Vape Radio 58: Interview With Sarkis Kaladzhyan, President of CalCo Insurance

By September 1, 2015Podcasts

  • If you are in the vape space business, you are at risk in many areas
  • Do you sell “premium” e-liquid? You can get sued for that!
  • If a customer claims to be “sick” because of your e-liquid, you can be at risk there, too.

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Paul:

Welcome back to Vape Radio, your source for everything you want to know about the business of vaping. Whether you’re a brick and mortar location, developer of e-liquids, online marketer or anything else in the vape space, learn from the best. The first and the largest educational providers in the country with your host and founder of VapeMentors, Norm Bour. Hey, Norm.

Norm:

Hey Paul, thanks a lot. Welcome everyone to Vape Radio. This is episode number 58 and if you listened to episode number 57, you heard some really amazing good stuff about the state of the market and the fiasco in New Jersey and go back and listen to it if you haven’t. We’ve got some interesting things coming up but first I want to share with you a little bit of information about one of our favorite sponsors here and that is a name you all know, it’s called NicSelect. The best margaritas, they used top shelf tequila. If you use a cheap stuff, you’re going to ruin a perfectly good margarita and you don’t want that. The same is true of nicotine, you can ruin a perfectly good e-liquid by using cheap nicotine that overpowers rather than enhances the overall flavor and experience. That’s why we here at Vape Radio support NicSelect.

You can actually taste the difference in their quality. The subtle flavor delivers a smooth throat hit which is why pharmaceutical grade nicotine should do the job. Put simply, you don’t want to taste the nicotine. You don’t want a peppery taste when you’re vaping strawberry and they deliver without harshness or its peppery aftertaste. It blends beautifully with other flavors whether they’re fruity or minty, sweet or salty and that’s why it’s used by many of the top e-liquid brands like Cuttwood and Space Jam. Demand has been so high for NicSelect that they’ve increased their production. You can get a blend in with either 90% PG or VG and sizes from 5 gallon pails to 275 gallon totes. Check at all the e-liquid brands on the NicSelect website to see if your favorite brand is there and if it’s not, you need to ask them “Where is your nicotine coming from?” The best e-liquid makers select only the best nicotine and that is NicSelect. For more information, go to NicSelect.com.

We have an interesting interview coming up. It’s one that maybe you don’t intentionally go out and seek information on them unless you’re in the industry but it’s really about liability. For anyone who is in the B2B market or actually in the B2C market, you are exposed to risk at so many levels like you can’t even begin to explore. As I interview Sarkis with Calco Insurance, we kind of kept going down this rabbit hole. We actually went a little bit longer than planned so make sure you stick around with it. I’ll go ahead and queue us up here and listen to us talk about the liability and the risk in the e-liquid and brick and mortar market.

One of the things that we don’t talk about but needs to be discussed is the liability and the exposure that we have in the vaping industry. It’s a fine industry, there’s no question about it but you who are listening right now, if you’re on a brick and mortar store, you are exposed to liability. If you are in the e-liquid market, you absolutely are exposed to liability. Today, we’re going to be talking about the things that, you know what? We really don’t want to talk about but they need to be discussed and that is insurance and liability. I have on the phone right now, Sarkis, the man who goes by one name and he’ll tell us why in a moment. Now he’s with Calco Commercial Insurance. Sarkis, welcome to Vape Radio.

Sarkis Kaladzhyan:

Thank you for having me, Norm.

Norm:

Tell us a little bit about yourself and Calco Insurance so we at least have a little foundation.

Sarkis Kaladzhyan:

Sure. We specialize in the vapor industry. We’ve been specializing in the vapor industry since 2008. What makes us unique is that our entire broker just focus on the vapor industry. About 99% of the business that we write is vapor related. The key aspect of what we offer is that we make a distinction between tobacco products and vapor products and this is where we provide coverage. In other words, if we were to treat the product as a tobacco product, you would have a tobacco exclusion that says cancer or heart disease or any other diseases excluded which is not the case in our policy.

Norm:

That’s excellent. All right, so there’s a lot of things that you kind of mentioned up there and I want to go back to. First of, in 2008 the industry was very much in its infancy. How did you get involved so early and did you recognize something that was going to be growing as significantly as it has?

