ONLINE SELLING: DO YOUR CLIENTS KNOW THE RISKS?
Recommend coverages for clients who sell products online
By Christopher W. Cook
I’m a keepsake hoarder. Guilty as charged. But every now and then, I feel the need to declutter and eliminate one of my many boxes of treasures. Online sites like Amazon and eBay are good places to unload your previously prized possessions and make a few dollars on the side.
Today, more and more people are purchasing online, and the opportunity to earn some moolah by selling items via the Internet is greater than ever. But what if selling online is not just your clients making a few extra dollars. What if the sales play a major role in their monthly income? Participating in e-commerce—commercial transactions conducted electronically on the Internet—can reveal to an e-commerce business an array of property and liability exposures. Fortunately, insurance is available to protect your clients’ online business ventures.
Ashlin Hadden, owner and managing broker at Ashlin Hadden Insurance, recognized this as an opportunity when she started her agency in 2016.
“My first career was in banking, but I decided to apply for a position at Liberty Mutual,” she recalls. “I was told that insurance was a man’s industry, that I could not be successful and that I should go back into banking. I took the job and was rookie of the year, top rep in the state and third in sales in the entire company my first year. I learned the industry for a few years and then decided to go out on my own.
“Now I have thousands of clients who sell online on platforms like Amazon, eBay, Bed Bath & Beyond, Jet, Walmart and through their own websites. We offer a variety of products that cover what they do as a business and the products they sell online.”
Risks and coverages
Selling online always involves risk, and now websites like Amazon are requiring their sellers to carry liability insurance. In the past, these policies were required only for sellers who made $10,000 in sales within a three-month period. In 2016, however, a fire started by a hoverboard purchased through Amazon—which destroyed a million-dollar home—led to a lawsuit against the company and the third-party trading corporation that sold the item.
Now Amazon’s participation agreement requires every professional seller to have a commercial general liability policy that covers up to $1 million per occurrence and must include coverage for products liability, bodily injury or personal injury, and property damage. The policy also must include Amazon as an additional insured. The insurance requirement can also be satisfied by a combination of commercial general liability and umbrella and/or excess liability coverage.
Let’s look at the coverages that are recommended for an e-commerce business; Hadden shares this information on her website and in her recent presentation titled “You don’t have to be a millionaire to be sued for a million bucks.”
Commercial General Liability (CGL). People sue everyone for everything these days, and this policy will help pay lawyer fees, court costs and damages if your client is sued for property damage, bodily injury, advertising injury, reputation damage or copyright infringement. A general liability policy is the first line of defense against many common claims.
Product Liability. This policy protects your client’s business from claims related to the manufacture or sale of products to the public. It covers the manufacturer’s or seller’s liability for losses or injuries to a buyer, user or bystander that are caused by a defect or malfunction of the product and, in some instances, a defective design or a failure to warn. When it is part of a CGL policy, the coverage is called Completed Products.
Stock, Stored Products, Business Property. This policy protects your client’s inventory. Do your clients know that if they store their products at home and a house fire occurs, the stock might not be covered in their homeowners policy? Most policies exclude business personal property kept at the insured’s residence. This policy covers merchandise stored at your client’s insured locations; the policy is not necessary if the products are shipped directly to a distribution center’s warehouse. The policy can be extended to a Business Property in Transit policy, which will cover owned vehicles in case products are stolen out of your client’s vehicle.
Third-party Logistics (3PL) and Warehouse. Are other people involved in your client’s online business and your client stores their stock at his or her location as well? If your client is providing “warehouse” space for others, their products are your client’s responsibility.
This policy covers damage caused by lack of reasonable care in your client’s “warehouse.” Anytime your client has custody and control of other people’s products, you should recommend this policy. If no negligence can be proved on your client’s part, the customer is primarily responsible for any damages; your client, however, is still liable for damages caused by events other than negligence, like flood, fire or windstorm.
Tenant Legal Liability. If your client rents space for an online business, this policy broadens the traditional fire legal coverage to encompass all property damage to the scheduled premises. The limit is equal to the damages to the rented premises.
Commercial Auto. Does your client’s online business require numerous trips to the post office, FedEx or UPS to ship products, or is the client delivering merchandise directly to customers in a personal vehicle? If so, a commercial auto policy may be needed. If the client is a sole proprietor and vehicle use for business is minimal, a personal auto policy with business use may be sufficient. Make sure the carrier adds business use to your client’s current policy.
Hired/Non-Owned Auto Liability. Does your client borrow a vehicle for business purposes? This policy covers damages the insured is legally obligated to pay for bodily injury or property damage arising out of the use, loading or unloading of a hired or non-owned automobile in connection with the insured’s business.
Cargo. Is your client’s business intercontinental? Is he or she receiving products from one or more companies overseas? What happens if those products never arrive at the destination? Cargo insurance provides protection against the risk of physical loss or damage to goods from any external cause during transport by land, air or water.
This policy covers all “acts of God’ and many perils that are excluded from a general liability policy, such as riot, terrorism and warfare. Most carriers will cover only a set value or a dollar amount per pound, but cargo coverage provides full protection on all goods damaged, covering your client, the business and its customers.
Account Suspension. If your client loses access to his or her account and their payouts are frozen, this coverage assists with financial loss sustained during the suspension, suspension appeal expenses and tax audit expenses. Suspensions brought on by performance issues or policy violations are typically covered if the activity wasn’t illegal.
Cyber Liability. It doesn’t always take a hacker to cause a data breach; it can result from the loss or theft of a laptop that contains customer information. Virtually every business is vulnerable to data breach. A cyber liability policy covers the expenses incurred to manage the impact of a data breach, the investigation, attorney fees, court costs and regulatory fees. The policy covers both first-party response expenses and third-party defense and liability costs.
All 50 states have notification laws that require businesses to notify all their customers of a security breach. The business owner is responsible for the expenses of preparing, printing, and mailing such notices. When customers’ personal information has been exposed, a business also must pay for credit monitoring services for each customer whose information was exposed.
Workers Compensation. If your client has more than one employee in an online business, a workers comp policy is essential. It isn’t necessary for a sole proprietorship.
If you have clients who sell online—more than just the occasional keepsake purge—inform them about the coverages available to protect their businesses.
“Just like any other business, e-commerce sellers are at risk for lawsuits,” says Hadden. “If they are just reselling other people’s products they can still be pulled into a lawsuit. An e-commerce policy will pay for the legal fees and hire an attorney to defend them.
“If they have a private label and their own brand and a product they sell hurts someone or damages someone’s personal property, they can be sued for damages. E-commerce policies can also cover the legal fees and judgments that go along with it.”
For more information:
Ashlin Hadden Insurance