Recently, Amazon has started to enforce its insurance requirements for businesses transacting $10,000 or more on a monthly basis. All of the insurance requirements imposed by Amazon are fairly routine for any business—with the exception of one important bullet point.

Amazon has crafted these insurance requirements under the assumption that any business owner can go online, click a couple buttons, and receive a policy for their Product Liability for $500 to $1,000. While this may be true for the typical start-up business selling office supplies or workout apparel, it is far from accurate for a business that sells dietary supplements under its own brand/label.

Unfortunately, this bullet point is emphasized when checking for insurance compliance; and it was crafted by Amazon without fully understanding the types of Liability Insurance available to those in the supplement industry.

Where is the disconnect in the Amazon requirements?

Amazon’s requirements state: “…The insurance policy type can be either commercial general, umbrella, or excess liability and be occurrence based; …” (emphasis added).

This brings us back to Liability Insurance 101, coupled with why the supplement industry only has policies available that are different than the “norm.”

Types of Liability Insurance: Claims Made vs Occurrence Based
To be direct, if you are selling supplements as part of your business, you are going to have a Product Liability policy that is “Claims Made.” This type of insurance has been the only form of Product Liability available to the supplement industry for the past 20 years. But how does this differ from Occurrence Based Liability?

With a Claims Made policy, the coverage is triggered on the date you first became aware of a possible claim, or when an actual claim is made against you. The insurance policy that is in place on that date you became aware/give notice to the insurance company is the policy that will defend and ultimately settle the claim.

• Example: A customer gets sick from consuming your product in January 2021. Your Liability Policy renews in March 2021. You receive notice of the injury/claim in July 2021. The policy that is active in July 2021 is the policy that will act—assuming the claim occurred after the “Retroactive Date” on the policy (more on what this means in a moment).

With an Occurrence Based policy, the policy that was in place on the date of the event that caused the loss must respond to the costs and settlement. Even if the claim surfaced years after a policy has expired, the claim would still be tendered back to the insurance company that handled the policy at the time of loss.

• Example: A customer gets sick from consuming your product in January 2021. Your Liability Policy renews in March 2021. You receive notice of the injury/claim in July 2021. The policy that was active back in January 2021 is the policy that will act.

There are insurance brokers and attorneys who are unfamiliar with claims-made coverage and will say “it is bad coverage” because it ties you to one insurance company and you can’t get competitive quotes. This could not be further from the truth.

Unfortunately, the above mindset and lack of understanding spills over into insurance language in contracts with landlords, vendors and distributors of your products.

Thankfully, a Claims Made policy does not provide any “inferior” coverage language, does not impose higher costs, and most certainly does not restrict a broker’s ability to shop for renewals with various insurance companies.

Retroactive Date On Your Policy
With a Claims Made policy, you will notice a date shown as the “Retroactive Date.” This is usually tied to the day that you purchased your first Claims Made policy.

To keep it simple, never change the retroactive date. Some brokers who do not understand Claims Made insurance may provide a cost effective renewal quote for your business that moves the retroactive date up to be more in line with the current date. On the other hand, a business owner that does not know how a Claims Made policy works might overlook this detail without understanding the potential consequences.

• Example: Retroactive Date on your (2021) policy is March 1, 2019. A customer gets sick from consuming your product in January 2021. Your Liability Policy renews in March 2021 and has the 2019 Retroactive Date. You receive notice of the injury/claim in July 2021. The policy that is active in July 2021 is the policy that will act because the claim occurred after the Retroactive Date on the policy.

Now, what if your broker says they can save you a few bucks by moving up the retroactive date to the current policy’s dates? By moving the Retroactive Date you will forfeit coverage.

• Example: Retroactive Date on your (2021) policy is March 1, 2019. A customer gets sick from consuming your product in January 2021. Your Liability Policy renews in March 2021 and you saved $5,000 by changing the Retroactive Date to March 1, 2021 (moved it “up”). You receive notice of the injury/claim in July 2021. Because the claim occurred before the Retroactive Date on the policy, the insurance company will decline to cover the claim.

In the end, there will continue to be a lack of education and understanding when it comes to Claims Made insurance policies. But a competent broker for your business can prove to be of great value when negotiating around what may be a “generalized” insurance requirement in a contract.

Over the years, I have spent hours providing consultation to businesses on both sides of these agreements, to help all those involved understand that insurance for a supplement business is far from routine. 

---

Chris Morey is associate vice president at Bolton & Company. He is a Certified Sports Nutritionist who focuses on the needs of clients within Bolton’s Dietary Supplement Practice Group. With more than seven years of customer service experience, Morey looks to find the right insurance solutions for his clients in the Health and Fitness industries. With a substantial focus on the supplement industry and all parts of the supply chain, he also strives to serve the hemp and CBD product space as the insurance industry continues to fluctuate and evolve. Prior to joining Bolton in 2015, Morey worked for Nutrishop USA. He holds a Bachelors of Arts in Business Administration from Azusa Pacific University. He can be contacted at cmorey@boltonco.com.