Note from Ashlin Hadden Insurance: We are incredibly honored and excited to be speaking at the Evolatam Expo in Mexico on February 15th-16th, 2023. It’s a great opportunity for sellers to network, get great insight from thought leaders in the eCom community, learn the benefits of sourcing in Mexico, and find suppliers. While this article is a good overview regarding business insurance, I will be speaking more in-depth about the benefits of protecting your business and finances. If you are interested in this trip (and could use a good tan!), hop over to https://evolatam.com/product/evolatam-event-ticket/ and register your seat!
Here’s a list (in no particular order) of things people generally hate doing: Going to the DMV, staying overnight in a hospital, sitting on a plane on the tarmac, talking about insurance. To be fair, some people like the topic of insurance, but it’s either because they are complaining about their premiums, or they are insurance agents.
The reality though is you can’t pursue the things you love while avoiding the things you don’t. Want to drive? You need a license. Want to travel? You need to put up with delays. Need to be healthy… well, you get the point.
This is particularly true if you are an entrepreneur and own a business. While talking about business insurance is enough to make anyone want to stick their head in a blender, it’s incredibly important that you protect your company, your assets, your finances, and your employees.
Nobody needs to tell you that we live in a “sue-ready” society. Even if you are selling socks, you still need to be prepared for that one customer to come out of the consumerist woodwork and claim your product injured them or their property.
In this blog, we answer some of your post-pressing questions, like:
- What’s the difference between general liability insurance and product insurance?
- Why do I need insurance to sell on Amazon?
- If I sell a safe product, do I still need product liability insurance?
What Is General Liability Insurance and Do I Need It to Sell on Amazon?
The answer to the latter question is, “Yes, you need General Liability Insurance if you sell products on Amazon. It really doesn’t matter what your business model is – Private Label, Online Arbitrage, or Wholesale; if you have a professional Amazon account, you need to protect your business in the rare event that you get sued.
For years, Amazon didn’t require sellers to carry insurance but in August of 2021, that all changed. Why? Because, while Amazon was used to being sued for defective products, their winning streak came to a halt when they lost in the very public case, Bolger vs. Amazon.com.
Amazon Changes Insurance Policy After the Case of Bolger v. Amazon.com
In 2020, the California Court of Appeals ruled in favor of a plaintiff who sued Amazon for a defective battery. Bolger contested that Amazon charged her, retrieved the battery from their warehouse facility, and shipped it to her. A few months after receiving the battery, it exploded, and she suffered third-degree burns as a result.
Bolger sued Amazon and several other defendants (including the company that sold the product), claiming “products liability, negligent products liability, breach of implied warranty, breach of express warranty, and “negligence/negligent undertaking.”
After their loss, Amazon changed their Terms of Service, stating that any business whose revenue meets or surpasses $10K a month must carry commercial general liability insurance that covers up to $1 million per occurrence and protects against product defects, bodily injury, and property damage.
What Are Insurance Coverage Requirements for Amazon Sellers?
Because of all the varying types of commercial business insurance policies available, you may be overwhelmed trying to decipher what kind of coverage is necessary. According to Amazon’s bylaws, the type of insurance coverage you need to sell on Amazon is as follows:
- Policy type can be either commercial general, umbrella, or excess liability insurance and must be written on an occurrence basis;
- Your insurance provider must have global claim handling capability and a financial rating of S&P A- and/or AM Best A- or better (if S&P or AM best is not valid or used in the country where you are required to obtain insurance, a local equivalent is allowed);
- Your insurance provider must give Amazon at least 30 days’ notice of cancellation, modification or nonrenewal;
- The policy must name “Amazon.com Services LLC., and its affiliates and assignees” as additional insureds;
- The deductible for any policy(ies) must not be greater than $10,000 and any deductible amount must be listed on the certificate(s) of insurance;
- The policy must cover all sales from products you have listed on the Amazon website;
- Your insured name must match the “legal entity” name you provided to Amazon (To view your legal entity name, see your Account Info page);
- The policy must be completed in its entirety and signed; and
- The policy must be valid for at least 60 days from the date of submission.
It’s important to note that Amazon is not concerned with what’s best for you and your business. Their updated insurance policy for Amazon sellers is self-serving. Simply put, Amazon does not care if you get sued; they only care that they don’t. Because they don’t have your best interest at heart, their requirements for insurance may not be enough to protect your Amazon business and company finances.
We’ll cover other means of ensuring your business, but first, let’s do a deep-dive into what general liability and product liability insurance covers.
What Does Commercial General Liability Insurance Protect My Business From?
What liability insurance covers is fairly straightforward. What liability insurance doesn’t cover, isn’t. And it’s important you understand the latter.
General liability insurance protects you and your business in the unlikely event that:
- a) Someone gets injured while using your product
- b) Someone’s property gets jeopardized because of your company or product.
