Showing posts with label articles from Bicycle Retailer and Industry News. Show all posts
Showing posts with label articles from Bicycle Retailer and Industry News. Show all posts

September 18, 2021

Amazon's new 'guarantee' policy seeks to mollify consumers, streamline claims process

Originally Published in Bicycle Retailer and Industry News 
Reprinted with permission 

August 17, 2021

Amazon just announced a new type of "guarantee" or "support" that it is calling the A-to-Z Guarantee (AZG). Actually, this is not new; it was introduced more than 20 years ago, but is now "improved." In Amazon's own words, from its full official press release:

"Now, in the unlikely event a defective product sold through causes property damage or personal injury, Amazon will directly pay customers for claims under $1,000 — which account for more than 80% of cases — at no cost to sellers, and may step in to pay claims for higher amounts if the seller is unresponsive or rejects a claim we believe to be valid."

Interestingly, in the fine print (A-to-z Claims Process Terms and Conditions), Amazon also states, "The Process is not insurance or a warranty, and it does not replace any applicable insurance or warranty that may be available to you."

As you can see there are a lot of loaded words in this AZG press release, what my contracts professor liked to call "weasel words." It's hard to imagine any personal injury or property damage claims being "resolved" for under $1,000. The other issue that is left somewhat in the dark is what would be in the release that Amazon surely would require a consumer to sign. I suspect it would be a global release barring any suit against anyone or any company from future claims. And of course, the issue of what to do with minors under 18 is not addressed. Those settlements require court approval. Further reading of the details notes that you would also have to assign all your claims rights to Amazon ... "so that we can pursue recovery from other sources in our discretion."

What is more interesting is how Amazon will fund this. One has to assume the money is not coming out of Jeff Bezos' yacht fund, given how many claims this would likely encompass. On the one hand, this is AZG is only for products sold through (presumably Fulfillment by Amazon) and apparently does not cover those items sold through any "third-party sites" (Fulfillment by Merchant). This will add confusion to the process, especially with consumers as most do not know if they are getting an FBA product or FBM product. Some aspects of the AZG cover FBM, but the new part regarding injury claims apparently does not. One has to assume this funding is being arranged through Amazon's insurance coverage, the suppliers' coverage (naming Amazon as "additional insured"), or perhaps through Amazon withholding payment to sellers for claims that it has deemed "bonafide" (or a combination of all three sources). Amazon insists this payment is at "no cost to sellers." However, upon further reading, Amazon only commits to "Pay valid claims less than $1,000 and not seek reimbursement from sellers who have valid insurance." We assume "valid" insurance would mean insurance that actually pays Amazon for the claim; if it does not pay the claim, then Amazon could go after the seller directly.

After further reading the Terms And Conditions, it states "Any offers of compensation made through the A-to-z Claims Process will be limited to (a) the purchase price of the product; and (b) compensation of up to $1 million for medical expenses, lost wages, and property damage approximately caused by a defective product. Amazon will not offer to compensate you for non-economic damages, business losses, consequential and incidental damages, attorney fees, punitive damages, or other losses." So it seems the payment limit is much higher than the $1,000 limit. But Amazon will only step in above that limit if the seller's insurance kicks in. It also appears that no "pain and suffering" amounts will be paid, which makes up the vast majority of most settlements and verdicts, and so the reality is for any sizable personal injury claims this process is not realistically going to resolve anything.

As a further restriction, you only have 90 days to make an AZG claim, whereas under most state laws, you would have 2-5 years to bring suit and typically for minors until they are 18. Also, all other terms and conditions apply to the AZG Claims process, including but not limited to choice of law and dispute resolution provisions. One would have to assume that it would be a binding arbitration proceeding and that the company providing the arbitrators would find itself out of business quickly if it were deciding against Amazon too often.

Again the more interesting part of this deal is the funding, administration and the entire claims process, which brings us to part two of the equation: liability insurance. Amazon partnered with Marsh McLennan, the largest insurance broker in the world, and a number of U.S. insurers to offer insurance to its sellers. Per the Amazon seller central site: "Effective September 1, 2021, once you reach $10,000 in gross proceeds in any month, you are required under your selling agreement with Amazon to carry commercial liability insurance with limits of at least $1 million in the aggregate and name Amazon as an additional insured" and of course the "stick" part: "If you do not obtain the required insurance, we will seek reimbursement for costs we incur in resolving claims, regardless of sales thresholds, unless we agree to waive our right to reimbursement. We may also restrict you from selling in a particular category or even suspend your account until you provide proof of insurance." Of course, Amazon sellers remain free to use their own insurance brokers and insurer to obtain the required insurance, and it remains to be seen if the Amazon consortium of brokers and insurers ends up being cheaper.

