Amazon Liability Insurance 2020: When, Where and How to Make Sure Your Business is Protected

Think about the most dangerous, liability-inducing product you could theoretically sell on Amazon.

A few things probably come to mind...

• Guns.
• Fireworks.
• Matches.
• Industrial chemicals.

The chance you’re selling any of these products is close to zero. In fact, you’re likely selling low-risk products like toys, household products, or kitchen items. Many e-commerce sellers don’t think they need to carry a business insurance policy because the cost outweighs the chance they’ll ever have a problem.

Here’s the truth: Most e-commerce business owners don’t sell blatantly dangerous items, but it doesn’t mean they don’t have liability. All it takes is a bad grocery item or a toxic lotion to put a small store out of business.

In fact, in 2014 the U.S. 3rd Circuit Court of Appeals took on the case of Heather Oberdorf, a woman who purchased a dog collar from a third-party Amazon seller. While she was walking her canine the dog’s collar broke, causing the leash to snap at high speed and damage Oberdorf’s left eye. She sued both Amazon and The Furry Gang (the third party seller) for damages, claiming both entities should be liable for the defective, dangerous product. Read more here: https://www.theverge.com/2019/7/3/20681301/amazon-federal-circuit-ruling-liability-defective-products

The Furry Gang (an LLC registered in Nevada) did not have liability insurance and vanished without a trace. Not even a private investigator from Amazon could find a member of the LLC.

Unfortunately, most sellers cannot run away when a liability issue arises. The resulting cost can be tragic. It doesn’t matter how big or small an Amazon business is; there is always a risk when the general population is using your products. The only way to fully protect business assets is to carry full business insurance.

 

When do you need liability insurance for Amazon?

Do you…

• Have a Professional FBA Seller account?
• Have more than $10,000 in sales per month?
• Sell topical items (products applied to the skin)?
• Sell consumables (products customers eat)?
• Manufacture your own items?
• Buy wholesale or private label items from China or another foreign country?

If you meet any of these criteria, liability insurance is a requirement for your business.

 

What type of liability insurance do I need?

Sellers have vastly different insurance needs depending on business size, structure, number of employees, etc.

For example, an amazon seller who has a dozen employees working in a large warehouse needs a much different insurance policy than a small business that ships products once a week. It’s best to talk to a knowledgeable insurance agent to determine exactly what kind of protection your business needs. You may need multiple types of policies if you’re a large business or a single umbrella policy if you run a solo business.

Here are the kinds of insurance you need to understand before talking to an agent:

 

General Liability

General Liability insurance pays for issues like injuries, accidents, and negligence. If a customer comes into your warehouse and slips on a wet floor, this would be covered by a general policy. A general liability policy also covers problems like bodily injury, property damage, legal fees, judgments, and settlements.

Amazon requires any business that does $10,000+ a month in sales OR has a professional seller account to carry a minimum of $1 million policy. You can expect to pay $75-$150 a month for a small business like this, but expect the price to increase depending on your business size and annual revenue.

If you run a business out of your home, you should know homeowner’s policies don’t cover damages or loss for business activity on your personal property. Ask your agent for additional coverage options if you fall in this scenario.

This is Amazon’s exact insurance requirement for third party sellers:

Property insurance

If your business owns or rents space like a warehouse or retail front, property insurance will cover the loss of equipment, inventory, furniture, and more. Sometimes property insurance is folded into general liability insurance policies. Pricing varies widely based on the size and geographical area of the space.

 

Product Liability Insurance

Product Liability Insurance covers inventory at an individual product level. Product insurance isn’t necessary for sellers who do retail arbitrage or U.S.-based wholesale, but it is important for sellers who a) manufacture their own products or b) have products manufactured overseas.

From a legal standpoint, ordering products from a foreign country makes you the “manufacturer” even if you don’t make the product yourself. This is because, in case of a lawsuit, it’s nearly impossible to go after a company in a foreign country. Having this coverage ensures that you won’t lose your business if your supplier makes a mistake.

Product insurance is usually an extension of liability insurance or rather than a separate policy. These policies tend to be expensive and can be hard to find. A good way to estimate product insurance cost for a low-risk item (not topical and has no moving parts) is to calculate $0.25 for each $100 in revenue. High-risk products can be up to $.50 per $100 in revenue.

If you’re looking to protect your business or if you’re interested in learning more about this coverage, check out our friends at Insurance Canopy for a Product Liability Insurance policy. Their experience, licensed agents can assist in helping you know the details or understand the nuances of product liability coverage.

Business Car Insurance

Do you run errands for your business with a personal vehicle? Business car insurance protects your personal vehicle when you’re using it to buy supplies, make deliveries, run to the post office, etc.

As an absolute minimum, you should add a Hired & Non-Owned clause to your current policy. This will ensure your business is covered if an accident occurs on company time. If you have a car used exclusively for business, you’ll need to separate commercial auto policy.

 

Suspension Insurance

If Amazon suspends your selling account it can take months to get reinstated. Unfortunately, Amazon doesn’t release your account balance while your account is frozen -- they can hold your money for months. Most sellers don’t have enough cash reserve to weather this type of storm.

Suspension insurance will protect your business cash flow while you’re going through the reinstatement process. Sometimes a suspension insurance policy even includes the services of a professional writer who can help you write an appeal letter. Suspension insurance isn’t strictly necessary, but it’s a good idea if your business couldn’t handle a 3-month cash flow lapse.

 

Data Breach Insurance

If you have a large e-commerce business that sells outside of Amazon, your computers may store sensitive or non-public information about customers. This includes credit card data, addresses, or other personal info. Data Breach Insurance covers your business on the chance it faces lawsuits from an electronic breach. If the cost of Data Breach insurance doesn’t feel justified, consider there were 2000+ major breaches on small U.S. businesses in 2019 -- cyberattacks are now considered to be among the top five risks to global stability.

 

Workers’ Compensation

If you have W-2 employees, Workers’ Compensation is required in every U.S. state. If an employee gets hurt on the job, it protects their paycheck and your liability. This is generally paid through your state, rather than a private company. Contact your local labor commission for information specific to your area.

Running an e-commerce business always involves risk, but insurance is the best way you can identify and mitigate expensive (or fatal!) issues before they strike. Meeting with a commercial insurance broker is the key to ensuring your business is protected from the most angles possible.

Questions? Comments? Feel free to reach out to me at [email protected]. his post is for informational purposes only. It does not constitute legal or financial advice

---