Sarkis Kaladzhyan:

Absolutely. We saw the potential. Initially, because we specialize on product liability. That’s how we wrote our very first policy. Unfortunately, when we wrote it, there weren’t much options and the insurance company did class our client as a tobacco manufacturer/distributor but we disagreed. We said there’s no tobacco here, just because the product contains nicotine doesn’t make it a tobacco product. There’s no loose leaf tobacco, there’s no filter, there’s no paper. This is a technology product and not a tobacco product. After many … There’s millions of dollars of premium on the books, we’re able to go to the insurer and better explain to them that this particular industry does not deserve a tobacco exclusion.

Norm:

I wish we can have that same discussion with Google and with eBay and with Facebook and all these other entities out there that unfortunately classified vape products as the vape tobacco products because unfortunately they are putting us in at very negative space. When you say that 99% of your business is vape related, can you kind of breakdown what percentage of that is brick and mortar and e-liquid and I guess there’s probably some other companies that you’re involved with as well, is that correct?

Sarkis Kaladzhyan:

Correct. I would say, at this point maybe about 30% of our business is e-liquid, another 30% are distributors or now I’d say maybe about 50% and then the rest would be the vape shop. Of course, vape shops are new category, they really started just a couple of years ago. I remember, we probably insured the very first vape shop.

Norm:

Wow. I don’t often get surprised but the fact you say 50% of your insured clients are distributors, that surprises me Sarkis. Could you tell us why distributors are so high and what kind of exposure they have? Because I don’t think they’re aware of it.

Sarkis Kaladzhyan:

Well, I think it’s because we’ve been in the industry so long, longer than most people have been vaping. We have a particular clientele base and just if you go back several years, you didn’t have the retailers and you didn’t have the e-liquid manufacturers. Of course, if we have the same conversation 2 years from now, those percentages are going to change. You’re going to have a lot more retailers and probably a little less distributors but I think the e-liquid manufacturer clients will also go up.

Norm:

Yeah. We tracked the e-liquid manufacturers very significantly and that has been far and away the biggest growth. As a matter of fact, on the show we’re going to be having an interview with one of the, what we call the Masters of Vape. We’ve estimated that there’s 5,000 to 8,000 different e-liquid manufacturers out there. Of course, they vary in sizes, you have your mega-players at the top and you have your novices at the bottom and you have your [inaudible 00:07:43] in between. The e-liquid market, from most people’s perspective they think that the e-liquid manufacturers have the greatest amount of exposure. Would you say that that’s correct or would you say that that’s not correct?

Sarkis Kaladzhyan:

Yeah. Interestingly enough, anybody in the chain of commerce, any company, any one person is going to be dragged in into a lawsuit. When it comes to exposure, what happens really at the end, let’s say e-liquid company sells their product to a distributor and then the distributor takes the sells to a vape shop, everybody is going to get sued, it’s only at the end of the lawsuit after … Everybody has to of course have their attorney and there’s going to be legal fees of course but at the end it’s when the judge is going to decide what the market share is of each particular entity involved in the lawsuit. To the retailer they might give less, to the distributor they might give less and then the biggest portion of the judgement would go to the e-liquid manufacturer. If fact, it is e-liquid manufacturer’s product that started all of it.

Norm:

For those of you who are listening and who may be young which is probably most of you, if you’re under age 35 I’m going to consider you young, what he’s describing is fairly common in the world of litigation. Whenever someone sues anyone, they’re always looking for what they call the deep pocket who has the money so they will depose and they will look for anyone and everyone in the chain of command and chain of custody. What he’s saying is absolutely true, not just in the vaping world, pretty much in any world whatsoever. Let’s talk about who is going to be the potential pointes? Who is going to sue one of these entities and what would be their cause of action? What is the complaint that they are not happy about that would cause anyone of those entities whether be an e-liquid company, a distributor or a brick and mortar company? Why would they be sued? For what cause?

Sarkis Kaladzhyan:

Well, I think for now, what we’re going to be seeing and what we’ve seen so far have been consumer rights violation lawsuits. In other words, I’ll give an example of a lawsuit. Somebody can say, “Well, I purchased your liquids because it said premium on it. And I didn’t purchase another brand which actually cost less. Because you don’t have any proof, any legal proof or any scientific proof of what makes your liquid premium, you violated my consumer rights by misleading me into purchasing your product.” That right there is a really, really good example.

