Workers' Comp Investigation Offers Small Businesses a Reminder to Communicate

24. April 2015 08:15

pup with a broken leg

Changes to the Workers' Comp system have been racking up some negative attention lately. A recent OSHA report echoes the findings of NPR and ProPublica that…

  • Workers and taxpayers bear the brunt of work injury costs (63 percent and 16 percent, respectively).
  • State legislation has made it more difficult for injured workers to receive lost wage and medical expense benefits.
  • Only a fraction of injured workers receive any Workers' Comp benefits through state compensation insurance funds.
  • Employers aren't recording all work-related injuries (especially exposure-related illnesses that crop up years later).

Perhaps the most disheartening insight to come out of these reports is that injured employees really struggle to move on after an occupational accident. In fact, the reports show that these employees' earn $31,000 less than they would over 10 years if they had never been injured.

The good news is that you can potentially keep your employees from facing a similar fate if you help manage your business's Workers' Compensation Insurance benefits.

Communication: The Key to Injury Prevention and Quick Recovery

Of course, every small-business owner wants their employees to be safe and healthy. As an employer, you play a role in your employees' safety, and it all comes down to communication.

Let's explore how you can communicate with employees to reduce workplace injuries and ensure their speedy recovery when occupational accidents happen.

  1. Create safety manuals and distribute them to workers. This manual should explain possible work hazards and describe best practices for mitigating those dangers. Regularly review this material with employees. More on that here: "What Not to Do: Workers' Compensation Edition."
  2. Make a Workers' Compensation Insurance brochure for new hires. This should explain the insurance program, including your insurer, policy number, benefits, covered injuries, etc. It should also outline the claims process (e.g., report the injury to you as soon as possible, seek medical attention from an approved medical professional, and fill out a claims form.). Read more about that in "How Does Workers' Comp Insurance Work?"
  3. Ensure your employees know they won't be fired for filing a Workers' Comp claim. The reports we discussed above cite that many employees don't file claims because of fear that they will lose their jobs. Reassure employees that this is not the case and that in most states that practice is illegal.
  4. When employees have an occupational accident, follow up with them. Contact employees within a week or two after the injury to see how they are doing. Be sure to keep in touch with employees throughout their recovery (it's good for employee morale). Ask them about their claims experience and if there were any complications. Remember that poor treatment from medical providers and claims adjustors may cause delays in recovery and encourage employees to seek legal action.
  5. Help employees navigate the claims process. You may need to follow up with the claims adjustor if problems arise. Read more about your responsibilities in "How Do I File a Workers' Comp Claim?"
  6. Check with your legal counsel to see if there are any other steps you should take. Your attorney can advise you on what to do if your employee reports that they didn't receive adequate treatment.

Workers' Comp is a hot topic right now, so stay on top of new developments by following our Workers' Compensation Insurance blog series.

Professional Liability vs. Errors & Omissions Insurance: What's the Difference?

23. April 2015 08:07


If you've just started to dip your toes into the insurance waters, you may find that learning the lingo is like trying to swim in the deep end when you're hardly comfortable with dog paddling. (Don't worry – there's a glossary for that!) To complicate an already complicated matter, some insurance policies have multiple names.

Such is the case with Professional Liability Insurance, also known as Errors and Omissions Insurance. It's not like one is the secret superhero and the other holds down a desk job. Rather, these names are interchangeable and used to describe the same policy that just so happens to have a reputation for saving the day.

So what does the policy do? And why bother with both names? Let's get to the bottom of these questions.

Professional Liability and E&O Insurance: Coverage for Service-Related Quandaries

Businesses that provide professional services (e.g., consulting, troubleshooting, or installation) often want an E&O policy because those services come with special liabilities. Namely, you can be sued over:

  • Breaching contracts.
  • Making oversights or errors.
  • Providing subpar or incomplete work.

If these professional mistakes result in a financial loss for your client, they can try to recoup expenses by filing a lawsuit against your business. That's where Professional Liability / Errors & Omissions Insurance comes in. This policy may help cover

  • Legal defense fees.
  • Court costs.
  • Settlements or judgments.

