Craft breweries and microbreweries are rapidly growing in the Bay Area and all across the country, but it takes more than a love of hops for your beer business to thrive. The ABD Team knows all about the many risks and insurance concerns that intrepid brewmasters should consider as they’re starting up and growing their business. Here are the eight greatest risks that can tank your beer biz.
#1 Business Interruption
Fire, flood, extreme weather, and earthquakes – all of these can potentially shutter your brewery. And if you’re closed for more than a day or two, it can be devastating to your business. This is a challenging area of insurance because, while it’s easy to calculate the cost of a new roof on your pub after the wind rips it away, it’s far more challenging to assess the revenue that you lost while rebuilding. And it’s even more problematic for start-ups and growing businesses. For example, if your business has to close for six months in the middle of an upswing, should the claim be for the trajectory your income was on or its last monthly sales?
In addition to lost income, when your business goes into a holding pattern, you have other costs to consider. You don’t want to lose key employees (that are not equity partners/owners) so remember to include them under the coverage. This can cover salaries for employees you want to keep warming the bench until you’re back up and running. And you don’t want to lose your client base. An extended period of restoration and extra expense riders on your business interruption policy can help here and with expenses to keep your brand alive, including marketing and PR to ensure your customers that you’re coming back soon.
#2 Property Damage or Loss
As a brewer, your facilities and equipment are your primary assets, along with your store of ingredients and finished product inventory. It’s important that you keep a complete roster of all of your equipment and property from the building you do business in – the desks, tables, computers, cash register, bar and barstools, taps, kegs, and mugs. Everything you touch is an asset that should be covered under your PP&E (plant, property, and equipment) policy.
You also want to make sure your policy terms are set so you will receive replacement cost value in case of loss or damage. You don’t want to be paid out on market value, which is always much lower and typically won’t allow you to purchase an equitable replacement. This is coverage you don’t want to skimp on, as your ability to brew, bottle, pour, and sell depends on it. And when it comes to your inventory, it’s critical that you have your inventory valued at selling price, not cost to produce. This is important because if a batch goes bad, a batch is stolen, or kegs or cases are broken, you lose the revenue you would have earned from selling it, not just the cost of making the craft brew.
#3 Supply Chain Mishaps
A stock throughput policy protects you in case your ability to produce or sell is impaired when something goes wrong along the line of your supply chain. This can cover raw ingredients like hops, yeast, and spices, once ownership transfers to you. So if the hops are yours as soon as they’re cut, even if they aren’t in your hands yet, but they are lost, destroyed, or damaged in transport, you’d be covered. If cases of your suds are damaged or stolen while in storage, you’d be covered. If you ship cases of your best brew to a restaurant, but it’s damaged in shipment, you’d be covered against the loss.
If you lose a specific type of hops so you can’t produce your signature label, this policy will also protect your lost profits. And because the supply chain ends with your finished product, just as with the PP&E policy, you want your inventory to be covered for selling value, not cost to produce. Most PP&E and stock throughput policies do not come with standard language that commits to insuring finished inventory at sales value, but it’s something The ABD Team pushes for when negotiating your policies with insurance carriers because it’s much more beneficial.
#4 General Liability
General liability is a foundational insurance policy and is important for every business, including craft brewers. This covers the most common risks that your microbrewery will face, including slips and falls by customers, and risks such as food spoilage or any claims that your product may have made someone sick (it happens). And do not forget to add Liquor Liability to this part of your policy, especially if you have a tasting room
#5 Patent and Copyright Infringement
In our digital world, this is a prevalent issue. If you’re online, your web presence will widen awareness of your craft brand, which is a good thing, but this can also make it easier for you to be targeted in a copyright or patent lawsuit. One of The ABD Team’s clients unknowingly used Getty images in some of their online advertising – they were a small business and pulled images they thought were royalty-free off the web. There are tons of photos and images online, but they’re often someone’s protected property. Getty routinely scans the web for their images and then demands thousands of dollars for misuse of copyrighted property. This can be a big hit for a small brew house.