Norm:

That is quite ironic because one of the articles that I’m putting together for Vape Magazine actually talks about that. It talks about how do you define premium because as I’ve discussed in the past 55+ shows on Vape Radio, we are becoming nation of kind of source and a lot of people are trying to tap into that by claiming they have this “premium product” and organic is another word that’s often abused. That’s fairly easy to define, it either is or is not organic, it’s either you are DA approved or is not but a lot of people are kind of abusing that word. Understand that a lot of people or maybe not a lot of people but people have sued over what they consider medical injuries or medical claims because they think that the product has actually caused them harm. Can you share a little bit about your experience in that and what kind of supposedly harm are they having?

Sarkis Kaladzhyan:

We’ve had a scenario where somebody’s alleged that their product caused cancer. Thankfully, it didn’t go anywhere because this person arose, “Well, I smoked your product for you know, 6 months and now I have … I’ve been diagnosed with cancer.” While this is a person that also admitted that they’ve been smoking for 35 years. This person eventually went away but the claims that we have actually handled and paid out on have main … From product defects and not health hazards. We’ve had situations where a pen blew up in somebody’s face. Of course, you either have to engineer the pen to make it blow up or you have to puff on it so many times to make it blow up. Unfortunately, if you don’t have warnings and instructions that specifically state, “Do not take let’s say more than 10 puffs in 1 minute” or there’s something like that, the liability is on you whether they misuse it or not. Because the strict product liability law states that you have to provide user instructions or warnings including how not to use the products.

I hate to say this on the show but personal massagers even have, and I know this because now I look at every possible warning on every product I ever purchase or look at, massagers actually have something that says, “This is not a sex” or something to that extent. In this country, it’s really ridiculous. I was actually driving the other day and I saw accident, there was one of this new Ford Mustang like a modified version and I thought about, I’m like what probably be next is some attorney suing Ford Motor company saying, “Well, you did not advise the driver not to accelerate, you know past 4,000 RPM and not to drive…” Understand what I’m saying?

Norm:

It is exactly what you’re saying. What basically happens is that the world has always been looking for someone else to blame and we’ve kind of lost a little bit of our sense of self-responsibility.

Sarkis Kaladzhyan:

Exactly.

Norm:

We can’t certainly get off on that dungeon because political correctness comes in to that equation. A lot of things that we could probably spin off into a whole different show. One of the things that I wanted you to share is that you and I had a discussion several weeks ago about some of the changing guidelines with some of the larger insurance companies out there. You said that it was getting a little bit more challenging to find insurance because they’re starting to change the way they look at the industry. Can you share what kind of changes might be here and what type of changes might be coming in the future, Sarkis?

Sarkis Kaladzhyan:

What’s happening now is that insurance companies and the writers are understanding this product more because it has become more mainstream, they have better access to the industry. A trade show is one example of that, we didn’t have trade shows several years ago and now we have vape specific trade shows.

Norm:

Lots and lots of them.

Sarkis Kaladzhyan:

Right. Exactly. I used to go to the only 2 that used to, that are still around and that was it. Now, if I try to make it to every possible show, I don’t think I’d ever make it home. In terms of what’s happening is, for example, several years ago when we were able to rank covers for the vapors industry, there was no exclusion for Diacetyl and now there is exclusion. There is an exclusion for Diacetyl. This is how the underwriters are basically catching up with the industry. I think as further along we get and the more information the underwriters get, the more restricted it’s going to be. Now, the only thing that the industry can do is have proper warnings and instructions because if they, if the insurance company starts paying out on certain type of claims that could have been avoided by the use of instructions, guess what? Those particular exposures will be excluded and maybe 10 years from now, the vape policies are going to be just like the tobacco policy where we’ll not cover any health-related claims.

Norm:

Let me cut in. Has there been any substantial victories by a point of against some entity of the vape space or a liability that the court ruled in their favor?

Sarkis Kaladzhyan:

No. No. Thankfully not.

Norm:

Okay. That’s good.

