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1 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Insight on How to Insure Wineries and Vineyards Designed for the Insurance Community Center By Insight Insurance Consulting

2 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Disclaimer Not only are policy forms, clauses, rules and court decisions constantly changing, but forms vary from company to company and state to state. This material is intended as a general guideline and might not apply to a specific situation. The authors, Insurance Skills Center, Inc., and any organization for whom this seminar is conducted shall have neither liability nor responsibility to any person or entity with respect to any loss or damage alleged to be caused directly or indirectly as a result of information contained in this book. Insight Insurance Consulting (714) 803-5830 Laurie@insightinsuranceconsulting.comLaurie@insightinsuranceconsulting.com www.insightinsuranceconsulting.com Copyright Insight Insurance Consulting 2010 All Rights Reserved This approved course number may only be taken once within your two year renewal period. www.afisdesignation.com

3 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 70 Countries Produce Wine Food & Agriculture Organization France5,329,449 tons Italy5,506,648 tons Spain3,934,140 tons United States2,232,000 tons Argentina1,564,000 tons China1,300,000 tons Australia1,274,000 tons South Africa1,147,895 tons Germany1,014,700 tons Chile788,551 tons http://en.wikipedia.org/wiki/List_of_wine-producing_countries

4 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com

5 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Wine Update U.S. wine exports, 90 percent from California, passed the $1 billion milestone for the first time with $1,008,259,000 in winery export revenues in 2008 Wine is California’s second leading export product by value

6 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Wine Industry 2008 There are more than 23,000 farms that grow grapes, of which 90 percent are on plots smaller than 100 acres In 2007, while total U.S. grape bearing area rose a modest 0.5 percent to 939,250 acres, total grape production rose 5.7 percent to 6.73 million tons About 60 percent of total grape production is wine grape production and that portion rose 3.5 percent to 3.76 million tons http://www.ita.doc.gov/td/ocg/wine2008.pdf

7 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Since 1999, the number of wineries has increased by 81 percent from 2688 to 4867  California 89.25%  New York 4.37%  Washington 3.11%  Oregon 0.64%  Florida 0.27%  New Jersey 0.26%  Kentucky 0.19%  Ohio 0.18%  Virginia 0.15%  North Carolina 0.14%

8 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Wineries and Vineyards Wine Stock PlantingGrowingPlant DiseaseHarvesting De-StemmingCrushing Storage BlendingFining/FiltrationStorage Testing Bottling CorkingLabeling Lots of Fun Transportation Sales

9 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com The Process For Review Each Step Has It’s Exposures & “Perils” 1.Grapes Growing 2.Grapes Harvesting 3.De-stemming, crushing, pressing, racking 4.Fermentation 5.Pressing and Tank Cleaning 6.Barrel and Tank Aging 7.Blending 8.Fining Process 9.Bottling/Labeling 10.Storage 11.Transportation/Shipping 12.Selling 13.Consumption & More

10 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 1.Grape Growing Intellectual Property (Root Stock, Bench Grafts, ENTAV-Clones) Weather Pests

11 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Rootstock The use of separate rootstock - essentially a clump of roots - onto which the vines are grafted was made necessary by the arrival of Phylloxera. The solution - graft vinifera plants onto Phylloxera-resistant rootstock. The vast majority of modern vineyards are planted using grafted material.Phylloxera http://www.thewinedoctor.com/glossary/a.shtml

12 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Rootstock/Grafting Problem: – Misuse/misappropriation of rootstocks Problem: – The United States Supreme Court on 12/01declared that it is legal to claim utility patents on plants. Problem: – Patent holders are suing for patent infringement

13 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Wine Patents--Google Patent #4351851 – Method for freeze stabilizing wine Patent #4874615 – Process for preparing wine Patent #5718263 – Patent for wine aerator

14 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com

15 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Vintage Nursery Case Sunridge Nurseries of Bakersfield, along with three other California nurseries, is suing Vintage Nurseries of Wasco, saying Vintage sold tightly regulated French clones without a proper license.

16 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Vintage Nursery Case If the clones which Vintage have offered for sale are not the clones stated in their marketing materials and catalog, then Vintage is alleged to be engaged in false advertising. If the clones which Vintage has offered for sale are the clones stated in their marketing materials and catalog, then Vintage is alleged to be engaged in an unfair business practice, since these clones have only been sold under an exclusive license, and sold only to customers who agree not to propagate or distribute them any further.

