lawyer to determine whether, when, and how to make a claim.

Understanding how insurance works with smoke taint now can help prepare you after smoke taint strikes. One of the trickiest issues is determining which insurance policy will cover a potential loss. As a general matter, crop insurance will cover damage to grapes while they are on the vine while other forms of property insurance will cover “damage” to grapes after they have been harvested. Growers with healthy crop policies should encourage field inspections before harvest to enable timely claims.

However, since it may not be clear when the grapes were “damaged,” steps taken under one type of policy could impact a claim under a different type of policy. If it is not clear when the grapes were damaged, potential claimants should review their policies carefully and work closely with their consultants, lawyers and brokers to determine the best approach to a potential loss.

Taking the time now to understand your policies before smoke taint hits can help make the claim process less stressful and ensure that no important steps are missed. Grape growers and winemakers should review their insurance policies to determine the supporting documentation required to file a claim. Some policies, for example, may require information about when the grapes were affected, where they were affected, and for how long.

Many policies will also require lab tests from preapproved labs that indicate the presence of smoke taint. At present, pre-harvest tests typically focus on the presence of guaiacol and 4-methylguaiacol and are performed either on whole berry clusters or after the micro-fermentation of samples. Although postfermentation tests can help confirm the presence of smoke taint, many policies will still require preharvest test results.

Potential claimants should also look for other requirements that might affect the viability of their claim. Does a policy require winemakers to segregate the juice from different lots, and should this be part of grape contract negotiations?

Carefully reviewing insurance policies and closely working with your consultants, insurance broker and lawyer may also uncover unexpected sources of recovery. For example, if crop insurance is not available or does not fully cover the loss, it might still be possible to obtain coverage for lost profits and extra expenses due to grower’s inability to harvest grapes due to lack of access or other reasons, or a winery’s inability to procure the grapes it needs to produce wine. As always, to maximize insurance recoveries, it is necessary to quickly and thoroughly gather all relevant facts, supporting documentation and relevant insurance policies, and understand (with a professional’s help, if required) how the insurance policies might respond to particular losses before deciding how one or more insurance claims should be pursued.

Next Steps

Potentially ruined grapes are bad enough: the inherent uncertainty around smoke taint’s presence, cause, and extent exacerbates the related contract and insurance problems. To reduce this uncertainty: review insurance policies and grape contracts so you understand their terms, consider negotiating grape contracts to incorporate practical procedures, and reach out to your consultants, insurance broker or lawyer with any questions about contracts, policies, or general strategy for addressing potential smoke taint damage. Anything you do now can reduce the pressures of the next fire season.

Firm Highlights

News

Legal Experts Say Opioid Coverage Disputes Far From Over

Shanti Eagle was quoted in Law360 's article "Legal Experts Say Opioid Coverage Disputes Far From Over."  Read the article here (subscription required).

Read More
Publication

Navigating the Wine Industry’s Property Insurance Conundrum

Property insurance is both a prudent choice by a business, as well as, in certain circumstances, a requirement, such as when a winery borrows money from a bank or commercial lender. If and when...

Read More
News

Swinerton Completes Sale of Renewable Energy Division and SOLV, Inc.

Northern California legal powerhouse Farella Braun + Martel represented Swinerton Incorporated in the disposition of its renewable energy division Swinerton Renewable Energy (SRE) and wholly-owned subsidiary SOLV, Inc. to private equity firm American Securities...

Read More
News

2022 Cannabis Insurance Market Update

Tyler Gerking was quoted in  PropertyCasualty360 's article "2022 Cannabis Insurance Market Update."  Read the full article here (subscription required). Watch the webinar "Cyber Insurance for the Cannabis Industry" here .

Read More
Publication

The War Exclusion in a Time of War

The “war” exclusion has gotten more attention over the past couple of weeks in light of Russia’s invasion of Ukraine. For good reason. This exclusion, common in property and liability policies alike, typically eliminates...

Read More
News

Farella Braun + Martel Announces Five New Partners

Read More
Publication

Illinois Courts Largely Favor Coverage for BIPA Cases Under CGL Policies

Since Illinois passed its Biometric Information Privacy Act (BIPA) in 2008, there has been a proliferation of class action lawsuits filed pursuant to the statute. BIPA generally bars private entities from collecting, capturing, purchasing...

Read More
News

Farella Represents Next Green Wave in Agreement to Sell to Planet 13

Northern California legal powerhouse Farella Braun + Martel acted as U.S. counsel in representing California seed-to-shelf cannabis producer  Next Green Wave Holdings (NGW) in its definitive arrangement agreement to be sold to Nevada-based cannabis...

Read More
Publication

Upside: Changes in the VCAP Liability Coverage Market

Over the past few years, there's been a dramatic rise in premiums in the venture capital liability insurance market and a steady increase in claims being submitted under those policies. We're also seeing a...

Read More
Publication

What to Know About Taking a Data Center Company Public Through a SPAC

A recent IPO by InterPrivate IV Infratech Partners, a digital infrastructure-focused special purpose acquisition company, or SPAC, raised $250 million. Its impressive fundraising and management team, led by former CyrusOne CTO Kevin Timmons, may cause privately...

Read More