When I partner with my clients to help them find the right coverage for their specific business needs, there’s a few common things I tend to hear when we start to discuss the storage and transportation of their products:
“I’m using a third-party storage facility for my products.”
“My inventory is stored with my manufacturer until it is ready to be shipped to the customer or client.”
“I’m using a contract fulfillment center to fulfill orders and ship our products to the customer.”
When I ask them about who is responsible for covering these items if a loss were to occur, the answers tend to get a little fuzzy.
In nearly all my interactions, business owners selling dietary supplements or cannabidiol (CBD) infused products are under the impression that the warehouse, fulfillment center or manufacturer they utilize are responsible for insuring their finished product or materials against fire damage or other physical loss.
This likely isn’t accurate. Most of the time your products are not being insured where you have them stored. In fact, many of the contracts I have reviewed have points that are not favorable to a business owner.
Below are just a few red flags that I have observed in contracts recently:
- Fails to address who’s responsibility it is to insure the property for any loss or damage (which ultimately means they don’t plan on insuring your property).
- Clearly states that you are responsible for loss or damage to your goods even though it is out of your control.
- Will insure your goods but only for a percentage of the total value if it is destroyed (this is fairly common with transportation companies).
None of the above points would assure payment for lost or damaged goods if they are in the care, custody or control of a third party.
There are policies out there that will insure your goods both while they are in transit and in storage—transit typically meaning incoming and outgoing shipments.
Many businesses today have products made at a manufacturing facility and then shipped to a warehouse for storage (either leased or third party).
This would be an example of an incoming shipment—a period of time where your finished products are out of your control but may not be properly insured if there is to be a severe loss.
Imagine a truck driver carrying $50,000 of your product gets into a serious accident on the road which results in a trailer fire that destroys everything on board.
Would the shipping company pay you $50,000? Will they only give you 15 percent of the product’s total value? Will they cover it at all?
Sure it may have been their fault, but what was covered in the contract that you signed?
Similar situations can be applied to transit exposures when you are sending product to customers.
Having your own policy will help ensure that if there is a severe loss of product while in transit you will have the appropriate coverage.
Now, translate the question of “are my products covered?” over to the thought that you may have a third-party fulfillment center that holds your product and ships to customers.
If their building burns down and your product is completely destroyed, are they going to pay you for your lost items? If so, what is the value? Most of the time, the contract will outline this clearly.
There are policies out there that will insure your finished product while in transit and in storage and reimburse you based on the valuation of selling price (what the product would have sold for), where many property policies rely on a traditional replacement cost valuation (cost to replace the products).
If you liked this, check out these articles:
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- ABH Nature’s Products Major FDA Recall: What Your Supplement Business Needs to Do Now
- Everything Your Supplement Business Should Know About the Recent CBD Class Action Suits and FDA Warnings
- False Advertising, Mislabeling and Trademark Infringement—Commercial Liability Pitfalls Your Dietary Supplement or CBD Business Needs to Know
- As Online Platforms like Shopify Welcome CBD and Hemp Sales, Here’s What Retailers Need to Know about Product Liability