17 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Insurance Issues and Solutions Intellectual Property – Patent Infringement Offense Defense Intellectual Property Insurance – IPIS

18 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Pests and Disease Phylloxera

19 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Phylloxera Phylloxera is a small yellow root feeding aphid. It lives on both European and American grape vines. The pest can be spread by wind or the insects crawling from one plant to the next, but long distance movement of the pest is usually caused by humans transporting infected plant material or soil from vineyard to vineyard perhaps inadvertently in machinery or on boots.

20 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Pests & Disease There are many pests and diseases that can attack and kill grape vines. Red spiders, moth grubs and various mites, bugs and beetles can all prey on the plant above ground. Most of these may be controlled with either sulfur sprays, or by newer "green" methods, such as introducing predacious insects and protective cover crops between vine rows.

21 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Pests & Disease In climates with summer rainfall, molds such as oidium, mildew, white rot, grey rot (see box at left) and black rot may be prevented by regular sprayings of a solution of copper sulfate, slaked lime and water (Bordeaux mixture).

22 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Pests & Disease New vineyards are particularly susceptible to destruction from gophers and moles. There are many methods of control and eradication, including attracting predatory raptors, trapping, poisoning, flooding and even a device that implodes burrows.

23 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Sniffer Dogs (Insect Detection Dogs) “An innovative project underway since 2006 at the Assistance Dog Institute combines elements of the Institute’s research with the result of dogs trained to sniff out the vine mealybug (VMP).

24 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Pests and Disease Problem: Growing Crop Solution: Crop Insurance but not for Phylloxera Problem:Vines Solution: NOT Crop Insurance Solution: Live Assets Insurance

25 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Unusual Solutions Live Asset Coverage Not only is there limited coverage in terms of amount available and coverages, the winery's financial lenders are unwilling/unable to provide credit to the grower unless there is viable live asset coverage. Solution - Vineyard & Winery Insurance for the Vines, Trellises, Clips & Irrigation System

26 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Unusual Solutions Live Asset Coverage For more details regarding the program, contact David J. Teed, CIC. Managing Director of Live Asset Insurance at 800- 644-0178 www.liveassetinsurance.com

27 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Crop Insurance Crop insurance has a limited response on the Multiple Peril Crop Insurance, Grape Crop Form 2000 NCIS717. Cause of Loss – (1) Adverse Weather – Insects except (10.b1)—Phylloxera regardless of cause – Plant disease but not due to insufficient of improper application of disease control measures.

28 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Causes of Loss Table Grape Provisions Adverse Weather Fire… Wildlife Earthquake Volcanic Eruption Failure of irrigation water supply if caused by any insured cause of loss

29 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Market Value For grapes the value is set at the time the policy is issued based on the previous values based on prior averages and future promulgation.

30 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Insurable Crop and Eligibility Requirements The vines must have reached 4 th growing season after being set out or 3 rd year after grafting Acreage must have a minimum average yield of 2 tons per acre Growers can select which grape varieties they want to insure

31 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Insurable Crop and Eligibility Requirements Growers can insure any varieties but must insure all acres of any variety selected in the country on which they receive a share of the crop When vineyards are rented out as crop share, either the landlord or operator, or both can insure their share % of crop

32 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Crop Insurance Products www.rcis.com Multi-Peril Crop Insurance (MPCI) – Catastrophic (CAT)—lowest amount Group Risk Plan (GRP) —not on grapes Crop Revenue Coverage (CRC) not on grapes Indexed Income Protection (IIP) not on grapes Group Risk Income Protection (GRIP) not on grapes Adjusted Gross Revenue Insurance (AGR)—Available on Grapes AGRI-Lite

33 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Climate and Natural Disasters A Constant Threat

34 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Weather & The Vine (Grapes/Wine) Flooding Drought High Winds Freeze Landslides Earthquake Fire Noble Rot Botrytis

35 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Climate The average growing season climate and temperature extremes such as very hot days can affect vine and fruit development Generally prices are substantially higher for fruit from moderately cooler regions Practical Winery & Vineyard March/April 2008

