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Managing Risk: Smoke Taint Woes Cause Headaches for Wineries

Some may like the infusion of smoke in their spirits or cocktails, but in wine an ashy, barbecue-like palate leaves much to be desired. Unfortunately, as recent wildfires and their lingering smoke put a damper on West Coast wine countries, the risk of smoke taint rises, alongside concerns of how to manage the damage. For grape growers and winemakers across California, Oregon and Washington, smoke-taint damage is a major issue that the industry, agricultural researchers and insurance companies actively seek to address.

Researchers in Australia were the first to notice the risk in 2003, when they linked atmospheric smoke to a taint in wine. Here the issue has come to a head more recently, currently playing out in Kunde Enterprises, Inc. v. National Surety Corp., a lawsuit filed in October 2019 and pending in federal court in Oakland. Kunde, a family winery in Sonoma Valley, alleges that its insurer wrongfully denied coverage for smoke-taint damage caused by the October 2017 wildfires. The insurer claims that some of the allegedly damaged grapes were exposed to smoke while they were on the vine. Another case, Vintage Wine Estates (VWE)’s smoke-taint lawsuit against its insurance company is scheduled for a jury trial in 2022 in San Francisco U.S. District Court.

The outcome of these cases will have significant implications on the industry, and some insurers are already reacting to the recent claims by adding new exclusions to their policies.

As a result, the big question on everyone’s minds is “Will my insurance cover smoke-taint damage to my grapes and/or wine?” The answer is not so simple, but as more research is available and more industry leaders and insurers address the issue, there are some emerging risk management best practices that both growers and wineries can follow:

  1. Assess your smoke exposure risk. According to the Washington Wine Growers Association and the researches it works with, many factors influence the impact of prolonged smoke exposure in vineyards, including the location of the fire, freshness of smoke, type of fuel and grape variety. For growers and wineries who want to assess the potential for smoke exposure, the West Coast Smoke Exposure Task Force recommends collecting grape samples for micro (bucket) fermentations, submitting samples for chemical analysis by a lab, and freezing for later analysis if needed. Communicating results early and regularly with your grower/winemaker counterpart as well as crop insurance or other insurance agent is highly recommended.
  2. Analyze your insurance policies. Taking a deep dive into your insurance policies with your insurance broker each year will help you ensure that you have the broadest coverage possible. 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” (as National Surety Corp. claims in Kunde Enterprises, Inc. v. National Surety Corp). If you are a grower, crop insurance, on the other hand, should cover damage to the vines and grapes on them, but crop insurance coverages can be limited in scope and amount.
  3. Ensure crop insurance coverage. For growers, making sure your crop insurance covers smoke-taint damage is vital to managing your risk. Before the issue arises, you should understand the sample testing process that will be required if you file a loss. When a loss is filed, you will need to obtain a smoke-taint test from a third-party lab. And as soon as you suspect damage, you should contact your crop adjuster to begin testing and assessing damage.
  4. Review and adjust your contracts. Many insurance brokers will assist you and your attorney in reviewing your contracts and revising terms to manage your risk with partners. If you are a winemaker, this is an especially important tool to ensure that the growers you work with are covered for smoke-taint damage and that they are testing samples and communicating results. A solid contract may also provide leverage if smoke damage is detected during the wine-making process.

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