**TL:DR/summary at the end
If you are like most new Amazon sellers, you probably have joined multiple Amazon-focused Facebook groups, paid for business courses run by self-proclaimed gurus, subscribed to every entrepreneurial podcast station on Spotify, and made the Google search bar your b****.
Keep up the good work. You’re like the Little Engine That Could – if that little engine didn’t have a bedtime and an endless supply of NoDoz. (Do they even still make those?)
Point is: You can never know too much when it comes to starting and growing an ecommerce business. Undoubtedly, gaining knowledge before you jump into the Amazon seller pool is wise – just make sure you have a lifejacket.
What isn’t wise is always playing on the offense, which is a position a lot of those “gurus” will recommend that you leverage. As a new seller, you are taught how to do product research, how to source, how to optimize your listing, how to get leads on social media, and how to create arresting and memorable images. In all these aspects, you are playing on the offense. And that’s all well and good until something goes wrong, and you look around and suddenly realize you didn’t work on the defense of your business.
What do we mean by this? Well, think of selling on Amazon as a soccer game. You have to have a great offense and a great defense if you’re going to beat your rivals.
Part of building the defense side of your business is not only having business insurance, but also understanding what your policies cover. A lot of assumptions are made by Amazon sellers regarding their insurance coverage, only to realize when something goes wrong, they aren’t actually protected.
In this article, we will dissect the most commonly misunderstood or confounded insurance policies available to you as a seller and why it matters that you know the ins and outs of each. This reading may not exactly be your idea of a “good time”, but it’s important, so here’s an image of Jason Momoa to tie you over.
General Liability Insurance vs. Product Liability Insurance
As of late 2021, Amazon officially required all sellers on its platform to carry general and product liability insurance. This, you probably are already aware of.
What you may not be aware of is that general liability insurance and product liability insurance are not the same thing, and while many general liability policies have limits that cover product liability insurance, not all of them do. Conversely, if you have product insurance, this will not cover all things related to general liability insurance. Oh, what a tangled web we weave.
“So, if they aren’t the same thing, what are the different things they cover?” You’re probably asking with bated breath. Allow us to Indulge you.
What does General Liability Cover for Online Business?
Also referred to as business liability insurance, general insurance protects you and your business in the unlikely event someone or something gets injured/sick/damaged while interacting with your business. It’s the first line of defense against lawsuits and other prejudicial business exposures.
General liability insurance covers you for three types of events:
- Bodily injury (or mental/emotional trauma) claims made by a consumer or anyone that has had a negative interaction with your business.
- Any property damage that occurred as a result of using your business.
- Any claims of slander, libel, or copyright infringement made against your company.
Even if you sell on a platform that doesn’t require business liability insurance, it’s still a good idea to have this coverage. You need to remember we live in a sue-ready society and mishaps and freak accidents – while perhaps uncommon – still occur. Legal fees are expensive. Lawyers are expensive. Settlements and payouts are expensive. You don’t want to be on the receiving end of a lawsuit without coverage.
What is Product Liability Insurance, and Do I Need It if I have General Liability Insurance?
Product liability insurance policies are implemented when your product causes harm – usually as a result of poor design, build, or any defects associated with manufacturing or distribution.
Here are some examples of when product liability insurance would likely be employed:
- A piece of a child’s toy falls off and becomes lodged in the child’s throat.
- A kitchen appliance short circuits and causes a house fire.
- A vitamin causes an adverse reaction, causing a customer to be hospitalized.
- The directions on a product were mislabeled, resulting in injury or mental distress.
- A piece of clothing that contained a chemical component caused a severe rash
The point being that a deluge of production mishaps could very well result in serious, inimical accidents for your customers. Should your company be expected to pony up for medical bills, settlements, and legal fees, our guess is you don’t want to be looking for money at the receiving end of a blackjack table.
Clients with products designated as “hazardous” never have trouble conceding to product liability insurance; it’s our clients that have decided their products are safe that need a gentle smack-over-the-head-from-mama-Hadden.
Underline this part, circle it, highlight it, or engrain it into your brain: There is no such thing as a safe product. We’ll repeat that again. There is no such thing as a safe product. It doesn’t matter If you sell electronic devices, toys, clothing, makeup, food, board games, appliances, art supplies, or home goods – anything can be dangerous given the right mechanisms and the wrong circumstances. Look no further than these newsworthy lawsuits as demonstrations of how simple products can lead to recalls, lawsuits, and loss of business.
Professional Indemnity Insurance vs. Directors & Officers Insurance
Director’s and Officer’s Insurance (DOI) provides financial assistance for defense costs at the behest of a lawsuit brought against any directors or senior managers of a company in which the plaintiff/s believe they were victimized by people in these roles. In these specific cases, the plaintiff would not be suing the entire company, but rather someone in a Director or Officer role. Such claims can be initiated by a variety of sources including regulators, employees, shareholders, creditors, consumers, and clients.
In the unfortunate event that this happens, you want to protect yourself against such accusations. There are two options for DOI:
- A Corporate Directors’ and Officers’ Liability insurance policy which can be applied to all legal forms of a company throughout all industries. This covers all directors and senior employees.