36 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Climate For example, Cabernet Sauvignon from the Fresno district sold for about $260/ton in 2006 compared with fruit from the Napa district which sold for over $4,000/ton This 15 fold difference in price as accompanied by only a 2.7C (5F) cooler average annually temperature Practical Winery & Vineyard (March/April 2008

37 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com iMetos is a new product line using the latest internet technologies to have real time access to field data. With iMETOS, all relevant agriculture weather data are measured permanently and sent to the Internet climate database every two hours. The internet browser (Explorer) and your personal log in password to the site http://www.metos.at/fieldclimate will get you online to data, reports and graphs observed in your own vineyardhttp://www.metos.at/fieldclimate iMetos - Real Time Monitoring using the Internet

38 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 2. Grapes are harvested Too much maceration in field from mechanical harvester (no coverage) Grapes begin to ferment early during transport to winery (no coverage) Low yields from mechanical harvesters (no coverage) Grape pickers' health problems (i.e. heat stroke, exhaustion, dehydration) (Workers Compensation)

39 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 2. Grapes are harvested Damage to Mobile Equipment used in harvesting and growing operations – Mobile agricultural equipment – including equipment used for operations such as planting, fertilizing or irrigating and a separate limit for the continuing rental cost of mobile agricultural equipment (Chubb)

40 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Could This Happen To You? www.chubb.com A critical piece of your harvesting equipment is damaged during harvest and you have to pay for a replacement.

41 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 3. De-stemming, Crushing, Pressing, Racking Contaminations left in wine juices from poor pressing procedures (Some limited contamination provided by some carriers but typically in processing) Losses from inefficient racking procedures (typically not covered unless covered causation occurs)

42 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Could This Happen To You? You own a winery overseas and the bottling facility is contaminated by an unknown bacteria, causing you to find a replacement bottler. www.chubb.com

43 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Wine Spoilage Throughout all stages of the winemaking process, spoilage microbes can negatively impact wine quality Wine spoilage can present itself in several different fashions

44 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Wine Spoilage – Off Aromas – Off Flavors – Acetic Acid – Ethyl Acetate – Ethylphenol – Trichloranisole – Bitterness – Mousiness – Cosmetic Issues FILMS Sediment Viscosity Off color

45 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Issues and Solutions Product Contamination – Accidental – Malicious Products Recall Replacement Costs and Rehabilitation Expense (AIG) 3 rd party Business Interruption and Recall (AIG) Product Tampering Product Extortion

46 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 4. Alcoholic Fermentation Stopped Fermentation (Fermentation process stops short of total conversion of sugar to alcohol) Excessive heat "cooks" wine Contaminated Yeast Culture Non-sterile conditions Improper pump-overs from one tank to the other Not enough SO2 Too much SO2

47 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 5. Pressing and Tank Cleaning Low yields from pressing Workers exposed to high amounts of sulfur in tanks Tank cleaners suffocate while inside tanks cleaning

48 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 6. Barrel/Tank Aging Vinegar acids in barrels Non-sanitary conditions in tanks Leaking Barrels (wine leakage limited coverage) Barrel bores eating away the oak causing barrels to spring leaks Evaporation of wine through staves Wine oxidation from oxygen exposure Broken barrels from unsafe maintenance operations Forklift Accidents Topping off barrels with wrong wine

49 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 7. Blending Leaking hose fittings Blend the wrong wines together Blend a contaminated wine with a good wine Oxygenation of wine through transfer pipes Wine Leakage

50 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 7. Blending An employee doesn’t turn off a tank valve and you lose 20,000 gallons of wine due to leakage. (Chubb)

51 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 8. Fining Processes Contaminated fining agents Improper titration methods All solids not removed from wines, clarity problems

52 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 9. Bottling/Labeling Contaminated/dry corks Bad seals around corks and bottles causing wine to oxidize over time Unclean bottles Bottling line jams Unintended fermentations in bottle resulting in a "carbonated" wine

53 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Could This Happen To You? Contamination from cleaning solvents used in the bottling process ruins $60,000 worth of wine. www.chubb.com

54 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Corks are the main culprit of TCA contamination Cork taint is a problem. traditional closure ruins a significant percentage of wine bottles. While in some cases this is due to the mechanical failure of the cork, in most instances it is through the contamination of the wine with tiny (but still detectable) quantities of trichloroanisole (TCA).

