When it comes to securing proper coverage, the topics of false advertising, mislabeling and trademark infringement are notoriously gray areas for dietary supplement and CBD business owners.

Unfortunately, insurance oversight with any of these risks can be incredibly costly, so it’s important that you understand which policies can adequately protect your business, and to what extent.

False Advertising, Mislabeling and How It Affects Your Business
As a business owner, you might find yourself in a position where a customer finds a label discrepancy on one of your products.

For example, they purchase an item and submit it to a laboratory for testing to confirm accuracy. Even the most miniscule variation can result in legal action, claiming deceptive, unlawful behavior and false advertising.

Another very common scenario involes lawsuits alleging that a product did not do what it was advertised to do.

Within a Commercial General Liability policy, you will clearly see on the “surface” that there is a $1 million limit provided for Personal and Advertising Injury Liability. To the average person, the above scenarios would qualify for coverage based on the coverage component of Personal and Advertising Injury.

However, many are shocked to find out that neither their general liability policy nor personal and advertising liability coverage protect you from this type of claim.

If you are a product formulator, label designer, or manufacturing facility, an Errors and Omissions policy is worth exploring.

Understanding Your General Liability Policy
Commercial general liability policies primarily protect from bodily injury caused by your product. For instance, if a customer became sick after ingesting your product, your general liability coverage would adequately protect you from any financial burden.

Another common occurrence is when traces of nuts are found in an advertised “nut-free” product, resulting in a customer having an allergic reaction. Because of the “bodily harm” incurred by the customer, your business will also be protected.

However, when most label discrepancies and false advertising claims arise, bodily injury is likely not reported. In fact, in the vast majority of cases, label discrepancies aren’t linked to bodily injury, and as a result, businesses are held completely financially liable.

How Can the Personal Advertising & Injury Liability Coverage Protect You?
Are these harmless label discrepancies covered by personal and advertising injury liability coverage within the General Liability policy? The answer, unfortunately, is no.
Business owners often feel misled by their insurance providers when it comes to the murky waters of this kind of policy. Because of the many exclusions associated, it’s important to have a general understanding of what may or may not be covered.

Personal and advertising injury liability coverage, which can be found within your general liability policy, contains explicit exclusions for:

• Quality and performance of goods (failure to conform to statements);
• Infringement of copyright, patent, trademark or trade secrets; incorrect price descriptions;
• The unauthorized use of another’s name or product.

Even with this kind of coverage, injury must be associated with the false advertisement of a product.

Explicitly stated, personal and advertising injury liability coverage means coverage from injury arising from situations like:

• False arrest, detention, or imprisonment; malicious prosecution;
• Wrongful eviction or wrongful entry into private property;
• Infringing upon another’s copyright, trade dress, or slogan in your advertisement, etc.

The Bottom Line
Simply put, nowhere in commercial general liability coverage or personal and advertising injury liability coverage is there language to indicate that a carrier will defend for letters claiming mislabeling or trademark infringement, due to the fact that bodily injury is rarely associated with the claim.

And it’s important to understand that these exclusions exist either because they are truly uninsurable risks or that they are insured on another policy available to your business.

Your insurance provider should be transparent of this fact in order to establish the precedent and avoid further confusion and potential undue burden.

If you’re struggling with this and you’re looking for a straightforward, transparent approach to your business’s commercial general liability coverage, please contact me.

Please also remember that the information provided in this article is intended for informational purposes. Ultimately, coverage determination will be up to your insurance carrier to decide. 

---

Chris Morey

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.