Insurance Challenges

Imagine that your entire inventory goes up in smoke. And your insurance doesn’t cover it. That’s what happened to Delia Viader, owner of Viader Winery in California’s Napa Valley, nine years ago when an arsonist set fire to a warehouse storing her 2003 vintage. (Read a 2005 news story about the fire here.) In one day, she lost 84,000 bottles. She had been just about to reap $4.5 million by shipping the wine to restaurants, distributors and exporters. And then poof. “I had absolutely nothing,” she says. Nothing prepares you for the moment you lose everything, and even today, Viader has difficulty recalling the day. “It is something I try to put behind me,” she says. But when pressed, she starts to recall how it unfolded – and the combination of strategic decisions and lucky breaks that allowed her to rebuild. Viader had been walking into a private dinner at a Napa resort when her adult son Alan, who managed Viader’s vineyard, called to say that flames had engulfed the warehouse – a giant structure in Mare Island, Calif., that stored wine for close to 100 wineries. “He tells me, ‘Mom, I am looking at the smoke – I can’t even get close,” she recalled. Viader, who started her winery in 1986, had fire insurance, but she feared the payout would take months if not years, and probably wouldn’t cover her losses (she would be proven right on both counts). Her first reaction, in a surreal sort of way, was to tick through various scenarios that might keep the winery afloat. “I immediately calculated cost and cash flow,” she says. She had production bills and 28 employees who needed paychecks. With the fire still raging, Viader attended the dinner, fortuitously hosted by Silicon Valley Bank, which held a loan on her winery’s 92-acre property. She took her branch manager aside and asked for a $1 million bridge loan. Her banker, while sympathetic, said he needed co-signers. In the days ahead, Viader managed to find friends who would guarantee the debt. She got the loan. Once she had propped up the winery’s daily operations, it was time to fight with her insurance company. The situation was worse than she thought. She believes her broker made a mistake in writing her policy, limiting losses to $500,000 for wine that was “in transit.” Her insurer deemed the wine to be “in transit” because it was at a storage facility; Viader initiated litigation, arguing that the wine wasn’t “in transit” but rather awaiting hand-labeling while in storage. The case dragged on, and Viader racked up legal fees. Meanwhile, even her “business interruption” insurance policy – designed to cover lost income after a disaster – didn’t kick in, as technically her winery was still operating. Eventually, she settled: “It took two and a half years to get the insurance to pay less than 10 percent” – less than $500,000 – “of the claim.” There was also no insurance to collect from the warehouse itself, which went out of business, Viader says. According to news reports, nearly 95 vintners lost wines conservatively estimated to have been worth $200 million to $250 million. In 2012, a Sausalito businessman convicted of setting the fire was sentenced to 27 years in prison. To make ends meet, Viader decided to sell assets. Before the fire, she had been successful enough to purchase a vineyard in Tuscany that she was developing with partners. “We ended up selling the whole thing completely,” she says. “I needed the resources.” Next, Viader tackled the long-term repercussions of the fire. In the wine business, you can’t just replace your inventory immediately. Grapes must be grown and harvested; the wine must be aged and bottled. You develop relationships with restaurants and distributors, who keep a place for your annual vintages on their menus or wholesale lists. “When you don’t have a way to give them more wine, they don’t put a placeholder for your next vintage,” she says. “They just replace you.” That led Viader to radically change her business model. Instead of using third-party distributors and exporters to sell her wine wholesale, she decided to sell it directly to consumers. She bet that aficionados who toured Napa Valley’s wineries would be willing to pay $150 a bottle for her signature product – Viader, a blend of Cabernet Sauvignon and Cabernet Franc that she affectionately calls “liquid cashmere.” (In fact, the price represented a discount to what customers at upscale restaurants or wine boutiques were already paying for the wine.) Viader, who lives on the winery property, converted her guesthouse into a primary tasting room. In 2007, her daughter Janet joined the family business to help with sales and marketing. “It was, in the sense of family, a call to arms,” Viader says. Her daughter now runs Viader’s wine club, a key part of the winery’s direct-to-consumer model. Today, the club has a small buy-loyal membership in the hundreds, with basic-level members paying about $1,100 a year for 12 bottles. The winery has targeted customers with marketing campaigns and special events, such as intimate tastings from the barrel. Viader also has a social-media presence on Facebook and Twitter, although Viader says it has mostly built its membership through word of mouth. Nearly a decade after the fire, Viader says the winery has recovered — at least financially — and is poised to have wider profit margins. Before the fire, Viader produced about 10,000 cases a year, selling the wine at wholesale prices to restaurants and distributors. Now, because she has cut out the middle man and sells directly to consumers, she only needs to produce 5,000 cases to make the same amount of annual revenue, about $4.5 million, as before. But Viader regrets that the decreased production forced her to eliminate most of her vineyard crew. She now needs only 15 employees to help with everything from picking grapes to shipping wines to out-of-state club members. “There were sacrifices in order to remain in business,” she says. And these days, Viader pays more for insurance premiums and reads the fine print, to make sure she is “100-percent covered.” Still, she doesn’t trust warehouses. She now stores most of her wine in her own tunnels, burrowed into the hill where her winery is located.

Insurance Challenges

After a Disaster, a Winery Starts Anew

The Story Exchange

Insurance Challenges

After a Disaster, a Winery Starts Anew

The Story Exchange

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