The kicker? You don't actually have to do anything wrong to be sued. The quality of your service is subjective, and you may simply have a difficult client on your hands who wouldn't be satisfied even if you wrangled down the moon for them. If they decide to exercise their discontent through the legal system, you'd be up the creek without a paddle if you don't have E&O Insurance.

The good news is that E&O / Professional Liability Insurance may offer coverage for your legal expenses even if the lawsuit is frivolous. A meritless suit may waste your time, but it doesn't have to drain your resources, too. Read more about that here: "Why Winning an E&O Lawsuit Still Costs Money."

E&O, Professional Liability, or Malpractice: What's In a Name?

Now you may have a better grasp of what Professional Liability Insurance does, but why does it have so many names? In short, different industries have adopted different names for the coverage over the years. It helps to discuss the policy by the name businesses are familiar with. That's why you may see…

  • Malpractice Insurance used to describe the policy for medical and legal professionals.
  • Errors & Omissions Insurance for accounting, real estate, and tech professionals.
  • Professional Liability Insurance for architects and engineers.

These aren't hard-and-fast rules, though. Many industries use the terms E&O and Professional Liability Insurance interchangeably. The important thing to remember is that it means the same thing: coverage for claims over your services.

Lastly, keep in mind that clients may require you to have this policy in place before they hire you. In their eyes, the policy vouches that their investment won't be wasted. If the job doesn't go as planned, the policy offers them a way to recover their losses.

In that sense, having E&O or Professional Liability Insurance can be a good marketing tool for your business and help distinguish you from competitors. Learn more about that in "Why Clients Want You to Have an E&O Policy."

Study: 4 in 10 Small Businesses Likely to Have an Insurance Claim in the Next Decade

22. April 2015 08:26

insurance claim form

The Hartford recently unveiled the results of a five-year data analysis of more than 1 million General Liability and Property Insurance policies. Here's what it found:

  • 40 percent of small businesses are likely to experience a GL or Property claim in the next 10 years.
  • 35 percent of General Liability claims result in a lawsuit and cost about $75,000 to defend and settle.
  • 20 percent of all Property claims are triggered by theft, averaging $8,000.
  • 10 percent of Property claims are triggered by fires, averaging $35,000.
  • Less than 5 percent of General Liability claims are triggered by reputational harm, but they average a staggering $50,000.

Though nearly half of small businesses may face a claim over the next several years, the report isn't all bad news. In fact, perhaps the most heartening takeaway from this study is that a simple Business Owner's Policy can address the claims you're most likely to face.

BOP: It Goes Where the Claims Are

As you may already know from contextual clues, a Business Owner's Policy (BOP) is an insurance package that bundles General Liability Insurance and Property Insurance together. (More on that here: "How BOP Insurance Works.") What you may not know is that this bundle is pretty affordable – for very small businesses with low-risk profiles, premiums can start at about $500 a year. Your rate will vary depending on where your business is and what it does.

Once you have a BOP in place, it may offer coverage for:

  • Burglary and theft claims. Your BOP's Property Insurance can help replace stolen property so it doesn't come out of your bottom line.
  • Fire damage claims. Again, your BOP's Property Insurance can handle these claims. When a fire destroys your building and your equipment, your policy may help pay for repair or replacement costs.
  • Reputational harm claims. The GL portion of your BOP may help pay for advertising injury claims over libel, slander, invasion of privacy, and copyright infringement. It may also pay for legal expenses if the claim goes to court.
  • Premises liability claims. If a customer slips and falls on your property and you are liable for the damages, your GL may offer coverage for the incident.

Of course, these are only a few examples of what a BOP can do. You can also customize your policy to offer Cyber Risk coverage, Business Interruption Insurance, and more. Learn more about that in "How to Customize Your Business Owner's Policy."

Managing Risks for Common and Expensive Claims

Though insurance is awfully handy, the claims process is not something most people want to experience. Minimize the chance of facing these claims by:

  • Conducting background checks on employees to limit the risk of theft.
  • Installing security cameras to monitor the entrance of your business to deter criminals.
  • Properly storing flammable chemicals and materials.
  • Reading our eBook Tweet or Twibel: The Small-Business Owner's Guide to Advertising Injury to learn how to avoid committing reputational harm on social media.
  • Keeping public areas of your business clear of clutter and obstacles.

