Insurance Horror Stories: 7 Steps to Safeguard Your Business
It’s a scenario every business owner dreads: a crisis that threatens to unravel all your hard work. But what happens when your insurance, the very safety net you invested in, fails to deliver? Leah Caplanis, founder of the sparkling wine brand Social, knows firsthand. After securing a major contract with Costco, she faced a devastating product recall when her canned beverages began bursting due to improper pasteurization.
“The co-packer did not pasteurize properly, and so over time it re-fermented,” Caplanis explained to Inc. “The pressure built up and the cans would kind of projectile, like, metal. So we very quickly pulled everything off, out of the 15 states, and destroyed it.” The recall cost approximately $1.5 million. While one policy paid out partially, a larger policy with a product recall addendum offered minimal support, leaving Caplanis facing significant debt and the daunting task of rebuilding her brand. “It basically destroyed the company, in that we were so in debt,” she said. She’s now working to relaunch Social and preparing to sue her insurer.
Caplanis’s experience, unfortunately, isn’t unique. Here’s advice from her and two other entrepreneurs who have navigated the complexities of the insurance industry:
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Do Your Homework Before Signing. Caplanis stresses the importance of researching insurance providers. “Researching the reputations of the insurance providers is crucial,” she advises, recommending that entreprenuers “get first-hand knowledge, or just as many reviews [as you can], because there are absolutely horrible insurance agencies out there.”
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Understand Your Coverage, Before You Need It. Caplanis suggests getting acquainted with your policy from day one. Review your policy thoroughly. “There are several steps that you have to take in the moment—sometimes within 30 days of an incident—and if you don’t do those because you don’t know, then you can completely lose your policy, or it can be negligible,” she said. She also suggests having your legal counsel review the policy.
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Act as if You’re Uninsured (While Still Having Coverage). Ryan Negri, the founder of Negri Electronics, experienced multiple burglaries at their Las Vegas warehouse. Despite having comprehensive business insurance, delays and suspicions from the insurer nearly bankrupted the company. Negri advises, “It definitely is worth getting insurance just in case something like this happens, but I think it’s more on the business owner to make sure that it doesn’t happen.”
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Consider Multiple Layers of Protection. Negri’s experience underscores the value of supplemental coverage from smaller agencies. “These big firms feel like they can push you around,” he noted. “If you’ve got a little firm, you’ve got a better relationship with them; you’ve probably got one person you talk to. They’ll fight for you.”
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Be Cautious of Contractors. Ron Shimkus, President and CEO of Electrostar, which specializes in restoring electronics after disasters, has observed that insurers often rely on third-party contractors to handle claims, especially following major natural disasters. “They want to try to get out there and see you and settle this claim as quickly as possible, because then they get paid and they get to move on,” Shimkus stated, raising concerns about potential conflicts of interest.
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Prepare for Flooding. Shimkus highlights that many businesses, especially smaller ones, are underprepared for flooding, which can lead to substantial losses. “You lose everything in a flood, and you don’t have enough flood insurance to do anything,” he explained. “Flood insurance isn’t going to rebuild your house. It’s not going to replace all your possessions. Unless you have really good flood insurance, you’re not going to be made whole.” He jokingly offers extreme advice: “If the water is about to come in from below, you should probably go chop a hole in your roof and let the water come in from up top, because you’re covered for that but you’re not covered for the rising water.”
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Utilize Your Insurance. Despite frustrations, Caplanis and Negri emphasize that insurance is a necessary business expense. Shimkus states that small business owners should not hesitate to file claims: “A lot of small-business owners think that if [they] make a claim, they’re going to get dropped or their rates are going to go way too high, so they don’t really push too hard. But that’s what you have insurance for—and the insurance carrier knows it. So file the claim. Get your money.”
