When I partner with my clients to help them find the right coverage for their specific business needs, there are a few common things I tend to hear when we start to discuss the storage and transportation of their products:

• “I’m using a third-party storage facility for my products.”
• “My inventory is stored with my manufacturer until it is ready to be shipped to the customer or client.”
• “I’m using a contract fulfillment center to fulfill orders and ship our products to the customer.”

When I ask them about who is responsible for insuring these items if a physical damage loss were to occur, the answers tend to get a little fuzzy.

In nearly all my interactions, business owners selling dietary supplements or cannabidiol (CBD) infused products are under the impression that the warehouse, fulfillment center, or manufacturer they utilize are responsible for insuring their finished product or materials against fire damage or other physical loss.

This likely isn’t accurate. Most of the time your products are not being insured where you have them stored. In fact, many of the contracts I have reviewed have points that are not favorable to a business owner. Your “partner’s” (third-party) Property Insurance Policy more than likely has a clause that limits the amount of coverage for “property of others” (your property). With that, this clause within their policy will have a Replacement Cost valuation for your products, in the event of a loss.

Red Flags
Rather than assuming there is coverage provided by such a third-party partner, I always encourage reflecting back on the contractual language that was agreed upon.

Here are just a few red flags that I have observed in contracts over the years:

• Fails to address who’s responsibility it is to insure the property for any loss or damage (which ultimately means they don’t plan on insuring your property).
• Clearly states that you are responsible for loss or damage to your goods even though it is out of your control, and in the possession of a third party.
• Will insure your goods but only for a percentage of the total value if it is destroyed (this is fairly common with transportation companies).

None of the above points would assure payment for lost or damaged goods if they are in the care, custody, or control of a third party.

There are policies out there that will insure your goods both while they are in transit and in storage—transit typically meaning incoming and outgoing shipments to third-party locations, or even your own warehouse.

Real World Scenarios
Many businesses today have products made at a manufacturing facility and then shipped to a warehouse for storage (either leased or third party).

Consider this example of an incoming shipment—a period of time where your finished products are out of your control but may not be properly insured if there is to be a severe loss. Imagine a transportation company moving hundreds of thousands of dollars of your product. And this truck gets into a serious accident on the road which results in a trailer fire that destroys everything on board.

Would the shipping company pay you full replacement cost for your inventory that was on that truck? Will they only give you 15% of the product’s total value? Will they cover it at all?

Sure it may have been their fault, but what was covered in the contract you signed?

Similar situations can be applied to transit exposures when you are sending product to customers.

Having your own policy will help ensure that if there is a severe loss of product while in transit you will have the appropriate coverage.

Now, consider the question of “are my products covered” in the context that you may have a third-party fulfillment center holding your product and shipping to customers.

If their building burns down and your product is completely destroyed, are they going to pay you for your lost items? If so, what is the value? Most of the time, the contract will outline this clearly.

There are policies that will insure your finished product while in transit and in storage and reimburse you based on the valuation of selling price (what the product would have sold for), where many property policies rely on a traditional replacement cost valuation (cost to replace the products).

I’ve found that many businesses in the nutraceuticals industry are unaware of such an insurance product or tend to assume their inventory (in motion) is insured by whoever is handling it.

This is a friendly reminder to revisit those contracts and your insurance portfolio to ensure this gap is covered. If not, I am happy to advise on appropriate action to take to get a policy like this in place for your business. 

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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.