5 insurance mistakes e-commerce owners make
Five commercial insurance mistakes cost online sellers dearly: counting on the overseas maker's policy, assuming a marketplace or warehouse insures the stock, buying the cheapest policy to meet a marketplace notice, leaving the policy to describe last year's business, and using the wrong business name.
- If you import goods or sell them under your own brand, the law can treat you as the maker, whatever the factory's insurance says.
- A marketplace's repayment rules and a warehouse's capped duty are not your own property policy.
- At every renewal, check the policy against what you sell, where, and under what name.
| Mistake | What it can cost | The fix |
|---|---|---|
| 1. Counting on the overseas maker's insurance | A product claim that lands on you and your own policy | Get a written contract with the maker |
| 2. Assuming a marketplace or warehouse insures your stock | Lost goods repaid under the marketplace's rules, or capped by the storage contract | Read the rules and contract; list each site on your property policy |
| 3. Buying the cheapest policy to meet a marketplace notice | A certificate that passes, a policy that leaves out your goods | Take the notice to your agent before you buy |
| 4. A policy that describes last year's business | Hard questions after a claim | Tell your agent when products, channels or steps change |
| 5. The wrong business name on the policy | A certificate that does not match, or a company with no cover | Name every company that sells or imports |
Mistake 1: Can I count on my overseas maker's insurance?
Usually not. If you import the goods or sell them under your own brand, the law in several states can treat you as the maker, and a factory far away is hard to sue or collect from.
Picture Dana, who sells pressure cookers under her own brand, made overseas. The factory says it is insured. A customer is burned when a lid fails and sues Dana, who is the importer of record, the business legally responsible for bringing the goods in. The factory's policy names the factory. The claim lands on Dana's own policy, and she pays whatever that policy does not.
State laws point the same way. Washington makes a seller answer as the maker when the product carries the seller's brand name, or when no maker can be made to pay. (Source: Washington RCW 7.72.040) Louisiana counts a seller who labels a product as its own as the maker. (Source: Louisiana R.S. 9:2800.53) Kansas shields a seller only when the maker can be served and a judgment would reasonably be paid. (Source: Kansas K.S.A. 60-3306) Ask an attorney how your own state treats you.
The fix. Get a written contract with the maker that names you on their policy, promises to cover your costs if a product injures someone and says who pays for a recall. Then ask your agent how your product liability coverage treats goods you import or label yourself.
Mistake 2: Does the marketplace or the warehouse insure my stock?
Not the way your own property policy would. A marketplace repays lost stock under its own rules, and a third-party warehouse, a separate business that stores and ships your goods, is generally liable only up to the cap in your contract.
Picture Marcus, who keeps stock in a marketplace's fulfillment center, the warehouse that ships his orders. A pallet is lost, and he assumes it was insured. A marketplace repays lost stock under its own written rules, which are not insurance and can pay less than the goods would have sold for. Marcus finds the repayment is less than he expected, and nothing covers the difference.
A warehouse is generally liable only for loss caused by failing to use reasonable care, and the storage agreement may limit the amount. Your state's version of the law governs. Your property policy's cover for stock at a place you do not own is usually small, so ask for the figure.
The fix. Find the cap in each storage contract and the repayment rules in each marketplace program. Ask your agent to list every place your stock sits on your property coverage, with a limit to match (how contents are valued).
Mistake 3: Is the cheapest policy that meets a marketplace notice enough?
Often not. The cheapest policy that meets a notice's list can still leave out the goods you sell or the claims you worry about most.
Picture Priya. Her marketplace says her sales have passed its insurance trigger and she must upload proof of coverage. She buys the cheapest policy that produces a certificate in time. Later a customer says a space heater she sold started a fire. Her agent finds the policy is written for visitors to her office, not for products she ships, so a claim like that may not be paid.
A marketplace's requirement can include a minimum limit and the marketplace named as an additional insuredAdditional Insured Another person or business covered under your liability policy for claims tied to your work or property, such as a landlord or general contractor. Insurers call them an additional insured. more →. Each marketplace sets its own terms. Our guide to marketplace seller agreements shows how to read one.
The fix. Take the notice to your agent before you buy, and ask three questions. Does this policy cover the products I sell? What does it leave out? Is the limit what I need, or only what the notice asks? A certificate of insurance proves a policy exists. It does not say what the policy covers.
Mistake 4: Does my policy still describe my business as it is today?
Only if someone updated it. Insurers price on what you sell, where you sell it and what you do to it, so a policy written for last year's business can fall behind this year's.
Picture Luis, who sold phone cases when he bought his policy. He later adds children's toys and starts re-boxing goods under his own label, and tells no one. When a toy is blamed for a child's injury, the application still lists phone cases, and the insurer may question the claim.
The National Association of Insurance Commissioners says business liability prices depend on the product or service and the perceived risk. (Source: National Association of Insurance Commissioners) Relabeling can also make you the maker, as Mistake 1 describes.
The fix. Tell your agent when you add a product category, a sales channel, an import route or a step such as relabeling. See what insurers ask for and why online sellers are hard to insure.
Mistake 5: Is my policy in the right business name?
It has to name the business that actually sells and imports. A policy in your own name, when the seller account is in a company's name, can leave the company without cover and produce a certificate a marketplace will not accept.
Picture Ana, who now runs her store through a company she formed. Her policy still names her personally. The marketplace asks for her certificate, and the name on it does not match the seller account, so she must have the policy reissued. Meanwhile, a claim against the company may find that the policy names someone else.
The named insuredNamed Insured The person or business listed on your policy as the policyholder, with the right to change or cancel it. Insurers call this the named insured. more → is the business listed on the policy as the policyholder. The company on the customs papers needs to be named too. If one company imports and another sells, both need to be on the policy.
The fix. Ask for the page of your policy that lists the named insureds. Every company that sells or imports should appear, including each brand set up as its own company. Match the names to your seller account and customs papers. See also several sites and brands under one owner.
Common questions about e-commerce insurance mistakes
Yes, usually. Tell your agent in writing as soon as you notice it, so the insurer can change or reprice the policy. Correcting before a claim is safer than being found out after one.
Often yes. A marketplace's repayment rules are not insurance, and a customer hurt by a product can make a claim against you.
At every renewal, and whenever you add a product line, a marketplace, a warehouse, an importing route or a new company.
Find out which of these mistakes your policy may be hiding
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