Asset Protection for Ecommerce Sellers

Product liability claims, intellectual property disputes, and cyberattacks can close your business overnight.

Without the right insurance coverage in place, your house, car, and savings are at risk.

Most people assume that owning or renting a physical store comes with a higher chance of getting sued (hello slip-and-fall accident claims!) than a virtual one. However, just because you don’t have customers walking in your store or employees carrying large boxes, doesn’t mean you are safe from legal disputes. 

We turned to Ashlin Hadden Insurance who are experts in ecommerce insurance to write about this in more detail…

Intellectual Property Infringement 

One of the most significant risks ecommerce sellers face is infringement of intellectual property rights. Generally speaking, brick-and-mortar businesses don’t have to worry as much about this happening for the simple fact that their audience is much smaller – they don’t have to worry about their products being seen on the “global stage.”  

But if you sell online, theft of intellectual property becomes much more prevalent. The ease of access to online marketplaces has made it easier for counterfeiters to sell fake products, leading to an increase in the number of intellectual property infringement cases. Genuine sellers face the risk of their trademarks, copyrights, and patents being infringed upon by counterfeiters. This often results in loss of revenue, brand reputation, and legal challenges. 

If you sell on Amazon, the good news is the marketplace has recently made great strides to protect its sellers from counterfeiters. During a massive overhaul in October 2021, Amazon shut down more than 2 million fake accounts and removed more than 1 billion listings that violated its policies. In addition, Amazon has launched several initiatives to help sellers protect their intellectual property rights including Amazon Brand Registry and their Transparency program.  

Online sellers should consider intellectual property (IP) insurance. This kind of policy covers Intellectual property and claims related to patents, copyrights, or trademark infringements. 

Product Liability Claims 

These types of claims materialize when a product has directly or indirectly caused bodily harm, property damage, or (in worst-case scenarios) death. 

Bricks-and-mortar stores usually carry products created and manufactured by other companies. So, while they can be named in a lawsuit, most of the time, plaintiffs and their lawyers go after the company that actually made the product. Of course, if you are an online private label seller or wholesaler, you are directly responsible for any injury your product may have caused. 

If you are on the receiving end of a liability claim, product liability insurance can literally be the difference between losing your business or saving it. This type of insurance policy covers:  

The customer’s medical costs related to the injury/damage 

Legal fees and costs to defend your business 

Settlements or judgments made against your business 

 While Amazon, Walmart, and Shopify already require their sellers to carry both general and product liability insurance, not all marketplaces and platforms do. Still, regardless of where you sell or how much you sell, or how safe you deem your products to be, in our sue-ready society, product liability insurance is one of the most important types of coverage. 

Cyberattacks and Compromised Sensitive Information 

Data breaches and cyberattacks are increasingly common in today’s digital age, and their impact can be devastating for businesses and their customers. Hacking and data breaches can result in the loss of sensitive data, financial devastation, reputational damage, and legal liabilities.  

Online businesses are particularly susceptible to such attacks due to their very nature ie being online! By totally relying on digital infrastructure as well as collecting sensitive customer information, you and your ecommerce business are an attractive target for cybercriminals looking to steal personal data, intellectual property, and/or financial information.  

Cyber insurance provides financial assistance for a range of risks associated with data breaches. These can include: 

Coverage for data recovery and restoration 

Employee wages 

Legal liabilities 

Reputational damage control (excluding public relations services) 

Contacting customers affected and providing credit monitoring services 

Costs associated with hiring forensic experts 

Before you dismiss the suggestion of cyber insurance because you have a small scaled business, keep in mind that you may be more of a target of cybercriminals.  

Product Recalls 

Product recalls can be costly for any business, but they can be particularly devastating for ecommerce sellers. If you own a brick-and-mortar store, you have the advantage of being able to swiftly pull products from your shelves and offer on-the-spot replacements and refunds to your clientele.  

If you are an ecommerce merchant, product recalls are significantly more damaging because you have to track down your customers and pull your products on a national or international scale.  

Then you have to worry about the backlash of scathing reviews ruining your reputation!

Furthermore, if a product recall is the result of an oversight in manufacturing/inspections, you as a private-label seller are also tasked with the responsibility of figuring out where errors occurred in your supply chain.

Everything from tracking down your products to refunding your customers to locating where things went wrong to doing PR damage control is incredibly time-consuming and costly. Product recall insurance can absorb most (if not all) of these costs. 

Don’t make the mistake many business owners make and assume product recalls are very unlikely. Just like a car accident, if and when they happen you can’t afford to be without cover.  

Business Interruption for Online Stores 

 Business interruption insurance (BI) pays for fixed expenses such as employee wages and rent. A more important aspect of this is lost profit while your business is down. Because BI is most commonly bundled with property insurance, many online sellers make the mistake of assuming this type of policy is only available for brick-and-mortar businesses.  

While it’s true that physical stores are much more likely to experience business interruption due to having physical property, there are situations in which ecommerce sellers may wish they had it!

Supply chain disruptions are an important consideration that falls under this cover. If Covid taught us anything, it’s how upsetting the ripple effect can be on eCommerce businesses when supply chains are down. And how costly.  

However, Business Interuption insurance is not a standalone product – it’s usually an add-on for property insurance. If BI still interests you, talk to your insurance agent or broker about other ways you can this to your business insurance portfolio. Sometimes it can be written into your general liability or cyber insurance policy.  

It’s your responsibility as a business owner to understand what potential legal and monetary risks you may face in order to mitigate them with proper and thorough insurance coverage.  

While Amazon, Walmart, and Shopify require their sellers to carry certain types of policies, those enforced insurance policies still leave your business vulnerable. As highlighted above, you should also carefully consider product recall and cyberattack insurance.

By talking to an insurance broker that understands the unique set of hurdles ecommerce sellers face, you can work with them to employ effective insurance coverage that safeguards your store, your finances, and your assets. 

Ashlin Hadden Insurance understands the unique set of hurdles ecommerce sellers face. Having worked with e-commerce sellers for over 5 years, they know exactly what to look for when customizing a plan for your business needs. Be sure to add them to your list of insurance providers to talk to. Their Get-A-Quote Form makes it easy to start the process.

As always, ask us anything. If we don’t know the answer, we’ll know someone who does!