Navigating the World of Crop Insurance

With devastating wildfires during the growing season occurring more often, growers are urging each other to obtain crop insurance

The widespread wildfire season of 2020 had winegrape growers and vintners up and down the West Coast scrambling to run micro-fermentations and test grapes for guaiacol and 4-methylguaiacol. Contracts, many of which contained no specific provisions for smoke exposure, were called into question, and animosity between some buyers and sellers ran high. With so many grapes unable to be sold, or never even harvested, a lot of business was lost. To recoup that loss, those who had signed up for the federally subsidized Crop Insurance program filed claims.

California growers, for the most part, were in a better position leading into August’s lightning storm-fueled fires, as well as the Glass Fire in northern Napa Valley—seventy-seven percent of California winegrape growers had coverage. In the Pacific Northwest, which was also affected by severe smoke exposure, 76 percent of Washington state grapegrowers were insured. Oregon grapegrowers, on the other hand, weren’t. Just 32 percent of grapegrowers there had crop insurance.

“What it indicates is there are a lot of uninsured growers out there…If they don’t get crop insurance, hopefully there could be a disaster program legislated, or something to help take care of them,” said Jeff Yasui, director of the RMA office that oversees California, Arizona, Nevada, Utah and Hawaii, at a recent California Association of Winegrape Growers (CAWG) webinar.

Why Crop Insurance?

The obvious answer is that Mother Nature is unpredictable. From the more traditional crop concerns like frost and hail, to the more recent frequency of wildfires, many winegrape growers are finding insurance a forward-thinking and responsible choice.

Whether crop insurance is worth the spend is something that many growers have considered following this harvest season. At Wine Business Monthly, we’ve heard from a number of growers that it’s worth every penny. Matthew Heil, director of fruit supply at Copper Cane Wines & Provisions is one of them. He argues that it would behoove growers across the country to take advantage of the federally subsidized insurance program.

The Federal Crop Insurance Program

The United States Department of Agriculture (USDA)’s Risk Management Agency (RMA) was created in 1996 to provide risk management tools and crop insurance products to the nation’s farmers. Approved Insurance Providers (AIPs), the more traditional insurance companies, then sell and service these federal crop insurance policies, which are a partnership between the RMA and the Federal Crop Insurance Corporation (FCIC).

Simply put, the RMA creates an insurance product, Crop Insurance, and then asks AIPs to sell them to growers and deal with claims. RMA then subsidizes the majority of the premiums. According to the RMA, the federal crop insurance policies for grapes cover loss from adverse weather conditions, earthquake, failure of irrigation water supply if caused by an insured peril during the insured period, fire, insects and plant disease (except for insufficient or improper application of pest or disease control measures), wildfire or volcanic eruption. It does not, however, cover Phylloxera damage, labor losses, or an inability to sell the grapes because of lack of demand.

To obtain a policy, growers and farmland owners must reach out to one of the RMA’s AIPs, who are responsible for selling and managing the policies (For a full list, visit www.rma.usda.gov/Information-Tools/Agent-Locator-Page). In the event of a claim, these companies will send out their own auditors to evaluate and assess damage, if it exists and then pay out the reimbursement.

The AIPs work as facilitators for the product and in order to continue selling the insurance, these companies must abide by the rules set forth by RMA, and Yasui has said that has earned them a reputation for being strict.

“RMA plays with a lot of liability on them to execute their responsibilities properly. From a government standpoint, they’re looked at by a compliance division of our agency and USDA. They’re also subject to review by the Office of Investigator General with USDA,” he said. “The companies, they have to follow the rules, and although you may feel that the rules are harsh, maybe too detailed, maybe too minuscule, maybe not even applicable, it is their responsibility to follow these rules and they are checked on them.”

Catastrophic Risk Protection (CAT) policies that provide additional coverage beyond a basic policy are also available. At $655 per crop per county, coverage is fixed at 50 percent of the average yield and 55 percent of the price election.

It is important to note that crop insurance must be purchased prior to a loss and before the sales closing date. There are no retroactive provisions allowed. In California, the sales closing date is January 31. For all other states where the federal program is available the sales closing date is November 20.

Claims, Rejection Letters and Testing

In order for a winery or vineyard operation to file a claim, Yasui said that the RMA requires a chemical lab test that used a gas chromatograph mass spectrometer to obtain the data. “That is needed,” he said. “We cannot process, or the companies, cannot process a smoke taint claim without them.”

Additionally, he said that a rejection letter from buyers is typically required by the AIP, and it is important to work with your loss adjuster to obtain any additional documentation.

“The key thing here is that these are decisions that you need to work through with your loss adjuster, who is an employee of the [insurance] company or the [insurance] companies themselves,” he said. “Quality adjustment issues that we’ve heard about for crops that are actually marketed or potentially marketable, the insurance company must determine the average market value for an undamaged crop or the usual marketing outlets for the week in question.”

In the aftermath of the 2020 wildfires, anecdotes about insurance companies requiring three rejection letters for the same fruit were reported, but Yasui said that is not a federal mandate.

“There is no [RMA] requirement that it takes three letters, but certainly the crop insurance company could ask for more than one if they feel that the letters that they have are not representative of the situation and they want a different verification. That is their right to do,” he said.

He also advised those who choose to sell their smoke-tainted grapes below market value, or even give them away, could see a reduction in the final payout.

“We’re not going to say or tell you how crops can be marketed, but if the damaged crops are somehow disposed of, given away and not destroyed in the field, the company is going to assign a value to those grapes,” he said. “They’re going to determine what value those damaged grapes actually have…and it will work against you on your indemnity.”

What About Protection Through Buyer Contracts?

When crop insurance isn’t obtained, or isn’t enough to cover the full loss, what can growers do? The first step, according to Dale Stern of Downey Brand LLP, is to add smoke taint and wildfire wording into your winegrape contracts.

“Very few contracts specifically or expressly mentioned smoke exposure as grounds for rejection or downgrading the quality of grapes or reducing thee price,” he said at the CAWG webinar. “If you’re a grower and you don’t have smoke exposure specifically mentioned in your contract, it’s very troubling to be rejected on the basis of smoke exposure.”

A more general “quality” provision, however, is included in those contracts and it is on this, Stern said, that wineries will have a strong argument that smoke-tainted grapes are not suitable for their high-end wine production and can outright refuse them.

To complicate matters, and a cause for concern, he said, there isn’t much prior litigation to establish precedent in these types of cases—but we may see some soon.

“We don’t know how courts and arbitrators will interpret these various contract paragraphs because we don’t have a lot of experience with litigating disputes over whether a winery can legitimately reject grapes that have been exposed to smoke when the only provision in their contracts is suitability for the production of premium quality wine. We just don’t know,” he said.

“I suspect this year that there are going to be some test cases that are run up a flagpole, so we may learn more this year than we have in the previous years,” he added.

At Copper Cane Wines & Provisions, Heil is now building in smoke exposure language into all of his contracts. Heil is a proponent of both crop insurance as well as specific smoke language in contracts. He believes that it’s time we stop thinking of wildfires as an infrequent occurrence, and it’s best all parties are prepared and covered. Heil also works with the West Coast Smoke Task Exposure Force, formed by industry leaders and three West Coast wine- growing associations: California Association of Winegrape Growers, Oregon Wine Board and Washington Winegrowers.

What to Do Next

For those considering coverage, the deadline to purchase policies in California is Jan. 31, 2021. For all other states, coverage purchases must be completed by Nov. 20, 2020. Reach out to an AIP for more information, premiums and options.

This article originally appeared in the December 2020 issue of Wine Business Monthly.