It’s the first line of defense against lawsuits and other damaging business exposures. General liability insurance covers four main areas:
- Bodily injury or illness claims from a customer or anyone that has experienced a negative interaction with your product.
- Any property damages that occur as a result of your product or business.
- Any claims of slander, libel, or copyright infringement made against your company.
- Emotional damages or loss of income as a result of using your product
What is Product Liability Insurance?
And how does it differ from General Liability insurance? These are questions that we at Ashlin Hadden insurance get a lot, and hey! We get it! It can be confusing.
Much like Business Liability insurance, Product liability coverage protects your business in the event that a product you sold causes bodily harm and/or property damage. The difference is that product insurance specifically covers design and manufacturing defects. Examples include a space heater glitching and catching a customer’s house on fire or a part of a toy breaking off and choking a toddler. If a product was designed poorly or wasn’t manufactured properly and a buyer is harmed and opts to sue, product liability insurance will cover:
- Your legal fees
- Medical bills of the customer
- Any judgements or settlements
It can be used for the following:
- Accidental defective design
- Hidden defects like toxic chemicals
- Failure to warn, which means not giving enough instruction or warning for product use
If you don’t have product liability insurance, these costs come out of your own pocket—costs that most sellers can’t afford to absorb.
Do I Need Liability Insurance If I Don’t Sell Dangerous Products on Amazon?
If you sell Amazon products in potentially dangerous categories such as in the Grocery, Baby, Toy, or Electronics category, it’s probably a no-brainer that you need liability insurance policies. But what if you sell products that are “harmless”? What then?
Let’s check out two cases in which a seemingly harmless product ended up being the cause of a very expensive lawsuit.
In 2009, player Francisco Garcia of the Sacramento Kings was balancing on a Ledraplastic balancing ball when the ball popped, and he was injured as a result. Garcia fractured his right forearm, making him ineligible to play for the first four months of his first-year contract with the team. The Kings and Garcia filed a product liability claim against Ledraplastic, requesting $4 million in lost salaries and $29.6 million in damages. He won.
Here’s another example: The Center Chemical Company made a drain cleaner that was almost pure sulfuric acid. (Yes, sulfuric acid can be dangerous, but this isn’t about the actual liquid). While working at a restaurant, plaintiff Archie Parzini, tried to open a bottle of cleaner. But the top was stuck. He requested the aid of a coworker who eventually pried the lid open with pliers. The solvent shot out and hit Parzini’s in the eyes. It blinded him. He sued the Center Chemical Company, claiming the product was defective. Even though the bottle had a warning label on it, the court agreed with the plaintiff that the packaging was defective and Parzini won.
What’s the moral of these stories? Something as seemingly innocuous as a balancing ball or a bottle can malfunction and harm an individual, thus making you a sitting duck for lawsuits.
Even if you aren’t selling on Amazon (or any marketplace/platform that requires liability nsurance), you should still ask yourself the following questions?
Does my product…
Go on the body, in the body, touch food or drinks, plug into walls, have a motor, require a battery?
Is my product…
Used by children, pets, athletes, sick people, or old people?
Can my product be….
Breakable, a choking hazard, flammable, used as PPE, used as a weapon, installed or built by the consumer?
Bottom line: While you may think your product is safe, it may not be. Is it really worth losing your business and/or income because you assumed your product couldn’t do harm?
Aside from Liability Insurance, Does Amazon Require Any Other Kind of Insurance Policy?
No. Other than General and Product Liability insurance, Amazon does not require you to have any other kind of insurance coverage. But, again, that’s because Amazon is only concerned about covering themselves in the event of a lawsuit.
Amazon does not have your best interest at heart. The question is, do you?
What happens if a bunch of pallets of your products get damaged in transit? What happens if you get hacked and your clients’ private information and bank information is compromised? What happens if your 3PL damages your inventory and they don’t have warehouse coverage? What happens if an employee gets injured on the job?
That’s a lot of “what ifs” that you wouldn’t have to worry about if you had umbrella insurance or other types of insurance coverage like cybersecurity, cargo, worker’s comp, and inventory. Plus, these additional plans have relatively inexpensive premiums – particularly if you compare those costs to the cost of business interruption or legal fees.
Ashlin Hadden Insurance has been in the Amazon and eCommerce industry for years and has saved hundreds of businesses from lawsuits for those very things. Plus, you may think you understand your insurance coverage, only to find that there are many lapses in it that make you vulnerable to claims.
Contact us at [email protected] for a free consultation to find out exactly what you are covered for (and what “holes” in your insurance coverage are leaving your exposed).
Ashlin Hadden will also be speaking at the Evolatam expo to answer more of your insurance questions. You can get a $500 discount when you purchase your tickets by using the code: ASHLIN.