For more tips that can help you keep claims at bay (and subsequently keep your premiums low!), check out our risk management blog series.

Business Interruption, General Liability, & Property Insurance: Oh, My

21. April 2015 08:02

gas line warning

Disaster struck the East Village in New York on Thursday, March 26, 2015. According to The New York Times, an explosion obliterated three buildings, killed two people, and injured more than 19 people. Sushi Park, a restaurant on the ground floor of the building where the explosion happened, was completely destroyed in the process.

The Times reports that the explosion was caused by gas being siphoned from the restaurant's line to the apartments above Sushi Park and to the building next door. Maria Hryenko owns both buildings and oversaw the siphoning, and Mr. Dilber Kukic, the general contractor, adjusted the pipes in the buildings.

The owner of Sushi Park Hyeonil Kim, the landlord, and the general contractor have a number of problems on their hands. The victims' families may sue everyone: the restaurant, the landlord, the contractor, Consolidated Edison (the utility company), and the city.

Let's explore some possible liabilities for the three main parties involved in the explosion.

The Restaurant: Damages that Outpace Typical Coverage

Imagine being the owner of a small restaurant that's just been completely destroyed. All your equipment, furnishings, and inventory: gone. Just a pile of smoldering rubble and broken glass remain.

The owner of Sushi Park probably has insurance to help him pick up the pieces of his business and start over (the landlord may have required proof of insurance before he could sign the commercial lease). A disaster of this caliber may require the following four types of coverage:

  1. Property Insurance. This may offer coverage for the replacement of the restaurant’s equipment, like stoves and refrigerators.
  2. Business Interruption Insurance. This may cover the restaurant's ongoing expenses (e.g., payroll, taxes, and loan payments) during the time it takes to rebuild to an equivalent operation.
  3. Extra Expense Insurance. This can be added to a Business Interruption policy and may cover costs incurred by things that help the restaurant get up and running faster. Learn more about this coverage in the post "New England Snow and Business Interruption."
  4. General Liability Insurance. This may cover the restaurant if the families of the victims sue it. However, a common GL limit for small restaurants is $1 million to $2 million, which may not be enough for a wrongful death lawsuit.

Worth noting: basic limits that small restaurants carry may be too low for the amount of property damage and liability. Plus, the lease most likely required the restaurant owner (tenant) to indemnify the building owner for all third-party injuries that happen on the property (i.e., the restaurant owner would be liable rather than the building owner).

Considering that two people died and over 19 people were injured because of the explosion, the restaurant owner may end up owing a considerable amount in medical bills and wrongful death settlements.

The Landlord: Liabilities Galore

As the owner of the building and the person who allegedly oversaw the gas siphoning, the landlord may end up facing several lawsuits and criminal charges over the explosion. For example:

  • The landlord may be responsible for the tenants' property losses. The tenants in the apartment building may sue the landlord over their destroyed property if the lease didn't require them to have renter's insurance. A Lessor’s Risk Insurance policy may offer coverage if that is the case. Read more about the policy in "What Is Landlord Insurance?"
  • The landlord could face criminal charges for siphoning gas. She could face jail time for her actions.
  • The landlord may be named in the wrongful death lawsuit. Even though two people were killed inside the Sushi Park restaurant, the families of the deceased may still name the landlord in the lawsuit (if they decide to sue). Insurance may not cover claims over criminal actions.

That said, the landlord may be able to sue the restaurant owner for negligence. After all, the manager smelled gas but didn’t shut everything off (though the landlord assured him that the smell was being taken care of). The restaurant probably had some open flame in it, which could have ignited the gas.

The General Contractor: Criminal Liability

The general contractor may have done the work of redirecting the pipes that allowed the illegal siphoning to happen. That means…

  • The general contractor may be sued over negligence. The GL policy may offer coverage for the claim even though insurance usually doesn't cover criminal acts. It would be hard for the insurance company to deny the claim when two innocent bystanders died because of the contractor's work.
  • The contractor's insurance may not have high enough limits. Wrongful death lawsuits are extraordinarily expensive. Even if the insurance company does pay the GL claim, the policy may not have high enough limits to cover the entire judgment or settlement amount.
  • The general contractor could face criminal charges. He may go to jail for criminally negligent homicide, for example.