In addition to leaving out the FBM side of Amazon, the insurance program appears to be open only to U.S.-based sellers. This of course is a huge loophole in the entire process as most of what Amazon sells is from sellers outside the U.S. That of course is a much thornier problem that Amazon's AZG process does not seem to deal with at all. It's not clear what percentage of non-U.S. manufactured goods are actually sold to Amazon by third-party sellers within the U.S. on the FBA side.

Surely, the state court's assault — or rather plaintiff attorneys' assault on Amazon — in the last two years (with most of the anti-Amazon appellate rulings coming out in the last 12 months) has had some role in this new process being rolled out. As I and the courts predicted after the Bolger v Amazon case this would accelerate Amazon's process of passing the "product liability" cost along to its sellers and forcing them to get coverage. This is exactly what the courts in their rulings have stated; that a large player in the consumer products marketplace, like Amazon, has the financial clout and bargaining strength to require its millions of sellers to get the required insurance. The courts were right. Amazon is doing just what they predicted. Holding Amazon liable as a seller has forced it to push that liability back upstream.

Finally, there is Amazon's fight with the CPSC, which may also be somewhat related to this. Amazon may be using this new AZG accelerated claims process to burnish its image with the CPSC, portraying itself as a responsible company that cares about consumers and their safety. But again the recall responsibility is separate from the product liability responsibility (although the two are linked) and it remains to be seen who will win in the CPSC fight.

There are many unanswered questions on this process, and surely changes will be implemented as Amazon goes along or it might totally change the program. We also do not know to what extent the plaintiff's bar will create ancillary litigation just out of this process alone. I am sure that and other large platforms trying to compete with Amazon are watching closely. Infusing this much insurance coverage and related administration costs into the consumer goods market that was previously uninsured is not only going to cause consumer goods price inflation, as if we don't have enough already, but there will be a huge shift of money into insurance coffers. With increased prices we know who benefits. Amazon. We also do not know what percentage of FBA (or FBM) sellers are uninsured currently.

Another thing we know about Amazon is that it likes to take over many aspects related to consumer product sales (after watching third parties work in a market segment for years like FedEx). Look at Amazon Web Services and Amazon shipping for example. So the next question is when will Amazon get into the lucrative insurance brokerage market or claims administration business? Amazon has certainly upped its game in the consumer goods business. It will be very interesting to watch this play out over the next two years.

Steven W. Hansen is an attorney who represents product manufacturers, distributors and retailers in product liability and other lawsuits and provides consultation on all matters related to the manufacture and distribution of e-bikes and other consumer products. For further questions visit or email

The information in this column is subject to change and may not be applicable in your state or country. It is intended as a thought-provoking discussion of general legal principles and does not constitute legal advice. Any opinions expressed herein are solely those of the author.

Law Offices of Steven W. Hansen | | 562 866 6228 © Copyright 1996-2020 Conditions of Use

January 15, 2016

The pitfalls of insurance coverage and additional insured certificates issued by Asian based non US admitted insurers

This re-titled article is reprinted with permission from Bicycle Retailer and Industry News

Editor's note: Steven W. Hansen an attorney who defends product manufacturers, distributors and retailers in product liability lawsuits and provides consultation on all matters related to the manufacture and distribution of consumer products. For further questions visit

How the problem arises
We receive lots of inquiries each year from both clients and their insurance brokers about how handle additional insured certificates issued to U.S.-based companies from their key Asian based manufacturing suppliers, who almost without exception, use policies issued by  Asian based non U.S. admitted/regulated insurers. If you are not closely monitoring and vetting all your suppliers additional insured certificates each year then you better go back to square one, read our article on audits, then read this article. This article does not address EU (European) or Japan based non-U.S. insurers. That is a separate future article.

This article is an attempt to outline some of the many issues with coverage provided by Asian based insurers ("AI's" for purposes of this article) and how to begin to spot these issues and develop strategies to overcome them. This article has been assembled from our first hand experience in claims with Asian based insurers and dealing directly with our client's coverage problems arising therefrom. Your first hand experience and opinion may vary, but we feel that these issues at least need to be identified and addressed by those companies least familiar with them.

Why the coverage exists 
You need to understand there is a reason for insurance issued by AIs. First of all there is a need as Asian based manufacturers are usually asked about this coverage by the U.S. companies they supply (or it is required to close the deal). Secondly, AI's are utilized as their coverage is usually much cheaper than U.S.-based coverage, even for the same limits of coverage. There is a good reason for this; in most cases the AI coverage is more limited in scope than most U.S. policies issued to the U.S. companies buying products from Asia and also because the AI's "loss ratio" tends to be lower. This means that the ratio of dollars paid out on claims to dollars of premiums collected is better than comparable U.S. insurers loss ratios. This may be partly due to the fact that the AI's can freely deny so many U.S. claims using their restrictive policies and their is no recourse by U.S. additional insureds in U.S. courts against the AI's directly.

