Why Product Liability Insurance is Non-Negotiable on Amazon, Walmart, and Beyond
Congratulations! You’ve built an amazing e-commerce business. Whether you sell unique goods on Shopify, manage a massive catalog on Amazon and Walmart, or are growing fast on TikTok Shop, you have a world of customers at your fingertips.
But here’s the often-overlooked reality of selling online: Every product you sell, even if you didn't manufacture it, carries a legal risk. 
The simple truth is, if a product you sell injures a customer or damages their property, you—the seller—are the first person they, and the multi-billion dollar platform you sell on, will look to. This is why Product Liability Insurance is the single most crucial policy for nearly every online merchant.
What is Product Liability Insurance, and Why Do I Need It?
Product Liability Insurance is a specific type of coverage that protects your business from financial loss due to lawsuits resulting from an injury or property damage caused by a product you sell.
It covers:
- Medical Costs: If a customer is injured.
- Legal Defense Fees: The cost of hiring an attorney to defend your business, even if the claim is false.
- Settlements and Judgments: The money awarded to the plaintiff if you lose the case or settle out of court.
The Most Common E-commerce Product Liability Scenarios
Think a simple product is risk-free? Think again. Lawsuits can arise from:
- Manufacturing Defects: A charging cable shorts out and starts a fire, damaging the customer’s home.
- Design Defects: A children's toy has a weak component that breaks off, posing a choking hazard.
- Warning/Labeling Issues: A dietary supplement is mislabeled, causing a severe allergic reaction in a customer.
- Faulty Instructions: Improper assembly instructions for a piece of furniture lead to an injury.
In each of these examples, the financial responsibility often falls to the seller, not just the manufacturer. A single lawsuit can easily cost six figures—enough to bankrupt an uninsured small or medium-sized business.
The Compliance Hammer: Why Marketplaces Demand Coverage
Beyond protecting your business's financial health, insurance is a matter of platform compliance. The world’s largest marketplaces are no longer tolerating uninsured sellers.
1. Amazon, Walmart, and Target
These platforms have clear, mandatory insurance requirements designed to protect themselves from liability.
- The Revenue Threshold: On Amazon, sellers are generally required to obtain Commercial General Liability (CGL) insurance (which includes Product Liability) when they exceed $10,000 in gross sales in one month. Walmart has similar thresholds.
- The Minimum Limits: Both typically require a minimum policy limit of $1 million per occurrence and $2 million in aggregate.
- The "Additional Insured" Rule: You are required to name the marketplace (e.g., "Amazon.com Services LLC and its affiliates") as an Additional Insured on your policy. Without this, your Certificate of Insurance (COI) will be rejected, and your selling privileges may be suspended.
The Risk: If you hit a compliance threshold and fail to provide proof of insurance within the required timeframe (often 30 days), your account will be suspended, halting all sales and revenue.
2. Shopify and Dedicated E-commerce Sites
While running your own site via a platform like Shopify means you are not beholden to a massive marketplace's compliance rules, your legal exposure is actually higher.
When a legal claim happens on a platform like Amazon, there is often a debate over who is truly liable. When the sale occurs on your dedicated website, the legal claim goes directly to you. There is no massive third-party corporation to shield you. For these businesses, having robust Product Liability coverage is not just smart—it is foundational.
3. Emerging Platforms (TikTok Shop, eBay, etc.)
As new social commerce platforms like TikTok Shop rapidly expand, their insurance requirements are quickly catching up to Amazon and Walmart. It is a best practice to assume that any platform that drives significant revenue will soon require a COI.
Protection, Peace of Mind, and Growth
Product Liability Insurance is not just an expense; it is a vital growth tool.
- Protect Your Assets: It ensures that a worst-case scenario does not liquidate your business or, worse, expose your personal assets if your business structure doesn't offer full protection (like an LLC).
- Ensure Compliance: It keeps your seller account in good standing, preventing costly suspensions that tank your revenue.
- Build Trust with Suppliers: Manufacturers and wholesale suppliers are increasingly requiring their resellers to have insurance before entering into large contracts.
Ready to Secure Your E-commerce Future?
Don't let the threat of a product liability lawsuit undermine the hard work you've put into building your online brand. Navigating the specific requirements of each marketplace (Amazon's $1M limit, Walmart's tiered risk matrix, etc.) can be complex, but that's where we come in.
WELL Insurance specializes in e-commerce insurance solutions, providing tailored policies that cover all your sales channels—from Amazon and Walmart to your own Shopify store.
Get a Quote Here
Click here for a free, no-obligation quote and get a compliant Certificate of Insurance in as little as 24 hours.