Lessons Learned: Tragedy Is Expensive

Your business could learn a few lessons from this sprawling and complicated catastrophe. Namely…

  1. Insurance typically won't cover claims arising from criminal activity.
  2. When tragedy strikes, everyone becomes a target for a lawsuit.
  3. Wrongful death lawsuits often cost more than typical liability insurance limits can account for.
  4. Unexpected disasters can keep your business shut down for a long, long time.

To make sure your business is adequately insured for out-of-the-park claims, talk to your insurance agent. For pointers on creating a plan to raft your business through a drawn-out disaster, read "What's Your Business Interruption Plan?"

Small Business Brings $65k Lawsuit over Negative Online Review

20. April 2015 08:02

defensive dog

For small businesses, review sites like Yelp, Angie's List, and TripAdvisor are double-edged swords. On one hand, a glowing online review can bring new customers rushing to your door through the power of word-of-mouth referrals. On the other hand, a negative review could send potential customers to a competitor's waiting arms.

So maybe it's not so surprising that a small-business owner might have a strong reaction to a negative online writeup. Some even file lawsuits over one-star reviews.

The Washington Post reports that Colleen Dermott, the owner of Dog Tranquility (a dog-training business), is suing a client for leaving a bad review on Yelp about how her dog allegedly didn't receive the socialization training she paid for and didn't get a refund. Dermott is seeking $65,000 in damages, claiming the false statements harmed the business.

It's not the first time this kind of lawsuit has happened:

Regardless of what becomes of these lawsuits, they can teach you a thing or two about defamation, which policy covers a defamation lawsuit, and how to handle negative reviews.

Defamation: Nothing to Woof About? I Beg to Differ!

As we mentioned in the post "Roger Clemens' 7-Year Defamation Suit Covered by Insurance," defamation refers to false statements that harm the reputation of another person or entity. Defamation usually takes the form of:

  • Libel: written false statements that harm someone's reputation.
  • Slander: spoken false statements that harm someone's reputation.

The key word here is "false." A statement can't be defamatory if it's simply the unsavory truth. However, "truth" can be hard to pin down in these online review lawsuits because the reviews are opinion-driven.

Ostensibly, a court might agree that a public negative opinion of a business can be defamatory because of opinions are subjective. By contrast, a court might rule to protect the First Amendment Rights of the online reviewers.

Which Policy Covers These Doggone Defamation Lawsuits?

If your business faces a defamation lawsuit, you'll want to have your General Liability Insurance handy. This is the only business insurance policy that can cover advertising injuries, such as…

  • Defamation.
  • Copyright infringement.
  • Copying someone's advertising ideas.

In Dog Tranquility's case, though, General Liability Insurance won't cover the lawsuit. That's because a business can only draw on GL's coverage when someone sues it for committing advertising injuries. You can't use any liability policy to bankroll a lawsuit you initiate against another party.

Tips for Staying Out of the Defamation Doghouse

Even if the owner of Dog Tranquility wins the lawsuit, the ordeal might still cost a pretty penny in terms of lost productivity, lawyers' fees, and other court costs. Plus, the lawsuit itself might make future clients nervous about doing business with someone who sued a former client.

So if you start seeing red over a less-than-stellar online review someone left about your business, try these pre-lawsuit strategies to try to rebuild your reputation:

  1. Submit a complaint to the online review site if the review is false or misleading.
  2. Contact the customer and attempt to resolve the problem by offering a solution (e.g., a refund or free session).
  3. Keep all correspondence with customers professional and friendly.
  4. Document your interactions with unhappy clients in case litigation becomes your only recourse.

Remember, there's no insurance policy that can cover lawsuits you initiate. Exhaust all your options before taking (or threatening) legal action over false statements.

The Funding Option 98% of Small Businesses Haven't Tried

17. April 2015 08:13

raining money

According to a recent Manta survey, only two percent of businesses have tried crowdfunding to back them. That's a pretty surprising number, considering the survey also found that 69 percent of respondents think the lending environment hasn't improved in the last year.

But if the majority of small-business owners think the lending well is dry, why aren't more of them exploring alternative funding options like crowdsourced backing? The Manta survey offers some insight...

