New Amazon liability insurance requirements will actually make small sellers buy liability insurance for the first time.
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Beginning September 1, 2021, Amazon announced a new policy requiring sellers, who have made at least $10k in sales for any given month, to carry product liability insurance. Although this is not the first time that Amazon requires sellers to start carrying liability insurance, everyone agrees that this time things are going to be different. To understand why this is different we have to look back at the process that led to the recent announcement.
In the past Amazon required merchants to purchase liability insurance only if they have reached over $10K in sales during three consecutive months. However, even those who have reached this threshold (over $10k in three consecutive months) were usually not aware of this requirement simply because Amazon did not enforce it. But things have changed since then because recently courts have started to declare that Amazon could be liable for damages caused by products sold on its platform. With two million vendors and sellers currently operating on its massive platform, if Amazon were to be found liable for every product sold on its platform, it would become a big problem for Amazon. To address this issue Amazon decided to push sellers into buying liability insurance and adding Amazon to it. They publish new requirements for the liability insurance, while urging the sellers to do it through a series of emails, reminders, and deadlines. As we will see below, to entice sellers to take it seriously this time, Amazon also added a “carrot” signalling that they will participate in the process and take on some of the burden in handling customer complaints and legal claims.
What are the new liability insurance requirements and what do they mean
From now on things are about to change drastically. Beginning September 1, 2001, Amazon announced a new policy requiring sellers, who have made at least $10k in sales for any given month, to carry product liability insurance. This means small sellers that have usually sold less than $10K, but during a single month in all their history they surpassed the $10K threshold, they will now need to carry liability insurance for good. This new policy, which went into effect September 1, 2021, left small sellers in a situation where they have to purchase a liability insurance policy and start learning about liability insurance, insurance coverages, risks, liabilities, and more.
Amazon’s Insurance Requirements page states that the criteria your insurance policy must meet:
- Policy limit must be at least $1 million – the policy limits must be at least $1 million per occurrence and in aggregate, covering all liabilities caused by or occurring in conjunction with the operation of your business, including products, products/completed operations and bodily injury. So basically this means if your sales are over $10,000 in one month, you will need to carry insurance with at least $1,000,000 in coverage.
Update: Lately our users have been reporting that Amazon has been demanding proof of insurance even though they have yet to exceed $10,000/M. Amazon’s internal calculations are not transparent and their TOS is ever changing. Some sellers will be asked to provide liability insurance even though their monthly income is well below 10K. This, of course, might change in the next few weeks, or months. We’ll keep you updated. (That’s what we do!)
- Policy types – The policy type can be either commercial general, umbrella, or excess liability insurance and must be written on an occurrence basis. The most common coverage is the General Liability, the other two options are excess liability and commercial umbrella insurance, which are added to cover additional risks and establish limits on top of the basic general liability insurance.
- Type of insurance provider – Amazon specifies that the insurance provider must have global claim handling capability, which means they are able to handle claims from around the world. To ensure the financial stability and quality of the insurance provider, they also require that the insurance provider must have an financial rating of S&P A- and/or AM Best A– or better or a local equivalent.
- Cancellation notice – the insurance provider must give Amazon at least 30 days’ notice of cancellation, modification or nonrenewal. As discussed below, since Amazon is a party in this policy, although the seller is paying the premiums, Amazon requires that the service provider notifies them if it is cancelled.
- Amazon as additional insured – the policy must name ”Amazon.com Services LLC., and its affiliates and assignees” as additional insured. To avoid additional claims against Amazon, the insurance policy must include them as part of the policy.
- Deductibles – The deductible must not be greater than $10,000 and any deductible amount must be listed on the certificate(s) of insurance. A deductible is an amount of money that you yourself are responsible for paying toward an insured loss. Deductibles are the way in which a risk is shared between you, the policyholder, and your insurer. Generally speaking, the larger the deductible, the less you pay in premiums for an insurance policy. So to avoid a situation in which you try to reduce your premium by accepting a high deductible, while thinking that in the worse case Amazon, who has “deep pockets”, will have to pay it, Amazon requires a limit to the deductible and wants it to be transparently stated in the certificate of insurance itself.
- Include all products – The policy must cover all sales from products you have listed on the Amazon website.
- Legal entity – Your insured name must match the “legal entity” name you provided to Amazon. For sellers outside the US it can be either a person or a legal entity, such as LLC, LTD, INC, etc..
The signed policy must be submitted to Amazon. We will provide more details on how to submit it properly in a future post.
The “carrot” - you won't have to worry about claims under $1,000
It is very clear what Amazon has to gain by adding its name to all the insurance policies of the various vendors, but what do the vendors gain by it? Well the first incentive that is clearly stated is that Amazon will resolve and pay for valid property damage and personal injury claims against sellers under $1,000 as a concession to customers. According to Amazon, these claims account for more than 80% of cases in Amazon’s store, and Amazon will bear these costs and not seek reimbursement from sellers who abide by their policies and hold valid insurance.
Providing a “door to knock on”
But more importantly, is the assurance and convenience that Amazon is providing to their customers through its A-to-z Claims Process for Property Damage and Personal Injury program. According to this program, once a consumer files a claim, Amazon will work with the customer directly or through Amazon’s external claims administrator to collect information, investigate the claim, and attempt to facilitate a resolution with the customer, and if necessary, their selling partner and their insurance providers. This offers a “door to knock on” if something goes wrong, which is extremely valuable, especially in global trade, where it can be extremely difficult to find a responsible party. This creates an enormous advantage for Amazon and its sellers (those that are covered by insurance).
Amazon’s new requirement can come as a shock to the small sellers, but on the other hand their (and Amazon’s) liability is not related to their monthly sales revenue. A single bad product can cause much greater harm. Plus if you factor-in the fact that this will generate more consumer confidence, it’s a win-win for everyone involved.