Winery’s suit alleges insurance should cover wine with “smoke taint” following wildfires; insurer says policy doesn’t cover wine made from grapes tainted prior to harvest.
Vintage Wine Estates filed a lawsuit against Lloyd’s London and other insurers after the insurance companies failed to reimburse Vintage under an “all risk” insurance policy – denying claims that the policy covered losses Vintage suffered damage to its wines caused by the October 2017 wildfires in Sonoma County, Napa County and surrounding areas.
The complaint alleges that smoke from the wildfires infiltrated the winemaking process resulting in substantial damage commonly referred to as “smoke taint” to Vintage’s wines.
Of particular interest to wineries, breweries and distilleries looking to hold insurers accountable under policies they’ve paid for over damaged products, these allegations from the complaint do a good job of attempting to state an insurable injury to the wine:
- For companies like VWE [Vintage] that owned wineries and conducted winemaking operations in the affected area, the Wildfires resulted in smoke exposure to the wine products (in various stages of the winemaking process) during and in the immediate aftermath of the fires. The smoke exposure damaged the finished wine with a perceptible “smoke taint.”
- Compounds from smoke generated by the Wildfires permeated the wine products in process, such that the finished wine conveyed strong aromas and undesirable tastes. This destroyed the marketability of the wine, beyond a de minimis salvage value.
- The Wildfires resulted in significant insured losses, which constitute a new substantial exposure for the insurance industry. Accordingly, insurers providing “all-risk” coverage to California wineries subsequently responded to this increased exposure by adopting an absolute exclusion for contamination to grapes, juice, and other wine due to wildfires and related smoke taint. Importantly, the Lloyds Policy, which was issued prior to the Wildfires, does not contain any such exclusion. Yet the London Insurers wrongly refuse to honor their promise to insure VWE against this risk.
For their part, the insurers allegedly responded that it wasn’t the wine that was tainted by the wildfire smoke, but rather this tainted wine was the winery’s fault because the grapes were tainted while on the vine, so making the wine with them was the cause of the bad wine, not the wildfire. Stating the damaged wine was “made with grapes that suffered appreciable smoke taint damage/exposure while the grapes were still on the vine” and that the policy “does not cover damage to grapes on the vine” only “damage to harvested grapes or wine handled by the winery for storage or processing.”
Ensuring a complaint for reimbursement from insurance for the loss of alcoholic beverages properly states a covered loss is the first step in pursuing claims against insurers that have denied coverage. Here the debate over when the smoke taint occurred appears to be the crux that the insurers are relying on – arguing that their policy does not cover smoke taint to grapes on the vine. This is an interesting issue as the intervening act of making wine from smoke tainted grapes would surely result in a loss caused – at least in part – by the winery in choosing to move forward with processing tainted grapes. All the worse if the winery knew or should have known that the smoke tainted grapes would yield smoke tainted wine.