Article Reviewed by a licensed insurance professional: Sam Meenasian (CA dept of insurance license #0F75955).
Estimated reading time: 7 minutes
Key Takeaways
- Small business owners often neglect insurance until they face significant claims, leading to financial hardship.
- Common insurance pitfalls include slip and fall incidents, theft of tools, cyber breaches, and misclassified workers.
- Ten real claims highlight the importance of adequate coverage; many businesses suffered due to insufficient policies.
- Insurance should strengthen businesses, ensuring they can recover from disasters rather than being crippled by claims.
- Being proactive with insurance helps prevent severe financial loss and maintains business stability.
If you’re a small business owner working as a contractor, a retailer, or a startup founder, insurance tends to become one of those tasks you save for later. You have customers and deadlines to focus on. You handle payroll, but insurance policy jargon just isn’t in your vocabulary. But here’s the truth: Every business owner who ever dealt with a substantial insurance claim confessed the same thing afterward: “I never thought it would happen to me.”
I’ve seen dozens of real claims in my years in insurance. These ten I remember. Because if these clients had the right coverage, they’d have been in a better position. Instead, they had some problems.
1. Slip and Fall Inside the Shop
A small home décor store had a grand opening sale the first weekend it opened. It was also the grand opening day and a rainy morning. By 11 AM, the entrance mat was completely soaked with water. A customer entering the store slipped on the entrance mat and fell while catching her wrist. The injury led to a liability claim settled for just under $50,000. The claim investigation noted contributing factors such as the absence of warning signage and a documented floor-inspection process. The insurance claim was paid, but it caused the store’s premium rates to surge afterward. Reminder: Sometimes the little things could add up to big bucks.
2. Tools Taken from a Locked Truck
A handyman completed a remodel job, locked his tools in his truck overnight, and awoke to a smashed window and empty cargo area. His auto policy paid for the glass under comprehensive auto coverage minus the deductible, but none of his stolen tools were covered. Please note: Unless tools are scheduled under an inland marine or contractor’s equipment policy, personal auto policies typically exclude business property.
3. Hackers Access Client Passwords
A marketing firm stored clients’ passwords on a shared drive. A single, well-crafted phishing email was enough for hackers to get access and steal the login credentials, as well as forcing mandatory breach notifications. The payout for this claim was close to $90,000. Breach response costs could range from tens of thousands to six figures (or more), depending on the number of records, vendor rates, and state notification requirements.
4. Delivery Accident Involving Personal Vehicle
A catering business used a personal minivan to make deliveries. One day, the driver hit the back of a loading-dock post with the side of the van. The personal auto carrier denied the claim as the van was being used for business purposes. The owner paid out about $12,000 out of pocket. Please note that personal auto coverage may be denied when a vehicle is used for certain business activities (especially regular deliveries), or when the use wasn’t disclosed/rated correctly. The safer approach is to rate/endorse the vehicle for business use or move it to a commercial auto policy, and consider Hired & Non-Owned Auto if employees use personal cars.
5. Fabrication Shop Fire
A family-owned metal fabrication shop had a fire that started in the paint department. The blaze spread, destroying part of the building, some machines, and finished products that were ready for delivery. The policy only covered the building, but not the equipment or inventory. With no business-interruption coverage, it meant two months of revenue were lost.
6. Consumer Injured by Completed Product
A furniture maker sold a custom table that was finished with an improperly mixed solvent. The buyer’s cleaning of the table resulted in a chemical burn. The standard liability policy for the contractor did not cover product liability because manufacturing exposure was specifically excluded from the policy, and the claim was denied. Please note: Many Commercial General Liability policies may include Products Completed Operations coverage, but it could be limited or excluded depending on the insurer, endorsements, and how the business is classified (e.g., artisan contractor vs. manufacturer). A furniture maker may need a properly classified CGL with Products Completed Ops limits and/or a standalone product liability solution.
7. Copyright Infringement Involving a Photograph
The advertising agency used a stock photo that they believed had been pre-cleared for commercial use. It had not. The photographer sued the agency, the agency removed the campaign, and spent more than $75,000 on legal fees and new images. Policy did not cover media or advertising claims. Please note: Coverage for copyright/advertising disputes varies widely. Some CGL policies may include limited advertising injury coverage, but many agencies may still need media liability and/or professional liability (E&O) because CGL coverage can be narrow or excluded depending on the work and policy endorsements.
8. Injury Caused by a Misclassified Worker
A roofing contractor hired a worker whom he thought was a subcontractor. The worker was uninsured, but by law was an employee. He fell from a roof and seriously injured himself. With the misclassification, there was no coverage to swoop in and save the day. After an injury left him unable to work, he needed to heal, which forced him to file a lawsuit. The roofing contractor paid $250,000 in medical bills and other fines/fees. Please note: Misclassification may trigger premium audits, penalties, and coverage disputes, but outcomes depend on the state and the policy. The biggest preventable gap is failing to maintain required workers’ comp and failing to verify subcontractor coverage (certificates, endorsements, and correct entities).
9. Florida Boutique Floods After a Storm
A boutique flooded during a tropical storm before its grand opening. Inventory stored below grade was destroyed. Standard property insurance excludes flood damage. Roughly $40,000 in inventory and lost income was unrecoverable without a separate flood policy.
10. Customer Credit Card Data Breach
The retail store kept credit card information on a private server. The data storage server was compromised, and they were responsible for both customer notification obligations as well as defense against possible negligence lawsuits. Without cyber insurance coverage for data breaches, the business needed to spend over sixty thousand dollars in cash.
Why Does This All Matter?
Ever heard the phrase “It’s like building a house of cards in a tornado.”?
Business is a lot like that. You could get a tornado raining down on you at any moment. But don’t wait for the tornado to strike. You may never get “struck,” but if you are going to get hit, make sure you have a STRONG foundation. Insurance is not about fear. Insurance is about strength.
What is that strength? Policy claims that don’t cripple your business when you need it most. Claims that can rebuild your livelihood so you can reopen your doors!
I have had the misfortune of watching, for the past 12 years, as the proudest business owners, who built their dream with blood, sweat, and tears, be wiped out with one uninsured claim. I have had the privilege of watching others walk away from disasters with their backs to rubble still standing because their policy was built correctly.
We can do this for you.
We help businesses in many states, subject to producer licensing requirements and carrier availability. We insure plumbers, welders, handymen, hood cleaners, HVAC techs, retailers, manufacturers, food service operations, and any industry in between! We know risk. We know the business. We know how to properly insure that risk at a rate that works within your budget.
