Winery Insurance Community University 1 www Insurance Community

Winery Insurance Community University 1 www. Insurance. Community. University. com

Your Instructors Today Laurie Infantino AFIS, CISC, CIC, CRIS, ACSR, CISR President, Insurance Community Center Gary Delucchi Vice President Am. WINS Insurance Brokerage of California Sponsored by: Am. WINS Insurance Brokerage Insurance Community University www. Insurance. Community. University. com

What This Course Will Cover 1. Exposure and Risk of the Winery Operation 2. Focusing on specialty risks of a winery such as contamination; spoilage; ecommerce; valuation. 3. Discussion of the specialty winery coverages Insurance Community University 3 www. Insurance. Community. University. com

Exposure and Risk Sponsored by Am. WINS Insurance Brokerage Insurance Community University www. Insurance. Community. University. com 4

Wineries and Vineyards Wine Stock De-Stemming Storage Planting Crushing Plant Disease Fining/Filtration Storage bottling Transportation Sales Insurance Community University Harvesting Blending Corking Sales Harvesting Testing and Labeling Lots of Fun www. Insurance. Community. University. com

There is exposure at every step of the process Insurance Community University www. Insurance. Community. University. com

Polling Question #1 Your insured is a new winery called Eagles Nest and has chosen a label with an Eagles Crest, an established winery in Sonoma, sued Eagles Nest for their choice of name because they thought it could be confusing to wine buyers and also sued them for using an eagle on their label that closely resembled the eagle on the Eagle Crest label. Insurance Community University 7 www. Insurance. Community. University. com

Intellectual Property and Wineries (root stock/grafting) • The United States Supreme Court, in a 6 -2 decision authored by Justice Clarence Thomas, has declared that it is legal to claim utility patents on plants. Insurance Community University 8 www. Insurance. Community. University. com

Intellectual Property and Wineries (root stock/grafting) • The December 10, 2001 ruling states that the Plant Patent Act (PPA) of 1930 and the Plant Variety Protection Act of 1970 (PVPA) are so broad that they can cover any type of plant that is “new, distinct, uniform, and stable. ” No exclusivity is granted to genetically modified plants Insurance Community University 9 www. Insurance. Community. University. com

IP and Vineyards • Vintage Nurseries Sued for Selling French Clones • The clones in question are not patented but are sold to US nurseries under license agreements • http: //www. dailyfinance. com/2010/06/18/ho ld-for-mitch-tennessee-ag-says-nurserycompanies-deceived-cust/ Insurance Community University www. Insurance. Community. University. com

Exposure and Risk Vineyards Own “some” varietals Receive grape stock from other Insurance Community University Insurance Issues Crop Insurance (check exclusions) Crop Revenue Programs Trellis & Grape vines “limited” coverage Relationship and Risk Management Issues (pesticides; dogs; GPS; organic) www. Insurance. Community. University. com 11

Crop • Crop as used in insurance forms and generally refers to “growing crop”. In the case of the vineyard it is the “growing grapes” • Crop insurance is available to farmers for loss to growing crops from natural hazards as defined in the form. Insurance Community University 12 www. Insurance. Community. University. com

Crop Insurance Adverse Weather Fire Wildlife Earthquake/Volcanic Eruption Failure of irrigation water supply if caused by an insured cause of loss • Disease (check policy) • NO coverage for Phylloxera • • • Insurance Community University 13 www. Insurance. Community. University. com

Polling Question #2 Your insured had a fire in their vineyard and there was an estimated $25, 000 damage to vines that had to be replaced. How could this loss be covered? Insurance Community University 14 www. Insurance. Community. University. com

Vine Coverage • NOT really available in the industry • Limited coverage on some winery forms for limited perils Insurance Community University 15 www. Insurance. Community. University. com

Specialty Winery Program Coverages • Vineyard Coverage Physical Damage Outdoor Vines or Trellises – Does NOT include grapes – Limited perils – Limited amount ($25, 000) Insurance Community University 16 www. Insurance. Community. University. com

Specialty Winery Program Coverages • Trellis Coverage – CAN include grapes growing on vines – Can EXCLUDE grapes growing on vines Insurance Community University 17 www. Insurance. Community. University. com

Different Types of Wineries IMPORTANT how the winery represents itself (Advertising Liability) Insurance Community University 18 www. Insurance. Community. University. com

Different types of programs • Insurance Companies have different “appetites” for winery risks • Many winery programs are BOPish • Some winery programs have extensive form language modification • Some winery programs have significant endorsements • Some winery programs are larger and “all encompassing” Insurance Community University 19 www. Insurance. Community. University. com

