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Home / Insurance / Vineyard losses from forest fires – A smoky wine is very different from smoke-damaged wine | Property Insurance Law Team Blog

Vineyard losses from forest fires – A smoky wine is very different from smoke-damaged wine | Property Insurance Law Team Blog



California forest fires have caused damage to many wineries. We have been involved in a number of coverage and disputed value cases arising from these unfortunate incidents. Smoke can cause damage to a winery’s facilities and its crops and wine products. Finished wines can have a noticeable “smoke smell”, which makes wine impossible to sell except for the salvage value.

A recent “smokescreen” case Summary judgment order discussed two routine coverage issues that arise in these cases.1 An exclusion that insurance companies often address with “smoke-stained” wine cases involves “spoliation.” The second issue concerns non-covered property and the “crop cultivation”

; provision.

The exclusion of spoliation within the policy contained the following exclusion language:

… Loss, damage or cost caused by or as a result of… shrinkage, evaporation, leakage of contents, change in taste or texture or finish, decay or other destruction.

The Court took note of the insurer’s arguments as follows:

National Surety claims that it is undisputed that the smoke from the fire caused undesirable tastes and aromas in Kunde’s wines. It further claims that there is no evidence that smoke odor is not a “change in taste.” Thus, National Surety argues that the exclusion of “change in taste” in the exclusion of destruction, literally read, excludes coverage for the smoke stain on Kunde’s wines. Although fire is a covered cause of loss, National Surety claims that the exclusion of “taste change” clearly and explicitly excludes coverage for smoke damage to Kunde’s wines.

The winery claimed the following:

Kunde claims that damage from the forest fire is not correctly characterized as a “destructive” loss. The customer uses the doctrine of noscitur a sociis to claim that the term “change in taste” when read in its context applies to “normal variations in winemaking”, not damage to forest fires. ..The principle of noscitur a sociis – a word is known by the company as it has – works to “avoid ascribing a word to a meaning so that it does not correspond to its accompanying words ….” Yates v. USA, 574 US 528, 543 (2015) …

The court ruled that the phrase “taste change” is ambiguous:

The terms “taste change”, such as shrinkage, evaporation or leakage, indicate losses that occur during the normal course of winemaking. Similarly, ambient terms such as decay and evaporation appear to be focused on age-related deterioration. Consequently, the exclusion of “change in taste” could reasonably be interpreted to deal with normal variations in the winemaking process and destruction that occurs over time; it does not apply in a conspicuous way to destruction that occurs as a result of an extremely random event such as a wildfire.

Other provisions in the policy indicate that the exclusion of destruction can reasonably be read as limited to natural deviations in the winemaking process. For example, Kunde claims that the definition of “foreign substances” in the form for the coverage of fresh produce, which explicitly includes “wine products not intended to be included in the wine recipe or blend”, provides further support to limit the exclusion of spoilage to normal deviations in the winemaking process. The form for the coverage of fresh products supports Kunde’s assertion that, reasonably interpreted, the exclusion of “change in taste” would probably only apply to normal variations in wine production.

The Court concludes that the exception “change in taste” is ambiguous, and Kunde’s interpretation of the provision as limited to normal variations in wine production is reasonable. Since the court cannot say that the exclusion clearly excludes damage to smoke stains from forest fires, it must resolve the ambiguity in favor of coverage.

With regard to the issue of coverage of “crop cultivation”, the Court quoted the language of the insurance under the provision “Property not insured”, which excludes:

Land, water, growing plants and crops outside buildings, standing timber or outdoor trees, shrubs, lawns.

The court noted that for the exemption to apply, “the national guarantee must show that the damage to the Fire Lot wines occurred while the grapes were on the vine rather than after the harvest.” The court noted that the insurer had clues based on expert opinions which, if the jury believed, could show that smoke damage occurred while the grapes were on the vine. However, it would not give the insurer a summary judgment as the vineyard had competing evidence:

Although the evidence provided by National Surety is sufficient to prevent the Customer from obtaining a summary judgment in this matter, it is not sufficient to allow the court to issue a summary judgment in favor of National Surety. Customer has presented evidence that some grapes tested by ETS had insignificant levels of smoke odor before harvest. The customer also presents evidence in the form of a statement from its chief winemaker that refutes National Surety’s claim that the smoke had disappeared when the Fire Lot wines were in production. It is clear from the journal that there is scientific uncertainty about how and when the smell of smoke occurs, which further underlines the unresolved issues and the inaccuracy of a summary assessment in this matter. The Court finds that there is a substantive question as to whether the smell of smoke to the Fire Lot wines was present on the vine or after harvest, and therefore a dispute remains as to the applicability of the exclusion of arable crops.

Winemaking is serious and big business in California. These coverage problems have been more common since forest fires have increased and California’s wine industry has expanded geographically.

If you want to taste undamaged wine with a “smoky” tasteful character, I suggest you go to Bern’s Steakhouse in Tampa, Florida. As noted by Business InsiderBerns Steakhouse has the world’s largest wine cellar for restaurants.2

Today’s thoughts

Wine is a constant proof that God loves us and loves to see us happy.
—Benjamin Franklin
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1 Customer Enterprises v. National Surety Corp.No. 4: 19-cv-06636 (ND Cal. June 21, 2022).
2 Hunter Walker. This is how it is inside the “World’s largest wine cellar” Business Insider (March 26, 2014).


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