Protecting wine collections

Agency and insurer specialists monitor storage,
valuations of private and commercial collections

Len Strazewski

A 1961 Chateau Lafite Rothschild bordeaux turns a steak dinner into a life-changing event and a 1998 Chateau d’Yquem sauterne explodes with sweetness during an unforgettable romantic dessert. These are the moments that wine lovers cherish.

But while agents and brokers should be able to swap vintage tales with their oenophile and wine collector customers and sling the lingo of wine tasting, they need to know much more to serve their clients well, say producers and underwriters who specialize in this field. Temperature controlled storage, security systems, back-up power sources and earthquake-resistant construction matter more than bouquet and flavor when securing private wine collections and commercial wine libraries that may be valued in the millions of dollars.

“Wine collectors and winery owners are very sophisticated customers,” says Gary Delucchi, vice president of St. Helena Insurance Associates, an agency with offices in St. Helena and Yountville, California—the heart of the Napa valley wine region. “They understand all of the factors that contribute to wine quality and the technology of wine storage and they certainly know the values of the wine they collect,” he says.

However, they need to rely on their agent for help navigating and negotiating the specialized insurance coverage that provides replacement cost in the case of breakage, leakage and damage caused by temperature changes and theft, among other risks.

The St. Helena agency was founded in 1925 by a family that was one of the early settlers in the area in the 1850s, Delucchi says.

Edgar Beard, the semi-retired president of the insurance firm, also operates the family vineyard that sells chardonnay, pinot noir and merlot grapes to local wineries.

The seven-employee, full service agency markets to local wineries, providing commercial insurance for winery operations that is similar to other industrial coverage, but also provides the special coverage for wine libraries, the winery collection of all its vintages. Most wineries collect samples of their annual production as a record of changes in quality, blend, and style over seasons, Delucchi says. These collections have both market and commercial value and demand special care with coverage and risk management.

The agency also works with individual collectors who buy and store their favorite and often rare vintages in commercial-level wine storage facilities in their homes or at off-site facilities.

Only a handful of insurers underwrite this unusual coverage. St. Helena Insurance places commercial risks with Fireman’s Fund Insurance Co. in nearby Novato, California, and Unigard Insurance Group in Bellevue, Washington, and personal lines coverage with Chubb Personal Insurance in Whitehouse Station, New Jersey.

Other insurers that underwrite personal wine collection coverage include Insurance Corp. of Hannover and Axa Art Insurance Co.

Underwriters are interested in market valuations of wine collections, and most collectors seek full replacement cost, but the biggest underwriting concerns involve storage, Delucchi says.

Appropriate storage in wine racks is important and temperature control is critical, Delucchi notes, and in California earthquake country, frame construction is safer than masonry.

Rates range from $.30/$100 of value to more than $.50/$100 of value, depending mostly on storage and construction. Most policies have deductibles of $250 to $1,000, but underwriters say no-deductible coverage is available.

Policies cover most physical damage to bottles from various causes, but generally will not cover variations in quality, such as flavor, color, bouquet, due to oxidation or general age, even though those factors affect wine value. Most insurers will not cover damage due to temperature extremes and temperature control technology failure.

Outside of wine country, agents may have to work harder at developing good underwriting information, notes Daniel McCabe, vice president of Chubb Personal Insurance.

“Most agents are not wine experts and may not deal with this sort of coverage very often and may be dealing with clients who may not be very knowledgeable about their needs to protect their collection,” he says.

Small collectors with home wine storage may be surprised to discover that homeowners policies will not replace more than $5,000 in value—which could be only a fraction of the cost of even a small, but sophisticated collection. Coverage may be expanded with a rider but may be subject to blended limits with other property coverage, so McCabe recommends agents evaluate the need for special risk coverage.

McCabe also recommends agents and brokers “be very up front with your clients about your need for information.”

Get details of the collection, including number of bottles and their value and most importantly, where the collection is kept, McCabe says.

Chubb recommends that agents get clients to keep invoices from wine purchases to document values or document wine prices with industry guides, but the insurer does not require a formal wine value appraisal. Chubb, may, however, inspect the policyholder’s home and evaluate wine storage facilities there or evaluate any off-site storage. McCabe says the insurer does not require specialized storage but does provide better rates for policyholders with temperature controlled wine storage and security systems. The insurer may also suggest overall security improvements.

In the glitz and glamour of Southern California, wine collections are the companions of fine art collections among the glitterati and are just as prized by clients says Lynora Miller, insurance broker with Thomson & Pratt Insurance Associates Inc. in Santa Monica, California. Specializing in art collections, the six-employee broker markets through its Web site www.fineartguy.com. About five years ago, the broker began building a wine collection specialty as well, providing the specialized coverage underwritten by Insurance Corp. of Hannover and Axa Art Insurance.

Limits range from $500 for a collectible bottle or two, to $100,000 for a large and valuable personal collection. Most individual bottles are subject to a $500 maximum.

Miller agrees that most clients are knowledgeable about wine. “Most of our clients are drinkers and collectors. Wine is a personal passion and they enjoy it, not just as a valuable collectible,” she says.

Most clients already have designated storage areas and acknowledge the need for temperature control, but are just realizing the complexity of their risk management needs. Security systems are also important, and backup power sources to keep temperature controls and alarms operating during outages are also critical and may be forgotten by even the most dedicated collector.

Many collectors with large or extremely valuable collections are using off-site storage facilities such as Los Angeles Fine Art and Wine Storage in West Los Angeles for permanent collections, and take home a few bottles as needed for special events, Miller says. This avoids the need for special construction and investment in storage technology.

Axa Art Insurance doesn’t require off-site storage for expensive collections, but underwriter Michelle Adams does recommend collectors consider them. Storage technology is critical underwriting information and has a serious affect on rates, she says. Storage facilities are also an underwriter’s dream, because they are equipped with all the control and security that technology experts recommend and provide the system maintenance those collectors may neglect, including the little features, such as netting over the racks to prevent movement and breakage during earthquakes.

Axa has insured collections valued as much as $4 million and provides coverage for permanent collections as well as temporary collections, such as those maintained by auction houses, pending sales. Adams says the insurer generally requires that high values be documented with invoices or professional wine industry appraisals.

The best overall advice for protecting and insuring wine? Plan for safety and think before you drink. *