my amazon store got sued feature

My Amazon store got sued. What could I have done to protect myself?

It all sounds cold and official, getting an insurance policy for your Amazon business. We do it because Amazon requires us to, and to avoid risks that can jeopardize our businesses. 

But there is a whole world that can fill a drama series worthy of an Emmy, when you see Amazon seller insurance policies can protect us in action

No one is immune from getting sued. Including Jake, a third-party seller on the Amazon marketplace. Never did he think such a story would hit him. But it did. We interviewed him and here’s his cautionary tale.

*Jake asked for him and his business to stay anonymous – hence the pseudonym. 

So, Jake, tell us about your business and why you got sued?

 

Yeah, so just to give you a quick highlight on our company, we are four co-founders running an online Amazon business that has been going for almost ten years now. We make just under a couple of million a year by selling a variety of products online, anything from household goods to sporting equipment. 

 

What sales model do you use?

 

We do FBM, FBA and 1P – which is the product we were sued for. 

 

*1P means selling your products to Amazon by invitation only. Amazon sends you a purchase order (PO,) you fulfil the PO and ship the product back to Amazon. 

 

For many years Amazon did not require businesses to purchase liability insurance policies – so we didn’t get one. We’re talking about 3 or 4 years ago. 

 

Around that time, we got notified that someone was filing a lawsuit against us. The cause was the hardware needed to install our product. We discovered that as our client was installing our product using a ladder, he fell while clutching the hook needed to complete the installation, which then cut the palm of his hand. He was rushed to hospital where he underwent surgery and ended up with multiple stitches on his arm. 

 

When our lawyer spoke to his lawyer, we found out that our client sued us because “the hardware was too sharp.” (Even though it’s no different from what you buy in any hardware store.) 

Sounds a lot like the famous McDonalds case, when a woman sued the franchise for selling “coffee that was too hot”.

 

Exactly. We immediately thought about this case when we got sued. Instead of “the coffee was too hot” our case was “the hardware was too sharp.” But McDonalds is a franchise who could easily settle the case with their insurance policies. We, on the other hand, had no insurance to protect us.  

 

What happens when you get sued and your company doesn’t have a liability policy?

 

Not having liability insurance put us on the hook for everything.  We had to deal with court expenses and the client’s medical expenses.  

 

To make things worse, around that time the COVID-19 pandemic had just broken out and our sales were going downhill fast. Our company wasn’t doing so well and as they say, “you can’t get blood out of a turnip.” How were we going to pay out all that money they were suing us for?

 

We can only imagine this incredible headache you had to deal with. 

 

You have no idea… It was terrible. We went down a dark rabbit hole – and it was horrendous. All this could have been avoided if we had just product liability insurance. 

 

Just to give you an idea: this is the rabbit hole you fall through when you don’t have liability insurance: 

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We had to hire another attorney to do the deposition, meaning interview the person suing us. More expenses.

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Luckily we have an LLC which protected us to a certain level from getting personally sued. We could have lost our homes if we had not had it. We were lucky they only wanted to sue our company – otherwise we would have been doomed. Like doomed.

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The plaintiffs paid for a jury. Meaning we might have to go to court. Legal expenses can go from anywhere between $30-60,000.

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And that’s not all. The doctor bills came to about 30K. 

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In addition, the plaintiff and his wife claimed they couldn’t work at all after this happened. They were “traumatized” by the event. But then we found out that the “injured and traumatized” plaintiff still went to install our product the very next day after the incident! Meaning, after he “severely cut his hand open.” 

It just shows you how these frivolous lawsuits happen. These days, especially in the United States when people don’t have health insurance, people are willing to do anything to get compensation and not pay out of pocket. 

 

We tried to negotiate with them. They wanted something ridiculous like 120K. If we had to pay that sum, we would have had to close our company. 

 

After going through many travails, we ended up offering them half of their medical bills – around 14K. 

 

If we had had product liability insurance, this issue would have been settled and we would have been able to sell the company. But we can’t do that until we settle this case, which seems like a neverending story!

 

As of now we have paid 10K on legal expenses – and we haven’t even got to court yet – which may cost us another 30-60K in damages on our part and that’s before we get to the verdict. There may be more steep expenses as the trial proceeds. The plaintiff on the other hand? He doesn’t pay a dime, as his attorney will get a percentage of the compensation.

 

This is when we started looking for liability insurance, the lesson we learned from all that we went through. And though we are in the process of selling the company – we are still in limbo with this lawsuit and will stay in limbo until we resolve it. 

 

What would you do differently if this was 3 years earlier? We mean, what brought you to finally buy this liability insurance?

 

I have been pushing to buy liability insurance for the company for quite a few years. The problem was that early on there was no requirement for liability insurance. So we didn’t rush to get it. 

 

Then Amazon started threatening online sellers that they would remove listings off if they were not insured. That’s when we started looking into it. And it was tough. We approached all these insurance companies who wanted to know about all your products, their details and images. See, each product gets its own quote. It’s confusing.  If there was something like what you guys have, where we could punch in our store data and get a quick quote – it would be way easier. It took us a long time to get insured via a regular insurance agent.

 

So now that you have product liability insurance – how does it make you feel as a business owner?

 

Yeah, yeah, I feel a lot better now. If anything happens, if we get sued again by one of our clients, having product liability insurance will be the best way to protect us. We actually tried to cover this specific case with our office liability insurance but none of the insurance policies would cover it. Product liability was the only way to go. 

Wait, isn’t the product that you are being sued for sold under Amazon 1P? Shouldn’t they be responsible for this case?

 

You would think! And that’s what I thought, that Amazon should be responsible. But because we are the manufacturers of this product, we are – and still are today – the ones who have to deal with this lawsuit.  

 

So to sum it up, in this case, if you had had product liability insurance it could have saved you a lot of time, a lot of disruptions, a lot of money and a lot of heartache, right?

 

Absolutely. 

 

And now that you have this liability insurance, you feel protected. What is your advice to other online sellers across the US regarding liability, risk management and insurance?

 

Yeah, I think that, you know, for people running their own eCommerce business to sleep well at night, they need to have product liability insurance. Because it’s one of those things I lost a lot of sleep over! When you first hear “you’re getting sued” you immediately react like crazy, like “what the hell?!”  When they give you the lawsuit, you don’t really understand what it’s about or what happened, or what product you are sued for, you’re in the dark and it takes months to find these things out. A lot of lost sleep, a lot of stress, you’re not able to take the time to run your business. 

 

Any tool or any service that’s out there – if it makes it easier on you as an Amazon seller or an eCommerce seller – if it makes you sleep well at night and you can concentrate on making more money – that’s what you should do. Use that service or that tool – and product liability insurance is definitely one of those tools. 

 

Now that we have liability insurance, it has lifted a weight. Not all the weight because we are still dealing with this lawsuit but if I had had it at the time, it would have been like – go to the insurance company – and BOOM – I don’t have to think about it any more. It’s definitely a great thing to have – and I recommend it to everybody. You gotta have that product liability!

 

For more information on how to get insured today and with a few clicks, minimum time, minimum hassle – visit Spott today get your quote and get started!

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