  • 30 percent of respondents are uncertain of the risks involved with crowdfunding.
  • 20 percent don't understand the technology that funding sites use.
  • 14 percent simply don't trust crowdfunding sites.
  • 7 percent think crowdfunding sites are too complicated.

Meanwhile, 70 percent of respondents have sought traditional banking loans. (And if that's your scene, read about how the SBA is trying to make small business borrowing easier in "SBA's LINC Connects Small Businesses with Potential Lenders.")

If the fear of the unknown is keeping you from exploring alternative options to get your business backed, let this be an introduction to what crowdfunding is and how it can benefit your business.

What Is Crowdfunding?

Crowdfunding is the method of raising money for a project or venture through many individual investors – friends, family, customers, fans, etc. – usually via the Internet. Several sites have cropped up to simplify this process, such as…

The nice thing about crowdfunding is that you don't have to worry about paying back loans or interest like you would with traditional lending. The only "payback" required is that you fulfill the campaign's promised rewards to backers (if applicable). Crowdfunding also gets your community involved, and a successful campaign can generate a lot of buzz around your business's launch or newest product.

Find out how small-business owners like you used crowdfunding to launch their businesses in "Crowdfunding with Peggy Jean's Pies" and "Crowdfunding with Zest Tea."

Tips for Crowdfunding Your Business

There are tons of crowdfunding platforms to choose from, but it's important to do your research before settling on a site. You'll want to know…

  • The fees. The top sites take a percentage of your raised funds (usually four percent of the fund for a successful project) plus credit card processing fees. Factor this figure into your goal.
  • The goals. Some sites let you access your funds even if you don't reach your goal (e.g., Indiegogo). However, you may be assessed a higher fee if that's the case. Regardless, be sure to pick a reasonable goal for your campaign – meeting your goal shows that people want to see you succeed.
  • The restrictions. Some sites only allow US residents to use the platform (e.g., Kickstarter). Others won't allow personal fundraising (e.g., for medical expenses). Lastly, some sites can only be used for certain projects (e.g., raising funds for a charitable cause).
  • The rewards. Kickstarter only requires rewards to be fulfilled if the campaign is successful. Other sites may not require you to offer rewards or perks for backers. However, offering rewards is a good way to get people you don't personally know to back your campaign.

Once you've done your research and found the site that fits your needs, it's time to build a campaign. Most of the major crowdfunding sites offer plenty of pointers for building a successful campaign, so be sure to read the site's FAQ section.

You want your campaign story to strike an emotional chord with backers, so take time writing the content. Make it personal and compelling. Though you want to hit on the technical details of your project and how you plan to use the funds to launch or grow your business, you also want to engage the audience and make them feel a personal stake in your success.

Lastly, don't rely on the platform to market your campaign for you. Spread the word across all your social media channels and highlight the cool perks that come with backing your campaign and what backers can look forward to once your campaign reaches its goal.

How Would Your Business Do in a Phishing Test?

16. April 2015 08:02

keys on a fishing hook

It seems as though data security is all the rage these days – and rightly so. After all, data breaches have become a formidable part of the risk landscape. And some businesses are getting creative about the ways they test their security measures.

According to Advisen, Kansas City auditors conducted a test to see how employees and the IT team would respond to a phishing email attack. Unbeknownst to the employees, the auditors sent a phony phishing email asking for login credentials.

Here are the results:

  • 3,115 fake emails were sent to all city departments.
  • 280 employees fell for the scheme and handed over the keys to the kingdom.
  • Within four hours, the IT staff spotted the phishing email and started notifying employees.
  • It took one day for the IT staff to delete the email from the system so no one else could access it.
  • 30 percent of employees who had clicked the email had not changed their passwords 48 hours after the attack, even though they were instructed to do so.

In real-life, these results could jeopardize the entire municipal computer system – hackers would essentially have 280 chances to infiltrate it.

The report notes that some employees caught on to the fact that the email was a phishing scheme and provided fake credentials. But that isn't the way to go – simply clicking on the email link can introduce malware to the system.

All in all, the test results are a reminder that your business's data security defenses are only as strong as your weakest link. Though you may have the savviest IT team around, breaches often hinge on what your employees do. (For more on that, see "Dating Apps on Your Business Phone? Prepare for Heartbreach.")