- An individual Directors’ and Officers’ Liability insurance policy that is designated for directors of start-up businesses that can’t afford corporate coverage, or for directors that wish to cover themselves for any claims made against them after leaving said company.
Having Directors’ and Officers’ insurance is, arguably, not as compulsory as the other insurance types we talk about in this article. However, due to the increasingly litigious nature of humans, it’s not the worst idea to have it.
Corporate or Individual DOI can be applied to a plethora of events, but here are a few examples:
- Unemployment Disputes: An employee believes they are unfairly being terminated or discriminated against
- Legal Mishaps: You accidentally file your taxes wrong or break a labor law
- Opposition of Investors: Your seed money/financial backers sue you for mishandling capital or don’t agree with the prices of shares once you go public.
- Sexual Misconduct/Discrimination: An employee accuses you of using your position of power to either harass or discriminate. (We guarantee Bill O’Reilly had this type of insurance.)
Often, business owners will confuse Director and Officer Liability Insurance with Professional Indemnity Insurance and, alas, they do not operate quite the same way.
What is Professional Indemnity Insurance Used For?
Professional Indemnity Insurance comes in handy if your business structure involves teaching, leading, or advising – be that financial advising, business consulting, engineering, practicing medicine, personal training, the list goes on.
In these cases, the role requires someone providing guidance to another person that will impact them in (hopefully) a beneficial manner. But what if it doesn’t?
What if your direction proved to be detrimental, harmful, or even just a waste of money to a person who had sought out your service?
Professional indemnity (also known by Errors and Omissions insurance) is useful when a third party sues over:
- Negligence: When a professional or business has failed to carry out the duty of care to clients.
- Misrepresentation: When a business doesn’t produce the same level of services that was advertised.
- Inaccurate advice: When a professional does not provide information clearly, resulting in direct or indirect harm to the client.
- Intellectual Property Claims: When a business uses or copies another business’s work or idea.
In summary, a D&O insurance policy only covers managers and directors for claims related to their work and duties to the business; a PI insurance policy covers a professional or business for claims related to poor service or advice.
Cyber Insurance vs. Data Breach Insurance
Movies and television have done a masterful job at creating excitement and heroism around cyberattacks and hackers. But when a cybercrime happens to you and your business, that excitement quickly morphs into a nightmare.
In reality, a data breach can result in business interruption, lost clientele, lawsuits, and thousands of dollars spent on recovery.
While software and security programs have improved tremendously in recent years, cyber-attacks are more prevalent now than ever before. And most small businesses don’t have the funding to truly protect their computers and accounts.
What is Cyber Liability Insurance and What Does It Cover?
Cyber insurance is sometimes referred to as Information Security and Privacy Liability Coverage, but let’s be honest … ain’t nobody got time for that! It covers your business’ liability if your computer systems and/or client information is compromised because of a data breach. Cyber liability insurance helps you with:
- Legal fees if a client/customer sues
- Compensation for lost wages and revenue as a result of business interruption.
- Contacting customers to notify them of the breach.
- Covering the costs associated with recovering from the breach.
- Customer credit monitoring. (While this isn’t a service you are required to offer victims, it goes a long way in gaining the trust back of your customers.
What Is Data Breach Insurance and What Does it Cover?
A Data breach policy is business protection on a smaller scale and is largely recommended over cyber security to those with smaller businesses and operations.
It is valuable if personal identity information gets stolen – whether it’s the result of an unknown hacker or one of your employees. If your files or computer system gets hacked, breach coverage will cover the costs associated with:
- Notifying your customers about the breach
- Offering credit monitoring services to said victims
- Hiring a public relations firm
Additional coverage that you can add to your data breach policy includes business interruption expenses, extortion coverage (applicable in the event of a ransom), and a few other perks that may or may not be necessary for your company.
The differences between the two policies can be confusing so we’ll try to make it a bit less ambiguous. Data breach coverage is under the umbrella of Cyber Liability. Depending on your insurer, Cyber Liability coverage can be written in a variety of ways with egregiously contrasting limits, so it’s recommended you talk to your broker or insurance agent about specifics.
If your company has Cyber Liability coverage, you almost always have Data Breach coverage. However, if you have Data Breach coverage, that doesn’t necessarily mean you have cyber liability coverage. In other words, Cyber Liability almost always has limits that cover the repair of breached data systems and computers. Yet, Data Breach insurance probably won’t offer the limits that cyber insurance does.
In short, cyber liability is offered to large businesses, whereas data breach liability is recommended for smaller operations. It’s up to you to be diligent at figuring out which type of policy meets your business needs.
Cargo Insurance vs. Inland Marine Insurance vs. Property Insurance
As is the case with the other insurance policies we just mentioned, cargo, inland, and property insurance policies are often confounded and seem redundant, with sellers misconstruing these policies as the same thing (spoiler: they aren’t). We’ll try to provide more clarity on how each policy provides a different service.
What is Cargo Insurance?
Cargo insurance is appointed when your inventory is damaged or lost as a result of theft or cargo being mishandled. This type of coverage is specified for cargo being handled and transferred via plane or watercraft. Before you ask, yes, businesses that offer these transit services should already have insurance of their own to cover damaged inventory, but it’s not always that simple.