55 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Corks are the main culprit of TCA contamination Semi-quantitative estimates of cork taint consistently come up with figures in the range of 2-7%, although most of these studies don't involve chemical verification of the presence of TCA in offending bottles. Even so, this is an alarmingly high failure rate and one that many in the wine industry consider to be intolerable. Patent # 4812317 Transparent Wine Bottle Closure

56 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Labeling Vintners have been using byproducts from milk, eggs, wheat and even fish gut in the winemaking process for centuries. The FDA adopted the Food Allergen Labeling and Consumer Protection Act in 2004 which requires labels on every food or drink that contains one of eight major food allergens: milk, eggs, fish, crustacean, shellfish, tree nuts, peanuts, wheat and soybeans

57 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Could This Happen To You? Ink used on your label runs during the bottling process, forcing you to buy new labels and reapply them. www.chubb.com

58 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Labeling Intellectual Property

59 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com

60 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Kendall Jackson vs. Turning Leaf Since its inception in 1983, Kendall-Jackson has sold over ten million cases of its Vintner's Reserve line of premium wines. By 1994, Kendall-Jackson was selling over $100 million worth of Vintner's Reserve wine a year, and its chardonnay was the number one selling chardonnay in the United States.

61 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Kendall Jackson vs. Turning Leaf Kendall Jackson featured on its Vintner's Reserve wine labels a downward-pointing, stylized grape leaf design using various shades of green, yellow, orange, red, and brown. In addition to using the leaf design, Kendall- Jackson tried to distinguish its Vintner's Reserve wine by packaging the wine in recognizable bottles.

62 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Kendall Jackson vs. Turning Leaf Gallo introduced a chardonnay named Turning Leaf which had a label that looked very similar to Kendall Jackson’s. Kendall-Jackson sued Gallo asserting claims under the Lanham Act, for trademark infringement, trade dress infringement, trademark dilution, and trade dress dilution; unfair competition claims: false advertising, unfair competition, and palming off.

63 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 1998 CGL (A.I.) Definition 14.“Personal and advertising injury” means injury, including consequential “bodily injury,” arising out of one or more of the following offenses. d.Oral or written publication of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services; e.Oral or written publication of material that violates a person’s right of privacy;

64 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 1998 CGL (A.I.) Definition F. The use of another’s advertising idea in your “advertisement”; or G. Infringing upon another’s copyright, trade dress, or slogan in your “advertisement.

65 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Intellectual Property Categories Copyright Trademark Trade Dress Trade Secret Patent Policy Considerations Defensive Offensive License Agreements

66 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Insurance Issues Advertising Liability Web Site advertising Warranties and Representations Labeling

67 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 10. Storage Issues include storage of grapes, grape by products Includes storage of owned and non- owned Includes storage of finished goods owned and non owned Review Contracts

68 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 10. Storage Storage in owned locations Storage in non owned locations – 3PL (Third Party Logistics Handlers) Storage outside the United States

69 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Lessons Learned From Mare Island 10/12/05 fire consumed at least half of a 240,000 warehouse storing wine on Mare Island in Vallejo Approximately 150 customers, comprised mostly of Bay Area wineries and private collectors, stored wine in the 63-year-old building Estimated $100 million worth of wine was in storage

70 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Lessons Learned From Mare Island The blaze could not be controlled by firefighters because the Mare Island building -- a 1942 structure that once housed Navy torpedoes -- had steel doors and 3-foot-thick concrete walls and a concrete roof that could not be penetrated." There is some concern wine spilled into storm drains, perhaps affecting city water supplies Fire proven to be an arson

71 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Lessons Learned From Mare Island Issues: – Valuation – Location – Contaminated? – Salvage – Obligation of the Warehouse – First party rather than third party response

72 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Warehouseman’s Legal Liability Where does the obligation lie? – Many court decisions have been rendered as a result of this question between owner and warehouseman. Question of whether the wine was actually “warehoused” by definition or in temporary storage?