Let's review some best practices that you can share with your employees to bolster your data security.

Go Phish: Data Protection Starts with Employee Education

Educating your employees on how to avoid data breaches is one of the most effective forms of risk management. But if you're like most small-business owners, time is a precious commodity. So save yourself some time by sharing these tips on how to dodge phishing scams with your team:

  1. Be wary of email links. As a rule, don't click on email links from people you don't know or if the link is suspicious. For example, a friend or associate's email account may be hacked, and scammers could use the account to send out malicious links. Think twice when a message offers no context and says something like, "Check this out: URL."
  2. Never offer up credentials via email. Legitimate organizations never request sensitive information through email. Company leaders won't ask for that information online, either.
  3. Watch out for scare tactics. Hackers often threaten to disable accounts to get users to give up the information they're after. When in doubt, type in the website URL in the search bar to go check on your account.
  4. Update passwords regularly. Passwords should be complex and updated regularly. For example, "123456" is easy for hackers to guess. Make sure passwords use a mix of capitalized letters, numbers, and symbols. The harder it is to remember, the harder it will be to crack.

For more tips, be sure to read "Data Security: When Malware Training Could Save You Thousands."

Small Business Spotlight: Crowdfunding with Zest Tea

15. April 2015 08:06

Zest Tea logo

James Fayal is co-founder of Zest Tea. Zest Tea offers quality teas that have been enriched with antioxidants and caffeine to provide an extra boost of energy.

We talked with James Fayal about the development of Zest Tea and the decision to use crowdfunding to launch the business. Learn how small-business owners can use crowdsourced funding to build their business. The transcript below has been lightly edited for length and clarity.

Please share some details about yourself. What’s your background?

I graduated from the University of Maryland in 2012 with a degree in finance and joined the Venture for America (VFA) program immediately out of college. The program is designed to redirect top students from the traditional routes of banking, consulting, and law to work at startups in developing cities. In short, the idea is that a smart recent grad will have a more material impact at a small startup in a city like Philadelphia, Detroit, or New Orleans than they would at an investment bank in New York.

How did you conceptualize Zest Tea?

I was working as an analyst at a venture capital firm and working very long hours. As an avid tea fan, I was drinking four or five cups a day. Once I realized I had many hours of work left, I would switch over to coffee or energy drinks for the boost I needed to power through the rest of the day.

I started looking for a tea-based product to provide the boost I needed, but I couldn’t find anything on the market. I realized I wasn’t the only tea drinker begrudgingly switching over to coffee, so I set out to design a new line of energizing tea blends myself.

Is there a story behind the business name?

We were looking for a name that expressed liveliness. After trialing a ton of names, we landed on Zest and it stuck.

What sets you apart from tea sellers?

We use premium base teas and enhance them with a natural tea extract, which boosts the caffeine level to be on par with coffee – that’s about three times the level of traditional teas. Also, the amino acids in the tea have been shown to boost cognitive function and reduce the jitters and crash commonly associated with caffeinated products.

What made you turn to crowdsourced funding to jump start your business?

There was a crowdfunding competition hosted by VFA and American Express around the time I was trying to figure out how to finance the company. I realized it was an amazing way to develop an initial base of customers and fund the initial batch at the same time. When you don’t have any traction to raise money (and little or no personal savings to rely on), crowdfunding is a no-brainer way to get a company off the ground.

What crowdfunding site did you use?

The competition through VFA and AmEx was in partnership with RocketHub, so we were required to use the platform. There were upsides and downsides. The founder of RocketHub worked directly with us and the other campaigns in the competition. At the same time, the site receives relatively little organic traffic compared to the “big two” (i.e., Kickstarter and Indiegogo), so we had to drive almost all the traffic to the campaign, which makes going viral difficult.

How does RocketHub differ from other mainstream crowdfunding platforms?

RocketHub works almost exactly like the larger players. Unlike Kickstarter, you can keep any funds you raise, which is also a feature of Indiegogo. You post a campaign with rewards and people can fund you. Once you receive the funding at the end of the campaign, you produce the product and send the rewards or product to the funders. Typically, rewards are sent a few months to a year after the campaign ends.

