By Brian Kennon, Midwest Winery Insurance
When I visit a winery for the first time, my number one priority is to first hand observe any exposures. I want to know the risks present for that particular winery. This is done by a number of steps, I meet with the owner and/or winemaker. We walk the facility and I am making notes of anything that might be of particular interest or concern to the underwriters. I have them complete a quick, but thorough supplemental questionnaire that gives me very specific information about their exposures. I also review their current policy for missing coverage or coverage gaps. There are concerns that are unique to wineries that deal with the different stages of the wine making process (with a few risks common to each stage)
1. Vineyard – growing the grapes (Extreme weather or natural disasters, insect infestation, plant disease, chemical drift).
2. Harvesting the grapes (mechanical failure, work comp for pickers).
3. Transporting the grapes (Grapes in transit are crushed).
4. Crushing and pressing (mechanical failure, contamination, leakage).
5. Fermentation (contamination, leakage, spoilage).
6. Clarification (contamination, leakage, spoilage).
7. Aging and bottling (contamination, leakage, spoilage).
You are probably noticing that contamination, leakage and spoilage are a common denominator with several of the steps. This is coverage that can, and should be, added as an endorsement to your insurance policy. Another overlooked endorsement specific to wineries is Wine Stock Market Valuation. Let’s break each of these down individually:
Wine Stock Market Valuation
An good winery policy will cover your wine from the time it is grapes on the vine to when it is finished product, bottled and on the shelf ready for purchase. Ideally, the wine will be valued at it’s finished sales price minus the cost not yet incurred (bottling, labeling, boxing, etc…) if it is still in the early production stages. I will review this again, in more detail, in the Wine Leakage endorsement
Wine Leakage
Wine Leakage should be addressed in a Wine Leakage Endorsement. During wine production, the wine is processed and then stored in numerous large stainless steel containers. Wineries will automatically have leakage exposure for the containers’ valves, fittings or hatches which can malfunction and the product ends up going down the drain. Most companies that offer winery coverage will give some type of “default” leakage exposure. I would venture to say it is not enough. I will look at the winery’s largest tank exposure and take their highest value wine. I will convert it to finished product selling price and use that figure for maximum leakage exposure. I will increase their minimum coverage to the converted maximum figure. This way there are no surprises if there is a worst case scenario with a leakage claim.
Wine Spoilage & Contamination
Wine Spoilage and Contamination should be addressed in a Wine Spoilage and Contamination Endorsement. This covers spoilage or process failure meaning, breakdown or service outage. Breakdown can cause a change in temperature or humidity resulting from mechanical breakdown or mechanical failure of refrigerating, cooling or humidity control apparatus or equipment.
Service outage causes a change in temperature or humidity resulting from complete or partial interruption of electrical power, gas or water supply, either on or off the described premises, due to conditions beyond your control.
Contamination can be caused by a contaminant introduced during the storage or during the processing or manufacturing operation of the wine making process. An example of this would be; stainless steel tanks are double-walled with glycol circulating between the two walls to take away heat and cool the juice. Pinholes, cracks or leaks can develop allowing the glycol to corrupt the juice or wine rendering it useless due to contamination.
As with Wine Leakage, I will look at the winery’s largest tank exposure and take their highest value wine. I will convert it to finished product selling price and use that figure for maximum leakage exposure. I will increase their minimum coverage to the converted maximum figure.
Equipmemnt Breakdown
Also known as boiler and machinery insurance, or mechanical breakdown insurance, equipment breakdown insurance helps cover:
The cost to repair or replace damaged equipment, including time and labor, lost income, spoiled inventory, and necessary expenses incurred during the restoration period.
There are five categories of equipment that equipment breakdown insurance typically covers:
1. Mechanical, which includes motors, engines, generators, elevators, water pumps and specialized production and manufacturing equipment.
2. Electrical, which includes transformers, electrical panels and cables.
3. Computers and communications, which includes computer systems, phone systems, voice mail systems, security systems and fire alarm systems.
4. Air conditioners and refrigeration systems
5. Boilers and pressure equipment
Equipment Breakdown
Coverage Examples
Equipment breakdown insurance is smart to have – even if you don’t own your own building, and especially if the success of your business is dependent upon properly-functioning equipment owned and operated by a key supplier, such as a local power company.
For example, if you own a pizza shop that depends on online orders, as well as walk-in customers, your business will suffer if the power goes out due to a power surge. A power outage could result in loss of heat or air, the inability to process online orders, as well as the inability to prepare, cook, serve and sell food. And if the power is out long enough, your food inventory could spoil.
In this example, equipment breakdown insurance may help pay for:
• Business income you lost while the power was out.
• The cost to repair your walk-in refrigerator and to replace a computer that were damaged by a power surge that occurred when the electricity was restored.
• Costs associated with the time and labor to repair and replace your damaged equipment.
• The cost to replace any spoiled food or product.
So, in a nut shell, Equipment Breakdown should pay to repair or replace the equipment as well as any business interruption costs that result from it.
Other Considerations
In my home state of Missouri, there are over 125 wineries. The majority of these wineries are smaller and rely on other larger wineries or farmers for products or services, such as grapes or unfinished juice, crushing, etc… These wineries must be careful because most of these farmers or larger winery’s policies will not cover the smaller winery’s offsite storage inventory or winery operation. This would also include liability.
Another very important coverage that may need to be considered is worker’s compensation. Ask your agent what the state requirements are for worker’s compensation to see what coverage would work best for you.
In closing, you should take a look at your current policy and make sure you’ve got the appropriate endorsements to cover loss of wine due to spoilage, contamination or leakage. Equipment Breakdown is another area you should have covered. If you have any questions, contact your agent and set up a policy review. Not every company will underwrite a winery, properly. Look for a carrier with expertise in the winery business. If they properly cover a winery, you should have the endorsements I covered in this article, that are basically exclusive to vineyards and wine production. If they don’t, you will have a problem when you submit a claim. Remember not to choose a carrier based solely on price. Premium is an important part of the policy, just don’t make it your sole deciding factor in choosing.
If you have any questions or concerns about your current policy contact Brian Kennon at…
gbkdysart@sbcglobal.net
660-886-6502
