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
Amazon.com 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 Amazon.com (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 Walmart.com 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 www.swhlaw.com or email legal.inquiry@swhlaw.com
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.