What was confusing or difficult about the process?

I wouldn’t say anything was confusing, but you need to be creative. People fund your campaign as much for the story as the product, so you need to create a good video and spend a lot of time developing good copy. I wish we had spent more time before the campaign to spread the word and develop a community, but we were on a rushed schedule.

How did you spread the word about your campaign?

We reached out to some press and bloggers, but had relatively little success. Most of the funders came from our direct network. I developed a lead list of 200 or 300 people I knew and reached out to them before and during the campaign. I used every method of communication you can imagine. Emails, phone calls, texts, Facebook messages – you name it. You need to swallow your pride a little because it’s awkward asking for money, but it pays off!

What was your goal? How quickly did you hit it?

Our goal was $4,000. Just enough to get a small batch completed. We reached that about two-thirds of the way through the campaign and ended up raising nearly $10,000 total.

How did you fulfill rewards to backers? Any challenges?

We had some written cards for smaller funders, but most of our rewards were versions of the product itself. We also had video calls with some of the larger funders and incorporated their advice into our business plan. I think we could have been more creative for some of the larger rewards, but it worked out at the end of the day.

Were you surprised by the outcome of your campaign or its reception from the public?

Absolutely! I knew the product had legs, but it was immensely gratifying seeing the public validate the concept.

Would you use crowdsourced funding again or recommend it to others? Why?

I would absolutely use crowdfunding again. I’ve even thought about doing another campaign to launch new products in the future. It is definitely not a quick buck and running the campaign is a full-time job, so take the time commitment into consideration.

That being said, it can help get your company off the ground and give you time to build traction. Most important, crowdfunding can build a base of brand evangelists. The word of mouth created by our initial funders has led to far more revenue in the long run than the $10,000 we originally raised.

What’s next for Zest Tea?

We’ve had a lot of success selling online, but it’s time for us to move into retail. We hope to start picking up regional and national chains this year. Also, we should start extending our line of flavors later this year.

Tips from Zest Tea on Crowdfunding

  • Build interest. Spend a couple months before the campaign launches to build interest in the product and company. Start a Facebook page, get your friends, family, and network engaged, and launch the campaign with a party. That way you can get a quick boost of funding right off the bat, which will help drive additional traffic. We didn’t pay for any advertising, but reach out to bloggers, press, and any other outlets that you think will give you the time of day.
  • Spruce up your content. Include a lot of information about the company’s background. People want to feel a connection to the company and know what inspired the founders to get started. Develop a quality video and polish the company’s story.
  • Set reasonable goals. Figure out how much you’ll need to finance the project. Once you have that number, you can make a judgment call. If you set the bar too high, it may dissuade people from funding, but that also applies to setting the bar too low. Every company is different.

Check out previous posts in our Small Business Spotlight series for more small business stories and tips.

Court Ruling Extends Definition of Advertising Injury for General Liability Policies

14. April 2015 08:05

judge with a gavel

According to the National Law Review, a recent ruling out of Illinois recognized that product displays could trigger a General Liability Insurance policy's advertising injury coverage. Here's what happened:

  • The company Creation Supply was sued over trademark infringement for using another company's double-ended square marker design in its retail store displays.
  • Creation Supply made a claim on its General Liability policy to cover its legal expenses for the advertising injury lawsuit.
  • The insurer claimed it did not have to defend the company against the claim because product displays aren't a form of advertising, so the GL policy can't cover the lawsuit.
  • The court disagreed with the insurer and ruled that product displays can be a form of advertising and can trigger advertising injury coverage.

So why is this good news for small-business owners? In short, if you rely on product displays or window signs to draw consumers to your door, this case shows that you could face an advertising injury lawsuit over them. This case sets a precedent for interpreting retail displays as a form of advertising, and moreover, it sets a precedent for General Liability Insurance covering a lawsuit over these displays.

This stuff is complicated, so let's review what constitutes as advertising and how advertising injuries affect your business.

First Things First: What Counts as Advertising?

General Liability Insurance forms typically define advertising as any public notice that attracts customers or supporters to your business. That means the following can be considered forms of advertisement:

  • A business's social media pages.
  • Marketing emails.
  • TV ad spots.
  • Social media ads.
  • Radio ads.

