The financial impact of the Napa Valley earthquake continues to rise as recent estimates conclude wine companies alone have sustained $48 million in damages, with the potential for even more claims on the way.
Rob McMillan, executive vice president of the Silicon Valley Bank, one of the region’s major lenders to wineries recently assessed the scope of the damages.
“We believe the earthquake losses to Napa wineries and vineyards will conservatively fall in the range of $70 million to $100 million, with a most likely loss approximating $80 million,” he said.
McMillan used proprietary financial information, direct interviews with the wineries suffering the worst damage, first-hand inspections of a sample of the most-impacted wineries, survey responses from more than 50% of Napa wineries and his own knowledge of the market, inventory locations and production capacities of Napa wineries to make his estimate.
Wineries, among several other businesses in the region, typically don’t have earthquake insurance for their buildings despite many of them insuring their inventory.
Earthquake insurance specialist Debra Costa, vice president at Heffernan Insurance Brokers in Petaluma, Calif., said, “The majority of our clients have coverage on their inventory, as we recommend due to the risk in California.”
She continued, “Wineries can insure inventory and finished goods at very competitive rates.” Inventory includes the barrels as well as the wine, but not tanks. The cost is about 10 to 15 cents per $100 of value. “The catch is that the deductibles start out at $100,000.”
PricewaterhouseCoopers, a leading accounting firm in the wine business, sent out a memo on deducting losses. “Due to the high deductibles and costly earthquake insurance plans, events like this earthquake may result in taxpayers incurring extraordinary expenses that may not be covered by or fully reimbursed by insurance. Fortunately, however, Section 165 of the Internal Revenue Code may help to lessen the burden by allowing taxpayers a deduction for casualty and disaster losses.”
