Dealing with contracts
Winery and Vineyard operations are a happy mix of old world charm with agricultural roots, where a neighbors word was as ‘good as gold’ and a handshake was an iron clad agreement, mingled into the modern world with exposures that are more diversified and with specialized job duties, broader national reach and the increasing litigious environment.
Contracts can be quite intimidating, confusing and even deceptive at times.Contract tips
Before we get started, as with all editorial information, this should in no way be considered legal advice. Please contact your attorney for all legal advice specific to your needs or situation.
For simplicity, we will look at two main views; contracts that you create and have others sign and the contracts that you sign as a winery/vineyard operation.Contracts you create
Some of the most common agreements or contracts that a winery and vineyard operation creates can include worker contracts, processing contracts and vendors.
Depending on the circumstance, contracts for workers need to be clear on employment relationships as an employee, subcontractor or increasingly, a co-employee through a Professional Employer Organization (PEO).
The winery industry has a wide breath of operations with the larger accounts that need H-2A seasonal workers contracts to the sole proprietorship where the labor is all family. A contract should be specific on the conditions and expectations for both parties.
In processing, there are custom crush operations that handle the complete cycle of wine production from crush to storage, down to a single task process, like using a mobile bottler. Contracts can relate to a transportation exposures where a hired contractor is used to move the stock between locations or a storage warehouse exposure that needs to address the conditions and the insurance responsibility for the wine value.
Consider the time element and any penalties associated if an operation under contract fails to meet expectations.Contracts you sign
If you have a contract with a bottle manufacturer, cork maker, label printer, bottle filler and transportation company, do they line up with the timing and expectations to make sure your production is a success?
If you are responsible for the production operations, are there service contracts in place for the equipment if a part or service is needed at a crucial time in production?
Another common contract to the business is the Lease Agreement. The basics are familiar to most, with renting a location to run an operation, having a monthly fee and a term agreement are very generic. The contract can also have specifics as to the type of operations and alterations allowed. It may be OK to make wine but not allow pressure vessels or brewery operations. You can have the tenant improvements and betterments with installing a tasting bar, but no authority to add a kitchen space.
Contractors and vendors can also require a winery or vineyard to sign a contract. Examples include a band playing on the stage, craft vendors at the harvest festival or food services. In the best interest of the winery, the contract should address the insurance aspects of the agreement. Each of the details in the contract should be viewed through the lens of the risk manager. A contract should be clear and valid but remember, it is not an insurance solution. The contract should address the specific insurance requirements needed.Key ingredients of robust contractual risk transfer
Always have your contracts reviewed by legal counsel. At a minimum, your attorney will review the contracts for these terms vital to the agreements you make with your vendors and sub-contractors:
- Before each new project or event, are you checking their Certificate of Insurance prior to them starting work and maintaining a copy on file for five years?
- Is the commercial general liability (CGL) coverage on a comprehensive broad form on an occurrence basis?
- Are the insurance limits $1M per occurrence and $2M annual aggregate written by an admitted carrier, with at least an A financial rating?
- Are you and your business listed as an Additional Insured on their insurance policy?
- Does their insurance policy contain primary / non-contributory language?
- Does their policy contain a waiver if the insurer’s rights of subrogation against you?
Look for these additional terms used in the strongest of contracts:
- Subcontractor carries an excess insurance policy with at least $5,000,000 in coverage
- Requires the CGL policy to include a Per Project / Per location aggregate
- Prohibits high deductibles or self-insured retentions
- Specifies that sub-tier contractors have the same insurance requirements
- Requires automobile liability insurance to include a minimum amount of $1,000,000 combined single limit, especially for food trucks and vendors delivering equipment and supplies.
Insurance policies can also be considered a contract. Verify the language on your insurance policy protects and defends the winery. The language should be clear to both the scope and the limit of insurance required. In most cases, providing proof of insurance with the adequate limits is enough justification for the insurance clause. Taking it one step further, the contract may require the signer to add the winery as an Additional Insured for events that are hosted on the insured property.
In many cases, having a contract in force can be one of the triggers on many insurance policies that allow for an additional insured status to apply.
After the contract is properly executed and additional insured status is secured, the insured should verify that the limits of insurance available are at least equal to the limits under their commercial general liability policy.
Time to ‘punch down’ and get a little more flavor. When we switch gears and look at contracts the winery/vineyard operation is being requested to sign, paying close attention to details is paramount. Signing a contract without understanding the consequence can have huge implications on your business.
The nature of operations in the industry has many vendor exposures, whether as a festival booth or as a supplier to a restaurant or grocery chain. Many of these contracts will have a requirement for limits as well as an indemnification clause that requires an additional insured status under the winery/vineyard insurance protection. The contracts can get detailed with requesting high limits, giving up rights to subrogation of a loss or to ignore negligent acts.
One important point in reviewing a contract is to understand from an insurance standpoint, if you agree to a condition in a contract, is it something your insurance policy will cover? If you sign a contract that is not supported by your insurance policy, you could be responsible for payments in the agreement that are not payable by the insurance carrier. Failure to satisfy a contract may not be related to a covered cause of loss under the insurance language.
As a vineyard, do you have a contract to be a supplier to a winery, in which the contract states if you fail to provide a certain volume you would owe a penalty?
As a custom crush operation, are you under contract agreement to produce a product in a certain timeframe? Are you contractually obligated to insure the wine stock of others at a certain settlement price?
As a vendor in a national chain store, are you required to carry higher limits of insurance or coverage lines such as auto and worker compensation?
It may be difficult to do business today without contracts in one aspect of your operation or another. Having the right contract in place can be a form of risk management, but can also be a source of liability on your operations.
Not every business is the same and in fact one of the hallmarks of the industry is to celebrate the differences in both product and experience. This creates a unique situation that should have an equally unique contract for the specific needs. It is best practice to have professional legal counsel in drawing up any contract in lieu of the generic options.
Ideally contracts will be written with clear and simple language that will address the relationship and expectations for the situation.
The subject matter of contracts is complicated and often creates confusion. It is important for operations to begin considering some of the issues BEFORE a loss or conflict occurs.
The best contract you can enter in, is a high quality insurance policy. The insurance policy is a contract agreement that is signed by both parties. Although it can be somewhat complex in the language, the details of the contract indicate the expectations of both parties and what is to happen if certain criteria is met, what coverages are included, what responsibilities are required for the insured and what promises of settlement are made by the carrier. Insurance can play a major role in working with the various business contracts.
As contract partners, it is recommended you work with your insurance agent or carrier to review any contract agreement to determine how it will affect your liabilities and to confirm if additional risk management tools may be needed.Top 3 tips for contracts
- Get it in writing.
- Keep it simple in language and form.
- Seek professional advice from your insurance advisor and legal counsel.
*Markel Specialty is a business division of Markel Service, Incorporated, the underwriting manager for the Markel affiliated insurance companies.