Napa, Calif.—Following the earthquake centered south of the city of Napa on Aug. 24, Napa County officials estimated that wine companies sustained $48 million in damages, but they warned the total could rise as more information was collected.

The local trade organization Napa Valley Vintners asked Silicon Valley Bank, a major lender to wineries, to help assess damage.

Bank executive vice president Rob McMillan, who founded SVB’s wine practice, contacted as many wineries as practical in two days and submitted a report to Napa County executive officer Nancy Watt and the Napa County Board of Supervisors.

He said, “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.”

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, and survey responses from more than 50% of Napa wineries to make his estimate.

Included in the analysis of winery losses are damage to buildings and infrastructure such as wastewater ponds and private bridges, winemaking equipment, cleanup and removal costs, vineyard irrigation, bottled inventory in current release, bottling supplies, finished inventory ready for bottling, bulk wine, barrels, lost revenue from damaged tasting rooms, losses from business interruption and loss of wine held in wine libraries.

McMillan estimates that losses to independent vineyard operations including losses to machinery, supplies, cleanup costs, irrigation and piping, loss of revenue from delayed harvest and damaged infrastructure should fall in a range of $10 million to $20 million, with an expected loss of $15 million.

He didn’t include losses to independent warehouse and wine-storage operations, estimated at several million dollars.

He said, however, “Losses in custom-crush wineries were quite significant and are included in our calculations.”

Many wineries and custom-crush facilities are still cleaning up and unable to fully estimate their losses.

McMillan’s other observations:

• 60% of Napa County wineries sustained some degree of damage, and up to 25% of wineries suffered moderate to severe damage exceeding $50,000 per winery, ranging up toward $8 million in the most devastating circumstance.

• The majority of the damage was in the southern and western parts of the county, as well as business operations in the city of Napa.

• Businesses supporting warehousing and shipping at the epicenter experienced significantly lower damage than would be expected, likely due to newer building codes and the preparedness of the operators.

• Wineries in the Carneros region, Mt. Veeder, Yountville and Oak Knoll areas suffered the greatest damage.

• Custom-crush wineries experienced outsized losses, which may necessitate additional review of earthquake and safety protocols in such operations.

Most wineries don’t have earthquake insurance for their buildings, but many do insure 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 noted, “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.”

Structures, on the other hand, might cost 20 to 30 cents per $100 of value, but the deductible is typically 10% of the total value.

She notes that she’s seeing more interest in quake insurance after this one, particularly for tanks, which can be insured separately. “Many tanks were compromised,” she added.

Risk Management Solutions estimates that the insured loss from the south Napa earthquake will not exceed $250 million, within its expectations for its magnitude and location. It said, “The relatively low impact to the insurance industry reflects the combination of the moderate magnitude and location of the earthquake, the limited earthquake insurance penetration in the region, and the resiliency of the Napa winery industry.”

It added that the primary damage was due to ground shaking with minimal observations of fire following earthquake or earthquake sprinkler leakage. “Little liquefaction or lateral spreading was observed, while damage to transportation networks (i.e., roads and bridges) was minimal and repaired quickly.”

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.”

In general, it provides a deduction for any loss that is sustained during the taxable year and not compensated for by insurance or otherwise. To be an allowable deduction, the regulations provide that the loss must be evidenced by a closed and completed transaction, fixed by an identifiable event, and actually sustained during the taxable year. Only a bona fide loss (i.e., a real economic loss) is allowable. In the case losses incurred in a federally declared disaster area, Section 165(i) provides a special rule that may allow a taxpayer to deduct the loss in the taxable year immediately preceding the taxable year in which the loss actually occurred.