Different Exposures—Different Players • • Hobby Winery Boutique Winery Larger Winery Vineyard Operation Insurance Community University • • Farm Owners Definition Farm Department www. Insurance. Community. University. com

No Two Wineries are Alike • • • Vineyard and winery operation Winery ONLY Traditional Winery Organic Winery Biodynamic Winery ETC Insurance Community University 21 www. Insurance. Community. University. com

Traditional Winemakers • It is imperative that the wine label contain the necessary information about the winery and the American labeling laws are enforced by the Alcohol and Tobacco Tax and Trade Bureau. • There are minimum requirements that must appear on the label Insurance Community University 22 www. Insurance. Community. University. com

USA Wine Label Information • Brand identification or brand name • Class or type of wine • Name and address of the bottler or producer. 'Produced and bottled by' is allowed if the bottler fermented and clarified at least 75% of the wine. • http: //www. wine-searcher. com/winelabel-usa. lml Insurance Community University 23 www. Insurance. Community. University. com

Appellation of origin • The appellation system in the US is commonly referred to as AVA or American Viticultural Area. These AVAs are based on distinct climatic and geographical features, and are an important source of information. Insurance Community University 24 www. Insurance. Community. University. com

Appellation of origin • In order to have an AVA appear on a wine label, the following specifications must be met: – The majority of US states require 75% of the grapes in a wine to be grown locally. – If a wine label specifies an officially designated viticultural area (e. g. Sonoma Valley), a minimum of 85% of the grapes must come from within the named region. Insurance Community University 25 www. Insurance. Community. University. com

USA Wine Label Information • Varietal Labeling (75% of the specified grape— exceptions like Oregon 90%) • Vintage labeling (95% of the grapes must be from a particular vintage for that year to appear) • Alcohol content • Declaration of sulfites and additives • Volume of contents • Government Warning Label Insurance Community University 26 www. Insurance. Community. University. com

Labeling Grapes, Milk, Fish Guts: Vintners May Have to Label Allergens • Vintners have been using byproducts from milk, eggs, wheat and even fish gut in the winemaking process for centuries • A new federal proposal could require American wineries to disclose all ingredients used as additives. The U. S. Treasury Department’s Alcohol and Tobacco Tax and Trade Bureau is expected to publish a final rule on the issue by late 2007. • The Insurance Journal 1/17/07 Insurance Community University www. Insurance. Community. University. com

Organic Wineries. • The consumption of organic wine grew at a rate of 3. 7 percent over the year ending September 19, 2009[1], out-pacing growth in the consumption of non-organic wine which grew 2%[2] during a similar period. There an estimated 1500 -2000 organic wine producers globally[3], including negociant labels, with more than 885 of these organic domaines in France alone. • http: //en. wikipedia. org/wiki/Organic_wine Insurance Community University 28 www. Insurance. Community. University. com

Organic Wine and Wine Grapes • In order to legally use the term “organic” on a product label, the grower must become “certified” by a third-party agency (such as California Certified Organic Farmers, Oregon Tilth or Demeter Stellar), which assures that USDA NOP regulations are followed. A 3 -year transition period is required, in which an Organic System Plan (OSP) is implemented. • http: //californiaagriculture. ucanr. org/landing page. cfm? article=ca. v 062 n 04 p 138&fulltext=y es Insurance Community University www. Insurance. Community. University. com

Organic Wine and Wine Grapes • Typically, this includes: not using conventional crop protectants and fertilizers; implementing a soil fertility program with cover crops and compost; and developing a pest management program with spray materials approved for organic growing Insurance Community University 30 www. Insurance. Community. University. com

Biodynamic Wine • There are currently more than 450 biodynamic wine producers worldwide. [ Currently, for a wine to be labeled “biodynamic” it has to meet the stringent standards laid down by the Demeter Association, [ which is an internationally recognized certifying body. • http: //en. wikipedia. org/wiki/Biodynamic_wine Insurance Community University 31 www. Insurance. Community. University. com

Biodynamic Wine • As a practical method of farming, biodynamics embodies the ideal of everincreasing ecological self-sufficiency just as with modern agro-ecology, but includes ethical-spiritual considerations. This type of viticulture views the farm as a cohesive, interconnected living system. [ Insurance Community University 32 www. Insurance. Community. University. com

Polling Question #3 Your insured just finished spraying their pesticides and fungicides on their vineyard. There was a windstorm that night and their wind carried the chemicals to a neighboring farm that was registered “organic” and caused damage to the crop. How could this claim be covered. Insurance Community University 33 www. Insurance. Community. University. com