You may also face legal claims from competitors. Kendall Jackson sued Gallo over wine label design. It ultimately settled out of court, but if your label or product names have a vibe similar to another craft brewer or, even worse, a large brewing company, you could face a lawsuit. If you lost such a lawsuit, the damages awarded to the other company are just part of the issue – you would also have to rebrand your product, which can be costly. Depending on your insurance carrier and broker, you may be able to have some patent and copyright coverage written into your general liability policy. Then, as you grow your business, adding a full-fledged intellectual property policy to your insurance roster can be beneficial.
#6 Product Recalls
Mistakes happen in business and, depending on the scope, righting the wrongs can be costly. You may need to get a batch of your brew back for many reasons – it could be a mislabeling issue, or someone gets sick from the batch, or you find out after the fact that you shipped a batch that was “off” and don’t want it to ruin your brand. This means you need a product recall. This is a common area of risk for any company that works in food and drink, no matter how large or small. Product recall coverage will reimburse you for the cost of recovering the product, including manpower and transportation to get it off store shelves or out of inventory if you sell to restaurants and retailers.
It also covers the cost of destroying the batch and disposing of it, and can even reimburse the cost of public relations efforts to make sure your brand value doesn’t decline because of the incident. You may be able to get this coverage added to another policy or a policy may come with it already included. A knowledgeable broker will assess your risk and advise if the amount that comes included with your other policies is enough, or if you need higher limits. For larger brewers, you may need a more robust policy because of the size of a potential recall, which can be accomplished with a standalone policy.
#7 Employee Injury
Workers’ compensation is a straightforward, basic policy that every business with employees needs (if it’s just you brewing in your garage, it can wait). But at ABD, what we do is farther reaching and helps reduce your risk of claims. We can help you write your safety program if you don’t have one, or review the one you have and make suggestions to improve it based on our experience with clients in your industry. A well-crafted Injury and Illness Prevention Program (IIPP) can prevent or reduce worker injury incidents and claims. And when you do have a claim, we advocate to get those resolved and closed as quickly as possible. Then we also look into why the incident happened and how you can prevent it in the future.
If your brew house has been in business for several years, we may be able to save you money retroactively. We go back and look at your experience modification – this is essentially how much your workers’ comp policy was used, making it like a credit rating of sorts that determines how much you pay. We check for claims that were not recorded properly, look to see if your reserve was set too high, and look for claims later found to be the fault of a third party that were never updated with the workers’ comp board to reduce your experience modifier. When we take on new clients and go back to dig into their workers comp history, we are able to get premiums returned in about 25% of cases. That’s money you can put back into your craft brewery.
#8 Data Breach
This is an often overlooked area of risk and, even if your craft brewery is not the most tech-savvy, you likely still have exposure in this area. Cyber liability coverage is critical if you accept credit cards (and who doesn’t). When you hear data breach, you probably think of big firms like Target or Home Depot, but these days, most companies maintain digital information that can be subject to a breach and open you up to liability. A disgruntled or dishonest employee could take digital records or outside sources could hack you. The cost of this coverage is negligible compared to the potential risk that comes with data.
A cyber liability policy also covers you if your employees’ personal information got out and they were hit with identity fraud. You likely have social security numbers and direct deposit bank information in your employee payroll files. If there’s a breach, you have to defend it. Even if the breach doesn’t result in a judgment against you, the costs of defending it can be crushing. A simple defense in court can cost $5-$10k and a larger breach that includes more incidences could see a $100k lawyer bill. That’s enough to put a growing company out of business. In the digital age, this coverage is key.
The Bottom Line on Liability
As a craft brewing business owner, you’re trying to keep expenses low so you can grow your business. We get that. Here at ABD, we take the time to get to know the ins and outs of your business so we can best advise you on how to affordably protect against your most likely business risks. Insuring your premises, workers’ comp, and your product chain are critical and basic coverages. From there, we show you the buffet of coverage that’s available, then tell you realistically what the cost/benefit of each can be. We want you to have peace of mind that your craft brewery is protected without making you insurance poor.
If you own or are starting up a craft brewery or micro brewery, The ABD Team can help you put together an affordable coverage package that will protect your business and support your growth. Contact us to learn more.