Ray Hannigan and Tobin Heminway were shocked when they learned they were losing insurance for their boutique winery in eastern Napa County’s Chiles Valley appellation, Green & Red Vineyard.
In January, a week after they finished making the fire safety fixes recommended by an inspector from their insurer, they said they received a letter that coverage of the 5,000-case-a-year winery building and wine inventory would be terminated at the end of this month because the property has “ineligible risk” for wildfire damage.
“Our broker told us that it is almost impossible to find a company willing to cover a winery in wildfire risk areas,” Hannigan said. It looks promising to find coverage of the wine inventory, given that it’s in a central Napa Valley warehouse and in barrels protected by a cave, he said.
At the 4,000-plus-cases-a-year Smith Madrone winery near the Bothe Napa Valley State Park on the western slopes of Napa Valley, Stu Smith said he was hit with a massive proposed increase for commercial coverage and given only hours to accept the increase or not.
The previous year’s premium of $12,700 would have gone up by 325%, to $54,000, putting the increased cost for insurance, on par with what the business pays for barrels as the winery’s biggest expense. Given the short timeframe to decide and big increase, he opted for a limited commercial policy from the California FAIR Plan, a high-risk pool for residential and commercial coverage provided by the insurance industry.
“It’s nothing short of a disaster,” Smith said.
This need to make a quick decision came amid the Hennessy Fire burning on one side of the valley, bottling what could be salvaged from the 2020 harvest then battling by hand the Glass Fire that burned all the forest on the 150-acre property. He spent several nights working a break around the 38-acre vineyard and the winery, and that’s all that survived.
Red & Green and Smith Madrone aren’t alone.
“That Glass Fire was the knockout punch for a lot of wildfire insurance,” said Nicholas Svetcoff, who brokers coverage for more than 200 West Coast wineries at Risk Strategies, a Boston-based specialty insurance brokerage and risk management firm. “We are a 850-winery agent, and now the market has shrunk to a couple of insurers with more scrutinized underwriting. “Now, I guess that one-third to one-half of wineries in California are uninsurable for getting property insurance.”
Starting early last year as carriers were exiting coverage of wineries in high-fire-danger areas, Svetcoff said he was able to find policies for 80% of the risks he handled, while 20% had to get coverage via a FAIR-sourced policy. Then came the lightning-sparked fires in August throughout California, including the Hennessey and Walbridge fires in Napa and Sonoma counties, respectively, and carriers paused underwriting new policies, Svetcoff said.
Then earlier this year, the California FAIR Plan Association for the first time said it couldn’t write policies for wineries in high-risk areas, and then it started offering coverage for tasting rooms and casegoods warehouses out of the high-risk zone where the winery is located, Svetcoff said.
California law requires 60-day notice for nonrenewals, and he hasn’t heard that his clients with FAIR policies have received any so far.
California FAIR Plan Association hasn’t yet responded to Business Journal inquiries about the situation. And the California Department of Insurance said it hasn’t heard of such a problem.
“The Department of Insurance is not aware of any changes to FAIR Plan underwriting practices that would prevent it from continuing to cover commercial buildings on wineries or any other agricultural business, up to the full policy limit,” Michael Soller, deputy insurance commissioner, wrote the Journal.
Trade groups are stepping up to get help with this situation from Sacramento.
“Napa County’s commercial farms and ranches are losing property insurance availability because of increased wildfire risks,” Ryan Klobas, CEO of Napa County Farm Bureau. “However, unlike other homeowners and other commercial businesses, commercial farms and ranches are not eligible for coverage by the California FAIR Plan – the state’s insurer of last resort.”
That’s why the farm bureau earlier this month announced its support for state Senate Bill 11, introduced in early December by Sen. Susan Rubio, D-Baldwin Park, who in February was promoted to assistant majority whip in the California State Senate. SB 11 is set for a hearing before the Senate Insurance Committee on Thursday.
The legislation most importantly would amend Section 10094 of the Insurance Code to exclude “agricultural crop risk,” rather than “farm risk,” California FAIR Plan coverage. Klobas said that slight wording change would be significant, because it would allow coverage of “agricultural infrastructure,” equipment and components on a farm property, as crop insurance already exists for grapes and other commodities.
An uninsured farm cannot be collateralized for purposes of acquiring farm credit, and thus potentially could leave an operation with no access to capital to operate, Klobas said.
Jeff Quackenbush covers wine, construction and real estate. Before the Business Journal, he wrote for Bay City News Service in San Francisco. He has a degree from Walla Walla University. Reach him at jquackenbush@busjrnl.com or 707-521-4256.
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