Sarkis Kaladzhyan:

We don’t want a legal precedent against our industry, of course, it’s going to affect my business as point of fact. In effect, a lot of stakeholders in system which is obviously the entire vape industry. What has happened is there are several lawsuits against various companies in the vapor space including one against or I think there’s 2 against Blue and then there’s another one against a smaller company. These lawsuits are really just consumer rights violation. Somewhat successful and some other goes back to again, consumer rights violations. Well, you didn’t tell me to hold your product to go or that was a case that ends your way to a lawsuit that I think it’s still pending and hasn’t been served but I could be wrong. It could get a lot worst because it’s …

Norm:

Attorneys themselves are getting more and more information on the industry. They’re understanding more and more about the industry.

Sarkis Kaladzhyan:

Yeah. This harken back to what I said earlier about the deep pockets. A company like Altria or Luer Lock or Reynolds, they’re more likely get sued because an attorney is going to do this on a contingency and they’re willing to throw us something against the wall in a hope that they win a multi-million dollar suit. If you are at Joe’s vape shop over at Main street and you’re not doing anything in the way of beyond a certain amount of business, it’s not that likely you would be sued. However, if you sell a name brand product and they feel that that name brand product is what caused them harm, they’re going to sue the name brand product, they’re going to sue you, they’re going to sue who you got it from and so the chain of command is going to be very, very significant. I want to bring up 2 points before I can wrap this up. You brought up the situation of where someone could potentially sue a hardware manufacturer, even the seller of that piece for the product that blows up.

Of course, there’s no great surprise, products do blow up. Batteries are volatile, they’re volatile cellphones, they’re volatile on computers, they’re volatile on automobiles. As a member of the media, I actually disdain the media that loves to jump on that bandwagon and from what all indications are, most instances of something like that is usually user error as it almost typically is. The problem is, ladies and gentlemen is that even though your customers might in fact do something wrong, there’s a possibility that you could still be drawn into their being idiots. Absolutely and specially if you look at our wide variety of products that are sold either online or at stores and you just look at the packaging, there’s barely any warnings or instructions.

One of the biggest issues is that there is no warning and this is when it comes to hardware, there’s no warning that says, “Do not charge with any other charger other than the one provided with this device.” We actually have some claims because of this.

Norm:

Interesting.

Sarkis Kaladzhyan:

Certain chargers emit higher amount or lower amount of currents which either overcharges or tricks the circuitry in the hardware of thinking, if the current is low it might trick the circuitry into thinking that it’s not getting enough power so it continues to accept the current and continue to charge and charge charge and charge to the point where it may potentially explore. If it’s maybe, it was left under the sun and it’s charging in the car in a real high heat, like you said there are volatile, thing’s going to happen and … The exposure is there basically.

Norm:

Yeah. I’m going to go ahead and make sure that this is very clear for those of you who are listening. I’m an android phone user and if I’m out somewhere and my phone needs to charge, I can find another android phone charger and not have too much of problem. If you’re an iPhone user, the same thing. They’re pretty much universal. A word of caution, if your vaping device came with its own charger which of course, it did, be smart, keep that charger with you, take it with you and don’t be using any other charger. I mean, if you need it for a short period of time, that’s fine but if you’re staying over somebody’s house and you ask to borrow the charger and keep it charged all night, just be aware that the circuitry might not be designed for that. In closing, I want to give you a little pitch. Sarkis, I can’t pronounce your last name but you probably can. Can you share that with us?

Sarkis Kaladzhyan:

Kaladzhyan.

Norm:

Kaladzhyan, okay. It’s a lot easier to pronounce than it is to spell, that’s for darn sure. I know that you are the preferred insurance agent for the SFATA organization. Can you share with us a little bit about your involvement with SFATA because that’s a wonderful testament to you. That’s why we have you on our resource page over VapeMentors.com because we’re looking for people who we trust. You can be someone that we can refer to and so far we’ve got several clients that have been to you and they’ve had exceptional treatment so thank you for that. You do a lot of business with SFATA members.

Sarkis Kaladzhyan:

Yes. A lot of the members do reach out to us. In some cases, they come to us through their brokers because we’re not just direct to consumer, we also work with other brokers. As far as our involvement with SFATA is concerned, basically we’re there when SFATA was just formed. Because I decided that we’re going to have, our focus is going to be the vapor industry and the only way to do it … Trust me, insurance is boring so …

Norm:

You’ve actually made it very exciting, I have to tell you. This interview have gone on much longer than most of them but I find this information fascinating and I’m sure our listeners are as well.

