How to Comply with Amazon’s New Insurance Requirements

There are nearly 2 million active sellers on Amazon. If you’re one of those sellers, your business may have started quite small. Many sellers are generating less than $1,000 a month in income when they start out.

Many people view such a small business as a hobby, and don’t really worry about a lot of the business formalities.

One of the formalities often overlooked is carefully reading the Terms of Service. All that legal language! We’re so used to just skipping to the bottom and clicking “accept” whenever we sign up for something online that many people think all that “boilerplate” doesn’t make any difference.

Except it does. You actually are legally agreeing to do certain things when you click those boxes, and you can be subject to penalties for failing to comply.

In Amazon’s Services Business Solutions Agreement, one of the things you agreed to was:

Insurance. If the gross proceeds from Your Transactions exceed the applicable Insurance Threshold during any month if the Elected Country is the United States, or each month over any period of three (3) consecutive months if the Elected Country is Canada or Mexico, or otherwise if requested by us, then within thirty (30) days thereafter, you will maintain at your expense throughout the remainder of the Term for each applicable Elected Country commercial general, umbrella or excess liability insurance with the Insurance Limits per occurrence and in aggregate covering liabilities caused by or occurring in conjunction with the operation of your business, including products, products/completed operations and bodily injury, with policy(ies) naming Amazon and its assignees as additional insureds. At our request, you will provide to us certificates of insurance, the full insurance policy, or other documents we may request for the coverage to the following address: c/o Amazon, P.O. Box 81226, Seattle, WA 98108-1226, Attention: Risk Management.

The above represents a change from the previous policy. American sellers previously also had the three-month window. Amazon changed the requirement to $10,000 in any single month. Note that it has always specified “or if otherwise requested by us.”

Many sellers were surprised by a letter from Amazon telling them they had to provide proof of insurance.

Why Does Amazon Insist Sellers Have Insurance?

You might think if you are the seller, why should Amazon even care if you have insurance? If there’s a problem, aren’t you the one on the hook anyway?

Amazon has $470 billion a year in sales. The company gets sued a lot. Even though most lawsuits trying to hold Amazon liable for products from third party sellers have failed, a California appeals court ruled that Amazon could be held liable for products shipped through Fulfillment by Amazon. So, Amazon has reason to be concerned that it could be sued for your faulty product,

Not only that, it’s bad customer relations for Amazon if a customer is harmed by one of your products and is unable to receive compensation because you don’t have insurance or enough money to pay the damages.

Amazon has both legal and business reasons for insisting that sellers have insurance.

What is Commercial General Liability Insurance?

Commercial general liability (CGL) insurance is a very broad type of insurance. It is typically an “all risks” insurance, meaning it covers everything except for things that are specifically excluded. Typical exclusions include automobile liability, and directors and officers liability, among other things.

 In addition to providing coverage for damage caused by your products, it provides coverage for things such as people getting injured on the premises of your business.

What is Umbrella or Excess Liability Insurance?

Umbrella and Excess Liability Insurance are both types of insurance that provide additional coverage on top of a CGL policy.

How Much Insurance Do I Need?

Amazon’s insurance requirements are spelled out in the company’s Claims Process. You are required to have a total of $1 million in coverage. You could, for example, have a $500,000 CGL policy, with an umbrella policy that provides an additional $500,000 coverage to meet the requirement.

What Other Requirements Are There on The Insurance?

The Claims Process mentioned above includes a long list of additional requirements. Some of the highlights:

  • Maximum deductible of $10,000.
  • Must cover all sales from products you list with Amazon.
  • “Amazon.com Services LLC and its affiliates and assignees” must be named as additional insureds.
  • The insurance provider has to have “global claim handling capability” and an S&P rating of A- or better (or equivalent).
  • The insurance providers has to agree to give Amazon 30 days’ notice of cancellation, and the policy must be valid for at least 60 days.

How Do I Get This Insurance and How Much Will It Cost?

To get the Amazon Liability Insurance you need, all you have to do is contact us, by phone, email, or fill in our simple form.

At Ashlin Hadden Insurance we are ecommerce specialists. We know exactly what Amazon requires. You can call us at (765) 432-8989 and speak to one of our agents, or you can use our “self-serve” option and get a quote directly online.

Either way, we’ll quickly get you the insurance you need at a cost that won’t break the bank. Give us a call with any of your insurance needs or questions, Amazon related or not.