73 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.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

74 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.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.warehousemangoods

75 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 11. Transportation & Shipping Owned Vehicles/Trucks Air Rail International International Airspace/Waterways

76 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 11. Transportation & Shipping Concerns: – Across all industries, moving products in shipping containers can expose the goods to severe temperature fluctuations. In many cases this can cause irreversible damage to the product resulting in lost sales and expensive insurance claims

77 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 11. Transportation & Shipping Even minimal fluctuations can result in such problems as loss of bouquet, product oxidation and even leakage through cork dryness. Shipping during extreme weather conditions

78 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Excerpt from Wine Shipping Agreement “Please note that shipping insurance does not cover damage due to heat or freezing. We endeavor to ship in such a way as to avoid such damage, but in questionable circumstances will attempt to contact you about alternatives. Please notify us immediately is you believe such damage has occurred.”

79 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 11. Transportation & Shipping A Lloyd’s policy would typically cover all risks of physical loss or damage, but usually excludes loss due to changes in temperature or humidity unless it is as a result of an insured peril such as fire or flood. Policies won’t cover against corked wine or ullage (when some evaporation occurs) either. Loss of label insurance can also be bought separately.

80 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 12. Selling Methods – Internet – Winery Location – Membership – Retail Stores – Restaurants – Wine Futures

81 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Selling Challenges Direct shipping restrictions from BATF and state laws Poor winery-distributor relations Winery is too small to get prime shelf space in stores through major distribution companies Competition from other wineries, local and national Loss of Brand

82 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Court Questions On Interstate Commerce On May 16th, 2005, the United States Supreme Court ruled that states may not discriminate against out-of-state wineries seeking to ship wine directly to consumers if they allow their in-state wineries to ship directly to consumers Granholm v. Heald. The High Court reasoned that state laws banning such shipments were discriminatory and, therefore, unconstitutional.

83 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Court Questions On Interstate Commerce A decade ago, just four states were allowed to do direct interstate shipments. Now, that number has increased to 30 states. In some states, the penalty for a burglary conviction is equivalent to that of shipping a bottle of Chardonnay to an adult under 21 years.

84 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Direct shipment Not Permitted Onsite Rules Special Labeling Required (Reciprocity States) Winery must ensure that shipping label contains required language set forth by state or region it is shipped to Aggregate Volume Rules. This is a limit on volume of total shipments from a winery to all consumers in the region over a specified period of time Direct Shipment Laws as of 9/21/09 Wine Institute www.wineinstitute.org

85 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Wine Industry Code for Direct Sales (www.wineinstitute.org) Out-of-state licensees may direct ship wine sold to adult consumers, for personal use only in states where it is legal to do so. Out-of-state licensees must not ship to an address in an area identified by an appropriate state department of alcohol beverage control as a "dry" or local option area for such shipments

86 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Wine Industry Code for Direct Sales (www.wineinstitute.org) Cartons used to direct ship wine to adult consumers must be conspicuously labeled with a minimum notification "signature of person age 21 or older required for delivery" and must include a return address and other language required by specific state laws.

87 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Wine Industry Code for Direct Sales (www.wineinstitute.org) Licensees must verify the purchaser’s age at the point of online purchase before completing any transaction. Some state laws now require age verification using a state approved vendor, or by receiving a copy of the purchaser’s drivers license, prior to the completion of the transaction.

88 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Disclaimer on Site

89 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Web Site Review

90 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Web Site Analysis Does the winery have a web site? Is the Web Site for Advertising (Presence) only? Does the winery sell their wine via the internet? Does the winery sell items other than wine? Does the winery offer any other services on their website? Are there any foreign operations? Are there any links or frames?

91 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Web Site Analysis Are there any warranties or representations made? Is there any form of social networking? Is there a bulletin board? Is there a chat room? Is there protection for credit card use? Is there a clear privacy statement?