Specialty Winery Coverage • Chemical Drift Coverage – Sometimes provided as a sub-limit – Can be added by endorsement Insurance Community University 34 www. Insurance. Community. University. com

Exposure and Risk Processing De-stem Crush Fine/filtrate Blend Barrel Aging Test Bottle/cork/label Store Transport Sell Insurance Community University Insurance Issues Contamination Spoilage Wine Leakage Errors Business Income Cork Contamination Product Recall Intellectual Property Product Recall Mode of Transportation Retail/Wholesale/Internet Sales www. Insurance. Community. University. com 35

Contamination and Spoilage Sponsored by Am. WINS Insurance Brokerage Insurance Community University www. Insurance. Community. University. com 36

Definitions of terms • • Flaws in Wine Faults in Wine Spoilage of Wine Contamination Insurance Community University www. Insurance. Community. University. com 37

Contamination Flaws • • • Off Character Wine is Atypical Off color Off odor BUT, is drinkeable Insurance Community University Fault • • • Major departure from norm Significantly Atypical Significant residue Broken down cork Often Undrinkable 38 www. Insurance. Community. University. com

Flaws and Faults • Attributable to winemaking – Incorrect sulphiting – Failure to top off – Check for fermentation levels – Failure to add nutrients – Failure to test for completion of MLF – Cork quality – Acetified grapes Insurance Community University www. Insurance. Community. University. com 39

Contamination • Attributable to winemaker technique and cellar management – Failure to rack property – Maintenance of Tanks – Storage – Transportation Insurance Community University www. Insurance. Community. University. com 40

Contamination • Attributable to cork/corking • Corks and TCB Insurance Community University 41 www. Insurance. Community. University. com

Oregon Winery Files Lawsuit Against Maker of Altec Corks • Problems look to be snowballing for Sabaté, one of the world's largest cork manufacturers: Van Duzer Winery, a winery in Oregon’s Willamette Valley, files a lawsuit against Sabate, one of the world’s largest cork manufacturers located France. Van Duzer is claiming that Sabaté's Altec composite stopper ruined 1, 200 cases of Chardonnay with a retail value of more than $240, 000. Insurance Community University www. Insurance. Community. University. com

Oregon Winery Files Lawsuit Against Maker of Altec Corks • Bottle samples were sent to a commercial laboratory, which found that the wines had average TCA (tricloroanisole) levels were well above many consumers' threshold of taste. Insurance Community University www. Insurance. Community. University. com

Polling Question #4 Your insured shipped their 2012 Chardonnays and Merlots to a large restaurant in San Diego. There were a total of 25 cases shipped. After opening the first bottle, the restaurant owner noticed a “cork” taste and wanted all of the wine to be returned to the vintner. How would this loss be covered? Insurance Community University 44 www. Insurance. Community. University. com

Insurance Issues • Product Contamination – Accidental – Malicious • Products Recall • Replacement Costs and Rehabilitation Expense (AIG) • 3 rd party Business Interruption and Recall (AIG) • Product Tampering • Product Extortion Insurance Community University 45 www. Insurance. Community. University. com

Specialty Winery Coverage • Wine Contamination – CAUTION: Carefully check definitions, limitations and exclusions • Vineyard Contamination – For harvested grapes owned by you due to sudden and accidental release of fluids from machinery used in harvesting Insurance Community University 46 www. Insurance. Community. University. com

Specialty Winery Coverage • Wine Leakage – Check definitions – Check deductibles • Can be a percentage like 10% • Can be a dollar amount like $1000/occurrence – Check covered cause of loss – Check if covers “implosion” – Check if covers E & O in the workmanship of the insured and their employees Insurance Community University 47 www. Insurance. Community. University. com

Transportation Storage Insurance Community University 48 www. Insurance. Community. University. com

Transportation/Shipping (Crop/Finished) • • • Owned Vehicles/Trucks Air Rail International Airspace/Waterways Insurance Community University www. Insurance. Community. University. com

Specialty Winery Coverages • Harvested Grape Transit Coverage – Transit within 100 miles of premises – Specified perils – Specified amount $25, 000/$5, 000 • Contingent Orchard & Vineyard Transit – Insured cannot collect bill of sale for orchard or vineyard products shipped at buyers risk of loss because of covered damage. Insurance Community University 50 www. Insurance. Community. University. com

Specialty Winery Coverage • Transportation – Check modalities – Check perils – Check territory – Check if only Inland Marine OR also includes Ocean Marine – Check contractual agreement as to transfer of ownership and responsibility Insurance Community University 51 www. Insurance. Community. University. com

