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

Publication

D&O Professionals Series: Tyler Gerking Discusses D&O Coverage and Litigation

Insurance Recovery partner Tyler Gerking explores current trends and observations on D&O coverage and litigation on Willis Towers Watson's "D&O Professionals Series." Read the full article,  here .

Read More
News

Lawyers Advising California’s Wineries Navigate a Pandemic and Wildfires

Partners Tyler Gerking and Matt Lewis were interviewed in the Daily Journal article "Lawyers advising California’s wineries navigate a pandemic and wildfires."

Read More
Publication

Insurance Dispute Resolution

Farella's Real Estate Webinar Series features Amy Briggs discussing "Insurance Dispute Resolution." Businesses have filed claims seeking recovery help under their insurance policies due to various governmental closure orders arising from the COVID-19 pandemic. Losses related...

Read More
News

Amy Briggs Inducted to American College of Coverage Counsel

Read More
Publication

What Nonprofits Need to Know About Landlord-Tenants Relationships and Insurance

Amy Briggs and Tony Schoenberg discuss "What Nonprofits Need to Know About Landlord-Tenants Relationships and Insurance." Real estate is one of the most significant costs for an exempt organization. Furthermore, the laws governing landlord-tenant...

Read More
Publication

Maximizing Insurance Coverage: What Cannabis Businesses Need to Know

Farella's Cannabis Industry Education Series features Tyler Gerking discussing "Maximizing Insurance Coverage: What Cannabis Businesses Need to Know." The cannabis industry has flourished, along with it the cannabis insurance market has grown. As more carriers...

Read More
Event

Insurance for Nonprofits: Managing Risk in Risky Times

Mary McCutcheon and Cynthia Rowland will discuss "Insurance for Nonprofits: Managing Risk in Risky Times" at the April Nonprofit Education Series. Nonprofit organizations—and their directors and staff—are not immune to claims in difficult economic...

Read More
Publication

Maximizing Business Insurance Coverage Benefits After a Fire

Unfortunately, we again write while wildfire is devouring homes and businesses in Napa and Sonoma, and threatening many more. We’ve previously posted tips about first steps that you should take in the event your...

Read More
News

Farella Braun + Martel Ranked Among “Best Law Firms” by U.S. News & World Report and Best Lawyers

SAN FRANCISCO, November 5, 2020: Farella Braun + Martel earned national and regional rankings across a number of practice areas in the U.S. News & World Report and Best Lawyers® release of the “Best...

Read More
Publication

“Unfair Trade Practices” Exclusion Does Not Extend to Consumer Protection Claims

Two phrases combined in a single exclusion—“alleging, arising out of, based upon or attributable to any violation of any law…” and “as respects… unfair trade practices” could inspire carriers to make trouble for policyholders...

Read More