Amazon product liability insurance is currently a hot topic. If you are selling via Amazon, you need to pay close attention. Especially now, when Amazon is tightening requirements for sellers to have product liability insurance.
Many sellers are unaware that product liability protection is required by Amazon. However, this is clearly stated in their Terms of Service. All sellers have to agree to this when they join the platform. But, the devil is in the details. While having product liability protection was required, Amazon didn’t require sellers to prove that they really have it.
It appears that things are bound to change, especially now that Amazon is increasingly beind held accountable for faulty products sold on its platform. We’ve done the research and here is what Amazon is planning for the future. Let’s see the changes you have to make if you are an Amazon seller.
Extract of Amazon Pro Merchants Insurance Requirements
Below is an extract from Amazon's policy regarding the matter. We have put in bold writing the important aspects that are not to neglect:
Pro Merchants who sell on Amazon must provide proof of Commercial General Liability insurance. This insurance, obtained at the merchant's expense, shall cover up to $1,000,000 per occurrence and in the aggregate and must include product liability, bodily injury, or personal injury, property damage, and other requirements as stated in the Amazon Services Business Solutions Agreement. The insurance must indicate that "Amazon.com, Inc., and its affiliates and assignees" are added as additional insureds.
Summary of Requirements for Pro Merchant Insurance
The Certificate of Insurance must:
- Be an original document.
- Contain an Additional Insured Endorsement.
- List all Pro Merchants' subsidiaries or DBAs covered by the certificate provided.
- Provide at least 30 days' notice of cancellation, modification, or non-renewal.
- Show complete insurance carrier names as listed in the A.M. Best Property & Casualty Guide.
- Be completed in its entirety and signed.
Please note: Binders are not acceptable.
You must have Commercial General Liability (CGL), Umbrella and/or Excess Liability Insurance coverage with limits of not less than:
- $1,000,000 per occurrence, $1,000,000 in the aggregate for products and completed operations, and $1,000,000 in the general aggregate. Such insurance must include products liability, products/completed operations, bodily injury, personal injury, broad form property damage and broad form contractual coverage.
You may also satisfy the insurance limits by using any combination of Commercial General Liability and Umbrella and/or Excess Liability insurance.
The required Additional Insured wording must be as follows: "Amazon.com, Inc., its affiliates and assignees are additional insureds, as their interests may appear".
A Product Liability Insurance Lesson Learned in The Past
The first incident relevant to our topic took place in 1992.
Stella Liebeck, a senior US citizen, got hurt after spilling a cup of McDonald’s coffee in her lap. She suffered extensive burns and had to be treated for a long time in the hospital. Her therapy was very expensive as it included skin grafts. She ended up suing McDonald's. The lawsuit ended in 1994. Stella Liebeck got a $2.86 million compensation.
After all the appeals, the compensation got cut to $640,000 which is still quite a big sum of money for a business to pay to a customer.
Back in the day, this story made it to the news. McDonald’s was found liable for her injuries and had to pay. What’s more interesting, this was not the first time McDonald’s was found liable. In the years prior to the incident, McDonalds had paid out more than $500,000 in damages.
Today, McDonalds and businesses alike issue to-go hot beverage cups with a warning similar to “Caution! Hot!”. Companies from other industries have followed as well. This is why knife packages come with a “Caution! Sharp!” warning today.
The Oberdorf vs Amazon Ruling & Its Implications
Amazon had to face the same fate McDonald’s did 22 years ago. The Oberdorf vs Amazon ruling was handed down in July 2019.
Amazon got sued by Heather Oberdorf in 2016. Oberdorf purchased a retractable dog leash from the merchant known as The Furry Gang. Unfortunately, the leash snapped, recoiled and hit her in the eye, leaving her blind in one eye.
Worth noting is the fact that the Amazon Marketplace served as a product listing platform and handled the transaction., while shipping was directly handled by The Fury Gang. This means that the retractable dog leash was not touched by Amazon’s employees at any time.
Oberdorf did sue Amazon and The Furry Gang as well. But The Furry Gang vanished. Both Oberdorf’s and Amazon’s lawyers couldn’t find a single trace of the merchant in both the physical and the digital world.
Amazon.com Inc. can be held liable for a dog collar that partially blinded a woman according to the ruling of a federal court. Amazon’s lawyers played the Communications Decency Act card. This act protects online businesses from lawsuits tied to 3rd-party online content.
In the eyes of the federal court, Amazon is a product seller. And it should be held liable as a product seller and under the state law for sales on a specific marketplace. For instance, in the US retail E-commerce market, Amazon is the undisputed leader.
This appeared as a huge problem. Merchants can come and go, cross people over and do business again under a new name. This brings us to the big question of 3P liability.
What About The Status of 3P Liability?
It would be irresponsible to sit idle when something so obvious is going on. While Amazon is hardly going to be found 100% liable for Oberdorf’s injury, Judge Jane Richards Roth said: “Amazon may be liable in part because its business model enables third-party vendors to conceal themselves from the customer, leaving customers injured by defective products with no direct recourse to the third-party vendor.”
Unfortunately, this is one judge’s ruling in one court and in one state. We can safely assume that judges in different states will have different rulings. Fortunately, there are things that you, as a seller on Amazon can do to protect your business and continue to work as usual on the Amazon platform.
Don’t Wait, Get Product Liability Insurance
If you are a seller on the Amazon platform, don’t wait. You can protect your business and ensure its safety and continuity. The only thing you should get is Amazon’s product liability. If you don’t have it, getting it will save you so much trouble that will potentially haunt you down the road as a seller on Amazon.
You know your brand and products best. Make sure to revisit your insurance policy to ensure that it reflects your specific business needs and risks. If you are not experienced in this legal side of business, you should definitely get a professional consultation.
So far, product liability coverage was only required by Amazon while sellers were not required to provide any proof. After all these developments, it is safe to assume that Amazon will soon be coming your way, asking for product liability coverage proof. And, In order to provide proof and continue doing business, you will actually have to have active product liability insurance coverage.