92 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Duckhorn VineyardsDuckhorn Vineyards Paraduxx GoldeneyeParaduxxGoldeneye News & EventsNews & Events Order Online Order Online Share Your Experience Questions? Contact Us Contact Us Duckhorn Wine Company 1000 Lodi Lane St. Helena, CA 94574 ©2006 Duckhorn Wine Company. All Rights Reserved.©2006 Duckhorn Wine Company. All Rights Reserved. Site Usability Security/Privacy Policy Site MapSite UsabilitySecurity/Privacy PolicySite Map Introducing Paraduxx Direct We invite you to join Paraduxx Direct and enjoy the convenience of automatic shipments of this boldly elegant Napa Valley Red Wine. Create your own annual portfolio by choosing three, six or twelve bottles, and we will take care of the rest, ensuring that you will never miss a vintage. Join Paraduxx Direct... We will be introducing Goldeneye Direct on March 1st and Duckhorn Vineyards Direct on April 1st. If you are currently not on our mailing list, Join the Family to be notified of these programs.Join the Family New Release - 2003 Paraduxx Napa Valley Red Wine We are pleased to introduce our tenth vintage of Paraduxx! Our 2003 Paraduxx Napa Valley Red Wine is a medium bodied wine with ample tannins and structure to evolve well for several years. Aromas exude ripe fruit with flavors of strawberry jam, rich blackberry, cedar, dill, and oak. Limit 12 bottles, please. Order the 2003 Paraduxx... Shopping Cart Disclaimer Language Automatic Shipping Newsletters There own and Others See Slide Of Events Share Your Experience Bulletin Board Wine Affiliations Links

93 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com March 17 & 18, 2007 Napa Valley Mustard Festival The Marketplace - The Signature Event Featuring Duckhorn Vineyards and Paraduxx COPIA: The American Center for Wine, Food & the Arts Napa, California April 28, 2007 Great Chefs of Marin Benefiting Lifehouse Featuring Duckhorn Vineyards, Paraduxx and Goldeneye Fireman's Fund Insurance Company Novato, California 415-472-2373 x305Lifehouse

94 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com September 12 - 24, 2007 Crystal Cruises' "Adriatic & Aegean Adventures" Join Margaret Duckhorn on this voyage from Venice to Athens Featuring Duckhorn Vineyards, Paraduxx and Goldeneye Cruise Itinerary For Reservations, call Fine Wine Voyages at 888-946-3885 Cruise Itinerary

95 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Duckhorn Wine Company Affiliations This section offers insight into organizations within the California and International wine community that Duckhorn is either a member of or with whom we share similar interests on issues that have an effect on the wine industry. Napa Valley Vintners Napa Valley Vintners promotes and protects the Napa Valley as the finest winegrowing region in the world through the preservation and enhancement of its resources. Wine Institute Wine Institute is an organization whose goal is - "to initiate and advocate state, federal and international public policy to enhance the environment for the responsible consumption and enjoyment of wine.“ Free the Grapes Free the Grapes is a consumer advocacy group whose mission is to educate the laws and issues pertaining to the direct shipment of wine to consumers. AIWF The AIWF is a non-profit educational organization that is devoted to improving the understanding, appreciation and accessibility of food and drink through a lively and comprehensive exchange of information.

96 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com

97 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Intellectual Property Cyber-Liability Advertising Foreign Liability Umbrella Crime E-Commerce Issues

98 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 13. Consumption & More Wineries do a LOT more than just process and sell wine They do just about everything

99 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Tasting Rooms Most of the 3,000 wineries in the country’s 50 states begin their sales and marketing efforts primarily through their on-premise tasting rooms. In California alone, wineries are receiving nearly 11 million visitors annually.  www.wineinstitute.com CGL--Products Umbrella Liquor Liability

100 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Wine Tasting Do they promote and conduct private wine tasting off their premises at such places as restaurants or private social gatherings? CGL--Products Umbrella Liquor Liability Additional Insured Status ***ADA Compliance

101 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Wine Festivals More than 300 wine festivals and events take place each year in Virginia. Listen to jazz or blues, dine on Virginia down-home cooking or haute cuisine, taste a new release right from the barrel or sip a vintage vino. The choice is yours. See you there! Premises Liability Products Liability Umbrella Insured Status—Additional Insured

102 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Tradeshows January 25-27 Unified Wine & Grape Symposium Sacramento, California American Society for Enology and Viticulture (ASEV) and the California Association of Winegrape Growers (CAWG). The largest wine and grape show in the nation. By combining a trade show with a broad spectrum of seminars, the Unified Symposium provides attendees direct access to all the latest information. It also provides an excellent forum for active networking between registrants and suppliers, winemakers and grapegrowers.Unified Wine & Grape Symposium

103 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com What else is happening at the winery? Do they sell products other than wine? – Other types of liquor—may also have a distillery – Food Products – Gift items (books, cooking additives, tea shirts, wine glasses, etc) Do they have a restaurant or sell food at their location?

