That option should skip all bad urls, even invalid shortcuts to local files (in my tests this works as expected).
In any case, if you do get the dialog, hold the Shift key when you click on Yes to continue, and Ultra Recall will continue answering Yes (without prompting) for the duration of the import operation.
If you can provide a reproducible case where the
Automatically skip unreachable URLs option isn't honored, please zip and send the files necessary to reproduce to
support@kinook.com and we will certainly take a look.