Polling Question #5 Your insured stored all of their finished wine at a non-owned warehouse in a neighboring city. There was a fire at the warehouse that they later determined was caused by arson done by one of the wineries storing the wine. Your insured lost all of their inventory and wants to know if he has coverage. Insurance Community University 52 www. Insurance. Community. University. com

Storage Insurance Issues • Storage can include: – Storage of grapes and grape by products (refrigeration/spoilage) – Storage of finished goods – Storage of “owned” and “non-owned” • Does the insured store property of others • Review Contracts Insurance Community University 53 www. Insurance. Community. University. com

Storage Insurance Issues • Storage in owned locations • Storage in non owned locations – 3 PL (Third Party Logistics Handlers) • Storage outside the United States Insurance Community University 54 www. Insurance. Community. University. com

Mare Island Warehouse Fire 10/12/05 • A eight-alarm fire that consumed at least half of a 240, 000 warehouse storing wine on Mare Island may be Vallejo's most costly blaze ever. Approximately 150 customers, comprised mostly of Bay Area wineries and private collectors, stored wine in the 63 -year-old building. The CEO of Central Wine Services, which owns the building, estimated $100 million worth of wine was in storage. The facility was also used to store pasta, sugar and sauces. Insurance Community University www. Insurance. Community. University. com

Mare Island Loss • The loss was determined to be arson by one of the winery owners who stored their wine there. Insurance Community University 56 www. Insurance. Community. University. com

Warehouseman’s Legal Liability • The standard of care is imposed upon a warehouseman by Section 7 -204 of the Uniform Commercial Code – Most contracts follow this duty of care Insurance Community University www. Insurance. Community. University. com

UCC § 7 -204. Duty of Care; Contractual Limitation of Warehouseman's Liability (1) A warehouseman is liable for damages for loss of or injury to the goods caused by his failure to exercise such care in regard to them as a reasonably careful man would exercise under like circumstances but unless otherwise agreed he is not liable for damages which could not have been avoided by the exercise of such care. Insurance Community University www. Insurance. Community. University. com

UCC § 7 -204. Duty of Care; Contractual Limitation of Warehouseman's Liability (2) Damages may be limited by a term in the warehouse receipt or storage agreement limiting the amount of liability in case of loss or damage, and setting forth a specific liability per article or item, or value per unit of weight, beyond which the warehouseman shall not be liable; Insurance Community University www. Insurance. Community. University. com

Polling Question #6 Following the loss at Mare Island it was determined that your insured’s wine was salvageable. The labels on the wine bottles were damaged AND the insured wanted the bottles to be labeled differently so they could sell them as a different wine at a reduced price. How could this be covered by insurance. Insurance Community University 60 www. Insurance. Community. University. com

Issues & Solutions • Need First Party Coverage NOT Third Party Coverage – Property vs. Liability Insurance Community University www. Insurance. Community. University. com

Specialty Winery Solutions • Wine Stored Off Premises Endorsement • Wine Stored for Others Endorsement • Adding the location AS a location Insurance Community University 62 www. Insurance. Community. University. com

Valuation—you’ll find out what it really means at the time of loss Sponsored by Am. WINS Insurance Brokerage Insurance Community University www. Insurance. Community. University. com 63

Valuation • Different Valuation Clauses based on “type” of wine at risk – Finished Stock that is sold – Finished Stock that is NOT sold – Stock in Process – Cellared, Rare and Vintage Wines – Wines in the state of process Insurance Community University www. Insurance. Community. University. com 64

Valuation § Finished Stock that is sold – Selling Price – Market Value • Finished Stock Not Sold bottled winery products ready for sale based on the price for which stock could have been sold as case goods at the time and place of the covered direct physical loss or damage, had no loss or damage occurred; Insurance Community University www. Insurance. Community. University. com 65

Valuation • Stock in Process including in bottles, tanks or barrels, will be valued at the lessor of: 1. the three year average wholesale market price of your finished stock, less uninsured costs (ie: bottling, storage, labels, printing, labor) for your varietal or vintage or from a specific vineyard; (Chubb) ; Insurance Community University www. Insurance. Community. University. com 66

Valuation 2. the three year industry wide average wholesale market price of your finished stock, (continued) less un-incurred costs for that varietal or vintage; or 3. the cost to replace the wine with wine of like kind, quality and state of fermentation, if replaceable Insurance Community University 67 www. Insurance. Community. University. com