104 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Wineries Trying To Diversify And Innovate

105 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com What else is happening at the winery? Do they have tours of their premises open to the public? CGL Umbrella

106 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com What else is happening at the winery? Do they have other activities at their winery such as – Rent it out for special occasions such as weddings? – Have rides on premises CGL Umbrella Special Event Additional Insured

107 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com What else is happening at the winery? Opened in June 2002, Cherry Hill Vineyard became the first ever seasonal camp of its kind. Those who stay at Cherry Hill become part of the vineyard team, participating in a Vine and Wine training and monitoring program. All "workers" reserve their own cabins, and Cherry Hill provides the cuisine, three meals each day of your visit.Cherry Hill Vineyard

108 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com What else is happening at the winery? Do they have valet parking? Do they shuttle customers from one location to another in their own vehicles on or off the premises? Garage Garage Keepers Business Auto

109 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Insurance and Risk Control Considerations

110 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Risk Management Risk Analysis Risk Review Risk Identification Risk Transfer Risk Sharing Risk Control

111 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Regulation Compliance As an alcohol production business, any winery faces an array of state and federal statutory and regulatory requirements. Issues such as licensing, zoning, bonding of the winery, label approval, trademark and copyright registration and, in some instances, antitrust compliance, trigger regulatory requirements at both state and federal levels and must be addressed before a winery begins operation.

112 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Regulation Compliance In addition, there are a multitude of issues that arise during operations, such as shipping regulations and restrictions, e-mail and Web site sales and distribution, advertising, and trademark or copyright enforcement. State liquor control laws vary widely. For example in Washington, the "tied house" statutes and regulations make it particularly difficult for wineries to operate both a winery production and restaurant/retail facility.

113 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Different Exposures—Different Players Hobby Winery Boutique Winery Larger Winery Vineyard Operation Farm Owners Definition Farm Department

114 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Property Buildings and Structures

115 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com 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 Bottling plant Cellars (1 st yr, 2 nd yr…) Caves Tasting room (building) Non Owned Location Considerations Gift Stores

116 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Building Coverages Building – Homeowners – Commercial Building Coverage – Increased “Other Structure Coverage” Replacement Cost, Reproduction Cost, Functional Cost

117 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Building Coverage Building Ordinance Cause of Loss—Special Form Earthquake Flood Increased trees, shrubs and plants Signage Pavements, Walkways, Foundations

118 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Equipment

119 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Types of Equipment Mobile Equipment versus Auto** New Definition Gondola trucks Hoists Conveyors Crushers Fermenting tanks Juice separators Pumps

120 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Types of Equipment Storage containers – Oak; redwood; lined concrete, iron or steel Piping systems Filtration units Heat exchangers Pasteurizers

121 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Types of Equipment Fining tanks, Yeast propagators Refrigeration and air conditioning equipment Presses Centrifuges Ion exchange columns Blending devices Flow meters Washing, bottling, corking, labeling and casing equipment Computers Phone Systems

122 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Computers and Equipment Computer Hardware Peripherals Computerized Equipment Telephone Systems Remote computer sensor equipment Computerized equipment in the fields Software ** Proprietary Software **

123 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Equipment Insurance Property Boiler & Machinery Off Premises Utility Interruption EDP Perils Coverage

124 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Stock & Merchandise

125 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Where Is The Stock? Wine and products on site Wine and products in warehouses Wine and products at conventions Wine and products in transit Wine and products in the care, custody and control of a salesperson

126 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Stock Grapes Wine during processing Wine during fermenting Wine during aging Wine ready for sale Wine sold but not delivered – Pre-sold prior to production—wine futures – Pre-sold after production—after wine is introduced Wine that is unsold

127 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Stock Collector Wine Wine accessories produced by insured – Lavender Products from Matanzas Creek Winery

128 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Stock Merchandise of others for re-sale – Gift items: decanters, books, shirts – Food products VALUATION is the key! – Market Value – Selling Price – Replacement Cost

129 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Property Coverages Stock (Wine) Manufacturing Selling Price Retail Selling Price Brand & Label Control of Salvage Preclusion of Salvage Trade Shows Wine Leakage Coverage Political Risk Intellectual Property Peak Season Personal Property of Others Considerations Spoilage Boiler & Machinery Off Premises

130 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Other Property Considerations Fine Art Collections Antiques Library Collections

131 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Transportation Issues and Solutions

132 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Transportation Long haul trucking presents the most serious exposure. Bulk loss of wine is a major concern. – What is the value of the wine shipments? – Does the insured transport in owned, leased, rented trucks? – Does insured use common or contract carriers? – Does the insured use released bills of lading?