A lot of scenarios that result in cargo damage are outside a carrier’s liability parameter, including fire, natural disasters, strikes, insufficient packaging, etc. With these provisions in place, proving a carrier is legally responsible for your freight’s integrity can be quite the uphill battle.
Furthermore, there are many outside companies that handle your products – between inspections, shipping, transit, and storage, there are a lot of hands on your inventory which can make it difficult to find the responsible culprit that caused injury to your units.
Lastly, even if the plane or ocean carrier is held legally liable, they generally have limited liability. An ocean carrier is generally responsible for $500.00 USD per package/shipping unit or the actual value of the goods – whichever is less. And air freight carriers are only liable for 19 SDR per kilo (around $24.00 USD). In either case, there is a high probability that your cargo is worth more than either of these payouts. While cargo insurance isn’t a requirement to sell on Amazon or any online platform, you may decide it’s worth adding it to your overall insurance plan.
Bottom line: with a cargo insurance policy in place, you are covered for these losses, regardless of who or what compromised the integrity of your products.
What is Inland Marine Insurance and Why Should I Have it for My Amazon business?
Inland insurance is arguably the most comprehensive form of these types of coverage. Inland insurance covers the transportation of goods on land. So if, say, you or a truck driver get into an accident while transferring your cargo, and your units were damaged, you could implement your inland marine insurance policy to cover the loss of your products. This insurance type also covers moving property that is related to your business such as a trailer, office equipment, and other expensive devices.
In short, Inland Marine insurance is a property policy designed to protect cargo or any other business property during transit or holding. In certain cases, it can safeguard your finances by covering property damage in the event of breakdowns, expedited repairs, or loss of income. It can be written as an all-risk policy. In this instance, your inventory will be insured for all traditional forms of loss too, including fires or theft.
The situations you can implement your Inland marine plans is as follows:
- During transit of any kind (while on land)
- When your units are in the possession of a bailee (who may not have their own Care, Custody, and Control insurance
- While your units are being handled by a storage facility or prep center (particularly important if said facility either doesn’t have insurance or has let their warehouse insurance lapse).
This is the important, underlying thing to consider when purchasing inland insurance and/or property insurance:
Inland marine policies often fall under the umbrella of general purpose/broad form property insurance because it insures business equipment, tools, and other assets which would be far more costly if placed on other policy coverage types. This leads us to…
What is Property Insurance?
In brick-and-mortar retail, business property insurance is essentially as important as liability insurance. Property insurance covers your building/s, the contents within those buildings, and any loss of income should your company be inoperable during an open claim. Its primary use is for issues stemming from severe weather, theft, and incidents like fires or floods. However, it can also be used in proximity situations like if there is heavy construction blocking people from being able to get to your shop.
As an ecommerce seller, it may be hard to reconcile paying additional coverage for business property insurance when you don’t even own or rent a building. However, it may be worth the additional insurance expense because business property coverage helps with damaged inventory if your business operates out of your home. As Ashlin, CEO and founder of Ashlin Hadden Insurance, explains:
“You don’t have to have business property [insurance] to run an online store. For example, if you sell on Amazon, they don’t list it as a requirement. However, we absolutely suggest online merchants have it as part of their insurance plan. If they have a home-based business with products in the home, those products wouldn’t be covered by.
It’s a very rare person that finds insurance interesting – we’re the first to admit it. And even if you do enjoy engaging in “insurance talk”, unless you are an insurance agent yourself, it’s pretty easy to get confused by all the different insurance types available and what the limits are to each one. We hope this quick summary sheds a little more light on what your options are and why they are important.
What is General Liability Insurance? It covers legal fees and pay-outs of a claim in which your business is accused of harming or injuring a person or their property.
What is Product Liability Insurance? It covers you for a claim in which your product has injured or damaged a person or their property, usually as a result of poor design or malfunctioning.
What is Professional Indemnity insurance? This protects you and your business in the event that your professional advice was false, didn’t work, or lead to an undesired outcome.
What is Directors and Officers Insurance? This type of policy protects higher-level position holders in a company. It helps cover legal fees and settlements in lawsuits regarding discrimination, harassment, breaking labor laws, opposition of shareholders/investors, etc.
What is Cyber Liability vs. Data Breach Liability insurance? Data breach insurance is recommended for smaller operations that are not as susceptible to high-level cyber-attacks and the consequences of them. Larger companies like Chase Bank would need Cyber Liability insurance due to the nature of their business and the security measures they must take to protect their clients.
What is Cargo Insurance vs. Inland Insurance? Both types protect the value of your products should something happen to them during transit – like theft or a wreck. Inland covers products transferred via land; cargo insurance covers products transferred by boat or plane.
What is Property Insurance? This type of insurance covers any damage to your building or property inside the building if a freak accident were to happen. If you are an eCommerce seller, the only reason you may want this insurance is if you keep your products in your home.
For more questions, please feel free to reach out to Ashlin Hadden Insurance at firstname.lastname@example.org. We are here to help!