Valuation • Cellared, rare or vintage wines, if irreplaceable in the market, – will be valued on the date of loss at the average market listing of three well established and reputable wine merchants selected by us; Insurance Community University www. Insurance. Community. University. com 68

Valuation D. wine sold in bulk, the lesser of: 1. the price for which the wine could have been sold at the time and place of the covered direct loss or damage had no loss occurred; or 2. the market price of replaceable wine of like kind and quality at the time of the covered direct physical loss or damage had no loss or damage occurred, but we will not pay more than the amount you actually pay to replace the wine. All values include applicable state, county and local taxes that you must pay. Insurance Community University www. Insurance. Community. University. com 69

Exposure and Risk Premises Owned Buildings Owned Structures Non Owned Locations Warehouse 3 PL Locations outside US Homes Restaurants Gift Shops Caves Insurance Community University Insurance Issues Property Coverages Warehouse Coverage Farm Dwelling Coverage Specialty Coverage as indicated “Perils” www. Insurance. Community. University. com 70

Types of Buildings • Residence • Garages • Guesthouse (with dining room for visitors and grape pickers) • Bed & Breakfast buildings • Storage buildings (Supplies) • Storage buildings (Finished Product—case storage) • Fermentation buildings Insurance Community University Bottling plant Cellars (1 st yr, 2 nd yr…) Caves Tasting room (building) Non Owned Location Considerations • Gift Stores • • • www. Insurance. Community. University. com

Exposure and Risk Equipment Mobile Agricultural Equipment Gondola Trucks Conveyors Fermenting Tanks Storage Containers Insurance Issues Business Auto Mobile Agricultural Equipment Filtration System Equipment Insurance Property Store Transport Sell Equipment Insurance Equipment Breakdown Limits and BI considerations Insurance Community University www. Insurance. Community. University. com 72

Exposure and Risk Computers Computerized Equipment Remote computer sensor equipment Computerized equipment in the fields GBP Software Data Proprietary Software Insurance Community University Insurance Issues Property Policies EDP Equipment Breakdown Limits and BI considerations www. Insurance. Community. University. com 73

Exposure and Risk Stock and Merchandise Supplies Raw Materials Stock in Process Sold Finished Stock Unsold Finished Stock Merchandise Insurance Community University Insurance Issues Property Insurance Equipment Breakdown Spoilage Off Premises Brand & Label Personal Property of Others Property Off Premises Property in Transit Limits and BI considerations www. Insurance. Community. University. com 74

Exposure and Risk Other Operations Tasting Rooms Wine festivals Sell products other then wine Special Events Valet Parking Insurance Community University Insurance Issues Liability Liquor Liability Umbrella Garage Business Auto www. Insurance. Community. University. com 75

Other Considerations • Business Income • Dependency Coverage – Income Support Properties • Packaging Error • Exhibition coverage • Contractual Penalties Insurance Community University www. Insurance. Community. University. com 76

Other Considerations • • Cyberliability Crime Intellectual Property Advertising Liability Auto Garage? Workers Compensation Insurance Community University 77 www. Insurance. Community. University. com

Liability Coverages—they need them ALL • • • Liquor Liability Special Events Liability Pollutant Cleanup and Removal Environmental Umbrella Insurance Community University 78 www. Insurance. Community. University. com

Upcoming CE Classes 7/12/12 Winery Insurance 7/18 & 19 Ethics 8/8 Equipment Breakdown, Spoilage, Off Premises FREE Community Class 7/17 5 Things You Need to Know about Securing your Email and Protecting Privacy for YOU and YOUR clients (Link 7/26 Understanding Logging Industry and Forest Products Mattei Join the Community TODAY at: www. insurancecommunitycenter. com Insurance Community University 79 www. Insurance. Community. University. com

Disclaimer Insurance forms and endorsements vary based on insurance company; changes in edition dates; regulations; court decisions; and state jurisdiction. This instructional materials provided by Insight is intended as a general guideline and any interpretations provided by Insight do not modify or revise insurance policy language. The authors of these materials, Insight Insurance Consultants is a division of Insight Consulting and Management Inc. In providing these materials, Insight assumes neither liability nor responsibility to any person or business with respect to any loss that is alleged to be caused directly or indirectly as a result of the instructional materials provided. Copyright 2010 – 2012 All Rights Reserved www. insurancecommunitycenter. com Laurie: 714. 803. 5830 laurie@insurancecommunitycenter. com Marjorie: 714. 206. 9583 Marjorie@insurancecommunitycenter. com Insurance Community University 80 www. Insurance. Community. University. com

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