133 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Transportation Cargo is subject to hijacking. An Alarm must be installed with warranties required. Where are the trucks stored and how are they protected?

134 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Inland Marine Coverages Transportation Floater Motor Truck Cargo Ocean Marine Cargo – Warehouse to Warehouse Valuable Papers Accounts Receivable EDP Fine Arts Bailee Coverage – Warehousemen Farm/winery equipment Signs

135 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Business Income It’s A Risk Management Issue!!! Business Income and Extra Expense Extended Period of Indemnity Agreed Value Off Premises Utility Interruption Boiler & Machinery Spoilage Clarification Dependent Property Coverage Transit Business Income Building Ordinance Increased Period of Restoration Mobile Ag Extra Expense Mobile Ag Rental

136 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Dependency Issues for Business Income Dependency—Property/Liability – Supplier of goods – Supplier of Services – Recipient of goods – Recipient of services Location of recipient/supplier (global) Alternate Suppliers/Stockpiling Time frame for goods/services

137 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Dependency--Product Barrels Packaging Wine Bottles & Repackaging Services Bottles (Specially designed/Decorator bottles) Corks Labels Machinery & Packaging Supplies

138 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Dependency--Services Storage-- Dry & Temperature Controlled Warehousing Shipping Repack Services Bulk Wine Brokers Energy Service Providers E-Commerce/Internet

139 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Crime Insurance Employee Dishonesty Money Coverage Depositors Forgery Computer Fraud Surety (Federal) – Alcohol, Tobacco and Firearms – Bond—Liquor License – Sales Tax Bond – Internet Sales State Specific Bonds

140 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com International Considerations Exporters Package Portfolio Political Risk Trade Credit— Credit Insurance Political Risk Foreign Liability Foreign Auto Worldwide Dependent Property Trade Disruption Admitted Insurance D.O.C—Difference of Conditions D. I. C—Difference in Conditions D. I. L. Difference in Limits

141 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Liability

142 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Could This Happen To You? www.chubb.com During a wine tasting held in your underground storage caverns, a customer slips and falls and sues your winery.

143 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Could This Happen To You? www.chubb.com Someone becomes ill in another country as a result of consuming your wine. An employee accidentally drives a forklift into a wine tank, causing the tank to collapse and the wine to spill out, potentially causing $100,000 in damages.

144 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Liability Coverages CGL Umbrella Products Liability Product Tampering, Contamination Product Recall Including Voluntary and Involuntary Advertising Liability Personal Injury Intellectual Property Liquor Liability Pollution Liability (Environmental Impairment Liability) Herbicide/Pesticide Cover Directors & Officers EPLI

145 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Liability Coverages Railroad Protective Special Events Coverage Wind drift or overspray liability Agricultural Chemical Liability Error in labeling, bottling or packaging Personal liability for sole proprietor or partnership

146 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Automobile Exposures The winery’s own vehicles, delivery trucks and trailers Some wineries have a wholesale license and own a fleet of many different size trucks to distribute wine directly to retail outlets or distributors.

147 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Automobile Exposures A large winery may use flatbed truck to deliver cased wine. Wineries may be delivering both intra and inter state. Valet Parking—Garage and Garage Keepers Legal Liability.

148 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Automobile/Mobile Equipment Exposures Slow moving trucks and gondolas which are used to transport grapes to the crusher, can cause traffic tie ups. This equipment may be owned either by the winery that operates its own vineyards or by independent grape growers who sell to the winery.

149 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Business Auto & Garage Business Auto Non Owned Auto Hired Auto Pollution exception for mobile equipment Garage Garage Keepers

150 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Workers Compensation

151 Insurance Community Center A Center For Learning…A Community For Sharing www.InsuranceCommunityCenter.com Workers Compensation Foreign Voluntary Workers Compensation 24 hour coverage and repatriation for employees Medex assistance for medical emergencies abroad Stop Gap USL & H/Longshoreman Other States *Florida Approved Workers Comp Carrier


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