The Illinois court ruled that for the purposes of advertising injury coverage, this definition could include product displays, such as placards that announce to the public the kinds of products sold inside the store. However, the following may not count as advertising:

  • Bins full of products and nothing more.
  • Clothing on mannequins with no accompanying signage.

The idea is that simply displaying what you sell isn't advertising. The announcements that accompany those items, however, can be considered a form of advertising.

Why Definitions Matter When it Comes to Insurance Coverage

As you know, insurance policies are legal documents, so the language is precise. If it weren't, there would be too many loopholes and the policy would be impossible to enforce.

When a court interprets a policy's key words, it can fundamentally change the scope of coverage. And that's what happened in the case above. In Illinois, placards in store displays can be considered a form of advertising, and that means businesses can be sued if those store displays cause another person or entity harm in the form of:

  • Slander or libel.
  • Trademark or copyright infringement.
  • Misappropriation (i.e., using someone's idea, likeness, or words without their permission).

These "wrongs" are advertising injuries, and they are surprisingly easy to commit, especially if your business does social media marketing. For example, if you post photos that don't belong to you on your business's Instagram account, you could be sued for copyright infringement, invasion of privacy, or misappropriation, depending on the image.

A competitor can also allege your store's placard uses images of their products. If they sue you over copyright infringement, your General Liability Insurance may provide coverage for your legal defense fees, judgments or settlements, and other court costs.

For an in-depth explanation of advertising injuries and how to avoid them, be sure to check out our free guide Tweet or Twibel: The Small-Business Owner's Guide to Advertising Injury.

Spring Flood Season's Here. Is Your Business Ready?

13. April 2015 08:00

car driving through a flooded street

The first signs of the spring flood season came in mid-March when the Ohio River reached 57.7 feet, its highest level in two decades, according to a report by SF Gate. The melting snow and rainfall swamped roads and forced businesses in low-lying areas of Cincinnati, Ohio, southeast Indiana, and northern Kentucky to a halt.

Other areas of the country may be affected, too. AccuWeather reports that because New England had so much snow, the region might experience some flooding from the thaw and spring rains. That's just more bad news for a region where businesses have already been disrupted from the blizzard conditions all winter (more about that here: "New England Snow and Business Interruption").

On that note, let's brush up on the damage floods can cause and how to protect your business.

Water, What Hast Thou Done?

Though snow and ice pose unique risks (among them, a spike in Workers' Compensation Insurance claims), few weather events have the power to wreak as much havoc as an unexpected flood. For example, a flood can…

  • Warp hardwood floors.
  • Damage carpets and furnishing.
  • Cause structural damage to buildings.
  • Compromise building foundations, triggering instability or partial collapse.
  • Destroy electronic equipment.
  • Cost hundreds of thousands of dollars in cleanup and repair costs.

For a real-world example of the damage a flood can do, read "Flood at UCLA Shows Importance of Updating Insurance Policies."

This may be a good time to remind you that flood damage is typically excluded from your Commercial Property Insurance. That also means that any business interruptions you experience because of flooding won't trigger your Business Interruption Insurance either – that policy only kicks in when a covered property event forces your business to temporarily close.

Does that mean it's lights out for businesses in flood-prone regions? Not exactly – you can always ask your insurance agent to add a Flood Insurance rider to your Property policy to cover your building and its contents. Flood Insurance costs depend on how much coverage you purchase, what the policy covers, and the extent of your property's flood risk.

Does My Small Business Need Flood Insurance?

Adding Flood Insurance to your business protection plan may be a good idea if your business is located next to a…

  • Lake.
  • Stream.
  • River.
  • Coastline.

In reality, your business's proximity to any body of water puts it at risk of flood damage. And as we discussed above, that kind of destruction is nothing to take lightly. According to the National Flood Insurance Program (NFIP), the average commercial flood claim was more than $87,000 from 2008 to 2012. What's worse: the NFIP states that at least 25 percent of businesses that close to handle a flood never reopen.

If you're interested in Flood Insurance, there's usually a 30-day waiting period from the date of purchase until your coverage takes effect. So if you're worried about spring floods, don't wait to talk to your agent about adding on the appropriate coverage.

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