Sarkis Kaladzhyan:

Yeah. I decided that if we’re going to be a stakeholder, and I do believe really strongly in the industry and what it’s objective is, I decided to be as supportive as possible with SFATA. In fact, I personally flown along with my associates to Washington DC. We’ve had at least 7 or 8 meetings, at various congressional offices. That’s part of our lobbying effort. We’ve done it here in the states, I reached out to various government officials. They’ve all been surprisingly very receptive and because I give them the risk manager’s point of view, they actually listen to me. If there’s anybody who is in the vapor industry whether you’re making e-liquid or a distributor or vape shop, join SFATA. Don’t join SFATA because you’re going to get some kind of an insurance discount or you’re going to get something out of it like immediately, you would have to go in SFATA for your own good and for your own future. Because I don’t know of anybody else that has made such a significant effort.

I mean, just recently we sponsored their Spring Conference which is in Evanston and they brought on the Director of the Tobacco Department at the FDA, Mitch Zeller. In which, Mitch Zeller actually stated, he said, “Nicotine doesn’t kill people. Tar kill people. Tar is what kills people.” They came to SFATA.

Norm:

Thanks to you and I totally agree with you, they’re great supporters of the industry and we support them as well. In closing, let’s make sure that we give everyone the proper contact information for you. They should go to your website or give you a call. For those of you who have brick and mortar stores or you have distributorships or you’re linked with companies and you want to get on to it, you can get a hold of Sarkis and he will give you an estimate on what insurance will cost. Can you give us a rough idea if there is such a thing as a ballpark idea. Someone is opening a brick and mortar store, can you give us his any idea of what an annual premium or monthly premium would cost just to give yourself a certain secure degree of protection?

Sarkis Kaladzhyan:

Well, we offer 2 different programs and the reason we have them to 2 different ones is because not everybody can afford the product liability policy or the policy with product liability. Our 2 programs are both general liability package programs and that [inaudible 00:25:07] included, inventory and the contents and so forth. One’s about $2,000 a year and the other one would be about $7,000 a year. The only difference between the 2 is that one has product liability and the other one does not. Oftentimes, I hear, “Oh my god. $7,000. I used to own a body shop and my insurance was $25,000 a year. How can this possibly be so expensive and this is just a little juice that I’m selling with the device I’m helping people quit smoking.” Well, the answer to that is people are inhaling this product. They are coming in contact with their lungs, they’d go into their blood, bloodstream to their organs, to their brains. You’re in the big tobacco’s sandbox.

These numbers that I give are, there are package where they include liability and property. Any other insurer out there starts their policies at $10,000 a year and above. In addition to that, they actually exclude e-cigarettes from providing any kind of health hazard coverage. They treat it as a tobacco product. Because we write so much business, because we do program business, our rates and our coverage is so much more better. I can compare it to, if you go out and buy yourself individual health policy, it’s going to have a high deductible, it’s going to be very expensive versus you being part of a group. That’s what we’ve been managed to do for the industry. We give our customers the best of both worlds.

Norm:

That’s excellent. Sarkis this has been a very fascinating interview. If someone is get a hold of you, what is your website and what is your direct phone number, sir?

Sarkis Kaladzhyan:

Our website is easy to remember, it is EcigaretteInsurance.com. For anybody who wants to call us, it’s (877)225-2699. I’ll repeat that, it’s (877)225-2699.

Norm:

That’s excellent. For those of you who don’t want to write all that down or have not written it down, you can just go to VapeMentors.com, look under resources and you’ll find the information there for CalCo Commercial Insurance. Sarkis, thank you so much for joining us here on Vape Radio and we’ll see you next time.

Sarkis Kaladzhyan:

Thank you for having me, Norm. Thank you very much. Bye bye.

Norm:

Well I tell you guys, again, it’s not the most exciting topic in the world but it is something that needs to be discussed so hopefully you enjoyed it. If you have any questions or comments, just go in and send us out here at VapeMentors.com, otherwise, do not go away because we have a 2-part interview coming up with Austin Hopper with the name of a company that I’m not going to share with you. You just going to have to come back in just a moment so don’t go away. Paul, give us our after music.

Paul:

You’ve been listening to Vape Radio, your source for everything you want to know about the business. Brought to you by VapeMentors.

Author: Jesse Plautz