Product liability insurance for Importers (sometimes called Import liability insurance) can save you from financial ruin, in case your products would be the case of injury or property damage.
Falling back on your supplier is never an option, so get used to the fact that you will be on your own to deal with possible product liability claims in the future.
This is covered:
- What is covered by a product liability insurance?
- What is not covered?
- For what kind of products is an insurance necessary?
- Do I need a product liability insurance to sell on Amazon?
- Can I get an insurance for the US if I sell in another country?
We also provide a list of companies offering product liability insurance products in the United States, the European Union and the United Kingdom, Australia, New Zealand and Canada.
What is product liability insurance?
A product liability insurance can protect your business against personal injury or property damage claims. If you sell a product that, for any reason, harms a customer or damage property, the insurance covers legal and court fees.
With a product liability insurance, you are unprotected. Injury or damage claims can cost hundreds of thousands of dollars.
It’s practically impossible to be completely certain that your products don’t pose any risk whatsoever to your customers – regardless of how many quality checks and lab tests you do.
These are a few examples what might go wrong:
a. Li-ion battery powered devices: Fire hazard, explosion hazard
b. Children’s products: Choking hazard
c. Furniture: Fire hazard
d. Apparel: Choking hazard
e. Food contact materials. Food and beverage contamination hazard
While T-shirts are much less prone to explosions, compared to high capacity power banks, the risk that you will face a claim is always present.
I also managed to find some official data on product liability cases:
a. In 2012 and 2013, 94,960 products liability cases were filed in U.S. federal courts.
b. The average award in 2012 was $3,439,035 (!). The median award was $1,503,339.2.
c. The cost of investigating and litigating product liability claims normally exceeds $100,000.
These numbers are unsettling to say the least.
Do importer liability insurance cover delays and quality issues?
No, losses caused by delays or quality issues are generally not covered by a product liability insurance. You are only covered, up to a certain amount, against liability claims related to injuries or property damage.
Some product insurance policies also cover product recalls, but don’t take that for granted.
Is product liability insurance mandatory when importing products?
No, product liability insurance is not required by law. You can, like many others, import and sell products without a product liability insurance.
That said, you have no protection against injury or property damage claims if you don’t already have an insurance.
However, my impression is that few ecommerce business owners think about insurance when they are just starting out. That said, get insurance immediately if you intend to launch a product in any of the following ‘high risk’ categories:
- Children’s Products
- Kitchen Utensils / Food Contact Materials
- Chemicals Products
- Machinery, Pumps & Equipment
Is product liability insurance mandatory when selling on Amazon.com?
No, product liability insurance is not mandatory when selling on Amazon. That said, product liability insurance is mandatory if you want to register as a Pro Merchant.
- Minimum coverage: US$1,000,000 per claim
- Must cover product liability, bodily injury, personal injury and property damage
- “Amazon.com, Inc., and its affiliates and assignees” must be listed as additional insured
That said, it’s rather likely that the product liability insurance requirement will be expanded to all Amazon sellers in the near future.
Amazon recently won a property damage case against a family who lost their house, due to an exploding hoverboard sold on the platform. This further clarifies that individual sellers are responsible for product safety – not Amazon.
Despite this fact, Amazon will only get stricter. They will certainly become even more diligent when it comes to product compliance checks, and it may only be a matter of time until every seller must obtain the proper insurance.
Why should I be responsible for issues caused by the Chinese factory?
The Importer is always, without exceptions, responsible for ensuring product safety. It’s impossible for consumers to obtain compensation from manufacturers or traders in China, and other developing countries for that matter.
It doesn’t matter if the supplier deliberately ruined your products, for example by using cheap and substandard materials.
You will be on your own when facing any claim.
Who is responsible when Chinese factories sell directly on Amazon or Wish?
This is when things get really interesting.
These days, tens of thousands of Chinese factories and traders sell goods B2C to customers in the US and Europe, on Wish and Amazon.
Both of these websites are based in the United States. That being said, they are ‘only’ providing a marketplace. They are not Importing goods themselves.
Meanwhile, it’s practically impossible to get compensation from Chinese sellers (and other foreign sellers for that matter), if a consumer is injured.
Consumers are therefore completely unprotected, as Amazon can walk away from any compensation claim, and Chinese sellers are practically untouchable.
This is rather ironic, as Amazon has been very aggressive in getting Chinese factories and traders on their platform.
Perhaps it should be mandatory for these platforms to add warning labels, explaining that ‘consumers that lose their limbs, life or property should be aware that they are stuck between Amazon and an anonymous seller somewhere in China’.
What kind of information do I need to provide?
You can only obtain product liability insurance if you can prove that your products are compliant with all mandatory safety standards and labeling requirements.
You may, for example, need to provide the following information:
- Product images
- Design drawings
- Label files
- Verifiable test reports
- Declaration of conformity
- User manual
- Risk assessment
- Other technical documents
- Supplier agreements
- Supplier certificates (i.e., BSCI, SMETA and ISO 9001)
- Internal sourcing and QC process manuals (if any)
An insurance policy can cover a single product, or group of related products. However, you are still required to make sure that your products are fully compliant with all applicable standards, labeling and documentation requirements.
How much should I expect to pay?
The insurance cost depends on the following factors:
- Yearly turnover
- Product type
- Operating procedures (i.e., QC manuals, compliance documents)
- Manufacturing country
- Where you sell the products
Insurance companies know that sourcing products in China is risky, and that claims are normally higher in the United States.
They also know that lithium batteries pose more of a risk than, say, leather wallets – and all of this goes into calculating your.
Case A: Lower Cost
- Yearly turnover: $200,000
- Product types: Apparel
- Manufacturing country: China
- Where you sell the products: Germany
- Estimated cost: $1000 – $4000 per year
Case B: Higher Cost
- Yearly turnover: $1,500,000
- Product types: Lithium-Ion Battery Power Bank
- Manufacturing country: China
- Where you sell the products: United States
- Estimated cost: $7000 – $12,000 per year
The cost also depends on the deductible and the coverage per claim amount. Further, product liability insurance is often sold as part of a business insurance package, rather than a standalone.
I’m based in Europe, but want to sell products on Amazon in the US. Can I get a product liability insurance?
Many of our customers are based in, for example, the EU or Australia, and want to sell products on Amazon in the United States (or vice versa).
Some insurance companies accept foreign companies, without a local presence, as customers.
However, keep in mind that the insurance premium is higher for foreign companies, compared to local entities. There may also be restrictions in regards to which countries they accept.
Remember that cross border B2C ecommerce is still a relatively new concept. It’ll take a while before there are ‘cross border seller’ insurance policies available.
List of Product Liability Insurance Companies & Brokers 2018
- Veracity Insurance Solutions
- Real Insurance Group Ltd
- Wells Fargo
European Union / United Kingdom
- QBE Europe
- Clark Thomson
- Crendon Insurance Brokers Ltd
- Simply Business
- Markel UK
- Allianz Australia
- Smart Business Insurance
- AIG Australia
- Insurance House
- Guardian Insurance
- PSC Connect
- AIG New Zealand
- GSI Direct
- AIG Canada
- K&K Insurance Canada
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