Questions that have to be asked when vetting such coverage
The first question of course is the experience of your insurance broker and in house attorney in dealing with such AI's and their claims process. If you/they don't know the right questions to ask then seek outside expertise.

Unknown Ratings
One problem with AI's is they tend to not be rated by U.S. insurer rating agencies with respect to their financial strength. The reasons for this are varied but can be due to the fact that the AI's will not submit to regular audits by the U.S. rating agencies. The lack of a U.S.-based rating can seriously limit the use of AI's coverage when your company is trying to sell items to large companies like Walmart or Amazon.

Restrictive policies
AI's also tend to issue very restrictive policies when compared to U.S. policies. One way they do this is by only offering "claims made" (versus "occurrence") coverage which creates a whole host of issues as to how claims need to be timely handled. If you have never heard these phrases, again go back to square one. AI's also tend to use manuscripted or non standard policy provisions unlike those issued by most U.S. insurers. This unique policy terminology becomes a bigger problem as U.S. courts never get the opportunity to interpret it as they do U.S.- based policies. U.S. policies also tend to use very standard (copyrighted) policy language not used by their Asian counterparts. The reason this language is used by U.S. insurers of course is so that there is some degree of predictability when courts interpret the language.

Inexperienced claims staff
Not only are the policies a problem but the claims staff (internal and third party) can be inexperienced (or in some cases untrained) and are usually totally unfamiliar with the U.S. legal process and case law as it respects the claim process, coverage and liability. Or sometimes what knowledge they do have is used against the U.S. additional insureds. In our experience most AI staff routinely confuse coverage and liability. In some instances claims are never even opened as legitimate claims are "denied" (or more likely "ignored") before they ever reach the AI, or are denied for reasons that would receive much higher scrutiny in the U.S.

Limited policies
The AI policies are usually financially restrictive as well when compared to U.S.- issued policies. There are often large self insured retention amounts (SIR's) on these policies, in addition to low per claim and aggregate limits as well as limits on total defense costs that erode the available limits of the policy even further (so called "burning limits" policies). The Asian suppliers (with the blessing of the AI and the AI broker) also tend to issue too many additional insured certificates to too many U.S. companies which further erodes the viability of the policies. This creates a very murky situation should multiple claims later arise.

Limited usefulness
Due to these issues above many U.S.-based insurers will not give U.S.-based certificate holders any "credit" for these AI issued certificates. What this means is that these AI certificates are not worth the paper they are written on (at least insofar as U.S. insurers are concerned). Thus U.S. insureds won't get any rate reductions on their own U.S. coverage due to the fact that U.S. insurers are betting on the AI's not coming through for the U.S. additional insureds when needed.

Risky strategy
At the end of the day what this really means is that whether or not your U.S.-based company gets a defense and indemnification in a U.S. suit (or other country other than the AI's home country) from an AI comes down to how much pressure can be applied by your company to the Asian supplier, to its Asian based broker and ultimately the AI. That's a very risky strategy which can drastically change from one year to the next as players in the game change, let alone the viability of your long term business relationship with the Asian supplier.

Looking Forward
Again this all comes down to due diligence, experience in the AI market, timing and relative bargaining power. If your company is not getting the right advice from the insurance brokers and attorneys consulting with it, asking the right questions and offering solutions at the right time in the process, you will not get anywhere and may end up being counterproductive. Trying to retroactively work around or safeguard against these issues/pitfalls can be frustrating as you are not negotiating directly with the AI, nor are you on equal footing with them as compared to your Asian supplier. Many "contractual workarounds" attempted with the Asian insured supplier will not yield results for the simple reason that the AI is not a party to the contract and its insured has no power to bind it. The biggest problem with insurance is that you don't know you have a problem usually until years after the coverage was placed. At that point its too late to try to "fix" it.

Evolving picture
There are a lot more legal and underwriting issues and strategies involved than just the few mentioned in this article. Its never too late to start fixing these potential gaps in coverage. But they generally take a few policy renewals to iron out. And even then its an ongoing yearly battle as the players and policies in the shell game often change.

The information in this column is subject to change and may not be applicable in your state.  It is intended as a thought-provoking discussion of general legal principles and does not constitute legal advice. Any opinions expressed herein are solely those of the author.

Law Offices of Steven W. Hansen | | 562 866 6228 © Copyright 1996-2013 Conditions of Use