Insights
Publications

Wine 'Smoke Taint' Blurs Insurance Coverage Distinctions

January 30, 2020 Articles

Recent wildfires in California Wine Country, particularly those that devastated parts of Napa and Sonoma counties in October 2017, have focused attention on whether insurance covers smoke taint damage to grapes and wine.

Many wineries and grape growers have notified their insurers of possible smoke taint damage claims. However, smoke taint in certain cases may present itself only after some time following the smoke exposure has passed. As a result, there was uncertainty at the time some claims were made about whether there actually would be damage and, if so, whether insurers would cover it. Now that we are just over two years past the 2017 wildfires, it is a good time to review how this issue is developing.

Property insurers covering the wine industry often assert that they cover damage to “harvested grapes” or wine in process, but not damage to grapes while they are “on the vine.” Crop insurance is supposed to cover damage to the vines and grapes on them, though it often is limited in scope and amount. This distinction may seem simple enough at first glance, but reality often is not be confined so easily to cleanly drawn categories.

The October 2017 wildfires in Napa and Sonoma started and continued to burn around the time many wineries and growers had planned to harvest their grapes. Some were lucky and had completed their harvests before fires broke out.

Others not so. They were in midst of picking their grapes or had not yet started when the smoke appeared. Some rushed to complete their picking during the fires in the midst of heavy smoke.

For most of the grapes picked before the fires broke out, there should be no insurance issue. If there was no possibility that smoke touched the grapes until they were on the ground, in transit or in process, most insurance policies should cover the damage, even if the damage presents itself well after the fires were extinguished.

As to the other grapes, however, questions abound. The fires had started, but had the smoke arrived by the time they were picked? If so, how thick did the smoke become by the time they were picked, and could the smoke have caused damage to the grapes while they were on the vine?

Or did the thicker smoke arrive after they were picked? Could the smoke have damaged them both before and after they were picked?

In other words, insurers’ attempted clean lines of distinction can quickly become hazy when it comes to smoke taint. It can be unclear when the process of damage started. Even if the damage arguably started while the grapes were on the vine, and there are disputes over whether that is possible, it may be the case that any such damage was made worse by exposure to additional smoke after they were picked.

There is also a question of when the insured reasonably could have discovered any damage during this process. These kinds of questions have led to one lawsuit already. Kunde Enterprises, Inc. v. National Surety Corp. was filed in October 2019 and is pending in federal court in Oakland. Kunde alleges that its insurer wrongfully denied coverage for smoke taint damage arising out of the October 2017 wildfires. The insurer claims that some of the allegedly damaged grapes were exposed to smoke while they were on the vine. The parties presumably will have to dig deep into the factual issues above while litigating this case.

Wineries and grape growers that have potentially suffered smoke taint losses would be wise to painstakingly gather and analyze their insurance policies and the facts surrounding their particular situations.

Each claim will be unique. It's critical to completely answer the questions above and others before decisions are made about whether to pursue claims and how such claims should be pursued. Further, wineries and growers should be vigilant in reviewing their policies each year to ensure that they obtain the broadest coverage possible. Some insurers surely will react to the recent spate of smoke-taint claims by adding new exclusions to their policies in an attempt to eliminate all coverage for them.

Firm Highlights

News

North Bay Wineries Taking Insurers to Court Over Denied Smoke Taint Claims

Tyler Gerking, chair of Farella's Insurance Recovery Group, was quoted in the Napa Valley Register article, "North Bay Wineries Taking Insurers to Court Over Denied Smoke Taint Claims." In the article, Tyler said he would expect...

Read More
Event

2020 Insurance Coverage Litigation Committee CLE Seminar

Join Erica Villanueva for a discussion on "Coverage Arguments that Work in Court but May Backfire at Mediation" at the 2020 Insurance Coverage Litigation Committee CLE Seminar. Details: In mediation, context is everything. Who are you...

Read More
Publication

Another Federal Circuit Finds Phishing Loss Covered Under Crime Policy

Companies of all sizes have fallen victim to attacks whereby fraudsters will use deceptive communications, such as spoofed emails, to trick an employee into transferring money into the fraudsters’ control. While these increasingly prevalent...

Read More
News

Companies are paying big bucks to insure boards against liability as class-action suits soar

Farella Insurance Recovery Partner Mary McCutcheon was quoted in the CNBC article, "Companies are paying big bucks to insure boards against liability as class-action suits soar." Read the article, here .

Read More
Publication

INSIGHT: California Ruling in Wage-Hour Coverage Suit Offers Employers a Defense Hook

Wage-and-hour exclusions are common in EPLI policies, frequently with defense-only sub-limits that are woefully inadequate. Farella Braun + Martel LLP’s Shanti Eagle looks at a recent decision adding an avenue to establish or expand...

Read More
Publication

Are Losses Resulting from Phishing Incidents Covered by Crime Policies Insuring Against Computer Fraud?

It is an all-too-common dilemma. As phishing schemes have become more prevalent and more sophisticated, businesses of all sizes have fallen victim to these attacks where a fraudster will use a spoofed email or other...

Read More
News

Threat of Cyberattack by Iran Still Critical, Experts Say

Insurance Recovery Partner Tyler Gerking commented in  The Wall Street Journal article "Threat of Cyberattack by Iran Still Critical, Experts Say." In the article, Tyler said that such direct actions by a nation-state against...

Read More
Publication

Time to Check Your Cyber Insurance

Now that the CCPA is in effect, some companies will need to revise their policies. The cyber insurance markets are beginning to adapt to the new California Consumer Privacy Act (CCPA) which went into...

Read More
Publication

Reimbursement of Employment-Related Expenses Is Not a “Wage and Hour” Claim Within the Meaning of EPLI Exclusion

A recent California appellate court decision found that a wage and hour exclusion in an Employment Practices Liability Insurance (“EPLI”) policy did not bar coverage for claims under California Labor Code sections 2800 and...

Read More
Event

2020 Insurance Coverage Litigation Committee CLE Seminar

Raymond Sheen will speak at the 2020 Insurance Coverage Litigation Committee CLE Seminar session, "Fingerprints, Facial Recognition, Permission? Oh My! Biometric Privacy Coverage Litigation Arriving Soon in Your State." Details: The Illinois Biometric Privacy Act...

Read More