California Wineries Sue Insurers over Smoke-Tainted Wines

Kunde Family and Vintage Wine Estates file lawsuits against their insurance carriers for refusing to cover substantial losses from the 2017 wildfires

California Wineries Sue Insurers over Smoke-Tainted Wines
Few vines were actually burned like these during the 2017 Wine Country Wildfires, but many grapes on the vine and in fermenting tanks were exposed to smoke. (Courtesy Helena View)
Jan 17, 2020

In October 2017, as wildfires burned 245,000 acres and damaged nearly a dozen wineries across Northern California, many vintners wondered what would become of their grapes still hanging on the vines, as well as their wines fermenting in inaccessible cellars. As the 2017 wines are being released, the extent of the damage is coming into focus.

Sonoma-based wine company Vintage Wine Estates (VWE) and Kunde Family, a family-owned winery in Sonoma Valley, are suing their insurance companies for refusing to cover wines damaged by smoke from the fires. They argue that smoke taint destroyed the marketability of some of their wines, resulting in substantial losses that should be covered under their respective insurance polices.

The lawsuits could set a precedent for future cases, as climate change and years of drought make wildfires a growing threat to wine regions.

Kunde is seeking more than $7 million from its insurer, National Surety Corporation, and its parent company, Allianz, according to a complaint filed in federal court in Oakland. In January, Vintage Wine Estates, which owns more than 30 brands, filed a complaint in the same court seeking more than $12 million from Certain Underwriters at Lloyd's London, Royal & Sun Alliance Insurance PLC, and four other insurance companies.

The two wine companies initially filed a joint lawsuit this past August in the superior court in Sonoma County. But the insurers successfully removed the lawsuit to federal court. In December, the federal court granted Allianz's motion to sever Vintage Wine Estates and its insurers from the lawsuit, concluding that the case had been improperly joined. A case management conference is set for Kunde's lawsuit on Jan. 31.

Both Kunde and Vintage claim that some of their wines were exposed to smoke during and immediately after the fires, while the wines were at various stages of production. Vintage's complaint stated, "For companies like VWE that owned wineries and conducted winemaking operations in the affected area … the smoke exposure damaged the finished wine with a perceptible smoke taint.''

While there is no evidence that smoke-tainted wine is harmful to drink, it can ruin a wine. An affected wine can show undesirable aromas and flavors that are reminiscent of an ashtray, smoked meat, campfire or even medicinal notes.

"We made the decision that any wine that wasn't 100 percent clean of smoke taint, we wouldn't release it," Vintage Wine Estates CEO Pat Roney told Wine Spectator. Roney, who is also an investor in Kunde Family, says the smoke damaged some of the wines at Vintage’s wineries in Sonoma, Napa and Mendocino counties, including Clos Pegase and Girard in Calistoga and Viansa and B.R. Cohn in Sonoma Valley. The wines typically sell for prices ranging from $17 to $150 per bottle.

Vintage and Kunde argue that their insurance carriers are obliged to cover the losses since they issued policies that include "all risk" coverage for the wineries' operations and products. Roney noted that following the 2017 wildfires, insurance companies adopted an absolute exclusion for smoke taint, but their policies did not contain them at the time.

The insurance companies refused to make any payments for the smoke-tainted wines, claiming that their policies don't cover damage to grapes while they are on the vine. According to the complaint, Allianz denied Kunde’s claim arguing that, "the smoke taint which damaged the wines resulted directly from the grapes' exposure to smoke from the wildfires while they were still on the vines and did not result from exposure to smoke during the production process."

Certain Underwriters made a similar claim to Vintage Wine Estates, stating that its policy only covers damage to harvested grapes or wine that is handled by VWE for storage or processing.

Melissa Dubbs, the attorney representing Allianz, declined to comment on the case.

Roney rejects the assertion that smoke taint can only occur while grapes are still on the vine. Vintage's winemakers tasted some grapes that were still in the vineyards during the fires and didn't detect any smoky flavors. But they did taste it in wine that was in production during the same time, including juice that had already finished fermentation. Roney says they also picked grapes after the fires that were not affected.

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Smoke taint is difficult to predict. When grapes are exposed to smoke from burning wood, compounds called volatile phenols can be absorbed into the waxy cuticle of the grape skin where they bind to sugars, rendering them nonvolatile and undetectable to smell or taste. But undesirable notes may later emerge in the fermented wines as the acids breaks down the bonds, turning the phenols volatile again. The aromas may become more pronounced over time.

These are not the only lawsuits related to smoke taint. Last summer, Sonoma-based Westside Winery filed a complaint in U.S. District Court in the eastern district of New York against wine distributer SMT Acquisitions and its parent company Palm Bay International, for breaching a contract to buy its wines from the 2017 vintage.

SMT Acquisitions refused to pay for 4,841 cases of Noble Tree wines, including Merlot and Cabernet Sauvignon, because it believed that the wines were affected by smoke taint from the wildfires. Westside called the claim baseless, arguing that "the grapes for the 2017 [wines] were harvested and in indoor storage tanks before the wild fire referenced by SMT," according to the lawsuit. It is seeking $400,000 for the rejected wines. Last month, Westside and SMT agreed to settle the case out of court.

The legacy of the 2017 fires remains to be seen but vintners are already feeling the cost. Roney says insurance costs have increased substantially, putting more pressure on winemakers and growers as the industry learns how to adapt to the threat of wildfires. And to make matters tougher, Roney says that since the 2017 fires, insurance companies have added clauses to many policies exempting smoke taint from coverage.

More California Fires 2017

See More

Wine-Country Wildfire Recovery Benefit Raises Over $3.4 Million

Dec 4, 2017

California Fires: Upcoming Charity Benefits and Happenings

Nov 14, 2017

Star Chefs Rally to Benefit California Wildfire Relief Efforts

Nov 14, 2017

Understanding Smoke Taint

Nov 3, 2017

The Road Ahead for Northern California’s Wine Industry

Oct 25, 2017

News California Fires 2017 Disasters Legal and Legislative Issues California

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