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California wildfires

Weeping Vines

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The recent wildfires have wreaked havoc across the Napa and Sonoma counties of the California wine region. What has been the impact on the wineries?

Allianz SE
Munich, Oct 20, 2017

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Where rolling hills draped with green Cabernet Sauvignon grapes and luxury vineyard estates once stood, remain thirsty landscapes populated by scorched vines, burnt buildings and sparse vegetation.

Some charred berries hang on the vines that the fire has spared. The wildfires, which have been raging in California for more than a week have caused widespread devastation in both Napa and Sonoma counties, the world-famous wine regions and popular tourist destinations just north of San Francisco. These infernos - which now have been contained by more than 8,000 firefighters - burned more than 6,000 structures (homes and businesses), nearly 200,000 acres of land and reportedly killed more than 40 people, to date, with casualties expected to rise.

“This is one of the largest wildfires affecting vineyards ever,” says Dennis Mah, Winery Team Lead from Allianz Global Corporate & Specialty (AGCS) North America, based in San Francisco. “It will be a large loss for the valley’s wineries and possibly also for the wine lovers in the U.S.” Californian vineyards and wineries produce an average of 85 percent of total U.S. wine production.

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Burnt grapes

One of the wineries which suffered significant loss is Paradise Ridge Winery in Santa Rosa, whose buildings and property are insured by AGCS North America. The winery has already begun the insurance claims process with Allianz and has hired a forensic expert to assess damages; the owners have also sought out construction professionals and building materials which are always scarce in the aftermath of a disaster.

“Luckily we have great insurance which covers everything,” owner Sonia Byck-Barwick said, according to a report by Reuters news agency. “Some things might be a little low, but I feel very confident that we’ll be able to rebuild.”

Varying damage

Most of Napa and Sonoma counties’ wineries have reported some degree of damage to their facilities, vineyards and tasting rooms. Vintners have been forced to leave grapes at the end of the harvest season as well as vats of fermenting fruit, which is normally handled with great care. However, both preparedness and insurance protection against fire seem to vary among owners as many assume fire risks are covered by general insurance policies.

Additionally, vineyard sizes and operations differ, dramatically. Some owners have plots across the country, some just one. Some have an emergency power supply to keep temperatures controlled allowing continued crop processing, and some do not. Some have only a standard business insurance that would cover building damage and possibly business interruption losses, and others have purchased crop insurance to replenish the lost harvest.

“Land is usually not covered under a commercial property policy,” explains Steven Kennedy, Head of Property Claims North America. “Policy limits vary pending the cost of construction, installation of replacement equipment, annual business income revenue and the value of wine stock.” Collective insured losses from the California wildfires may amount to billions of dollars for vintners, home owners and other entities. However, it is premature to offer any preliminary estimates on policy losses. Claims settlement is still at an early stage or has not even started yet as loss adjusters are only now gaining access to some of the affected areas.

It’s not yet clear whether the direct damage to crops will be as devastating. Some believe damage will be moderate as the fires occurred toward the end of the harvest season with most fruit having been already picked; others project the opposite, fearing that there could be billions of dollars lost on grapes still left on vines.

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Smoke taint

In addition to buildings, vines and this year’s harvest, the valley’s vintners are worried about “smoke taint,” as smoke from fire can change the taste of red wines. “In addition to the burned property damage, smoke may also be a major source of loss from this event,” added Mah. For example, smoke taint from the Canberra bushfires of 2003 cost Australian vineyards more than $4 million. Once grapes are tainted, the wine is not easy to fix.

Historically, wildfires sweeping winery regions are no rare occasion. For example, in January 2017 in Chile, the worst forest fires in a century damaged or destroyed parts of at least a hundred vineyards, including some with vines older than a century, across the Maule and Colchagua valleys.Anguished winemakers were pained to witness the destruction of vines that their families had tended to, with love and sacrifice for years. Chilean authorities declared the damage as the worst forestry disaster in the nation’s history.

Wildfires also diminished 2016’s crop in France’s Languedoc appellation in September, only a month after “golf-ball sized” hail destroyed hundreds of acres near Montpelier.

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Allianz SE
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