Now Available: Liability Insurance Coverage for CA Prop 65 and False Advertising Claims

A particular liability insurance policy put together by experts in the dietary supplement and herbal industries was just rolled out at the Nutrition Business Journal Summit Conference in Dana Point, CA. Although initially focusing on the dietary supplement/herbal product industries, the coverage can apply to any business. Of specific significance is coverage for Proposition 65 lawsuits, which have proliferated in California. Companies are experiencing the nuisance of “bounty hunter” lawsuits including civil actions by various state or local authorities.


False Advertising Insurance

Before this policy was announced, there was no coverage obtainable for "false advertising.” Sadly most people believe they have such coverage under the “Personal and Advertising Injury” section of their commercial general liability policy. The truth, typically revealed after a lawsuit for false advertising comes in the door, is that a standard commercial liability policy contains absolutely no coverage for allegations of false advertising. With the release of this recent policy, coverage is now available. The new policy specifically defines what constitutes “false advertising” which will trigger the coverage.


Proposition 65 Coverage

Again, heretofore there has not been any insurance coverage around for the financial consequences of enforcement of the provisions of California's Proposition 65. As a practical matter, allegations of high levels of lead have been the largest specific cause of litigation, which may be initiated by public enforcers such as state or local district attorneys or private plaintiffs suing “in the public interest.” Experts have said that there are maybe thousands of products sold in California with lead levels beyond the legal threshold, and not including the proper warning labeling mandatory on the packaging of such products. Companies selling these goods without appropriate analytical testing or the warning are “at risk” according to Frank Jaksch, President of ChromaDex, an Irvine, CA-based testing laboratory (www.chromadex.com ).


Standard Proposition 65 settlement expenses, which some have labeled as “legalized extortion,” encompass defense costs, plaintiff's attorney costs, civil penalties, and payments in lieu of civil penalties. According to figures gathered by a leading trade association the average Prop 65 settlement cost, as well as attorney fees, exceeds $100,000.

Availability of Coverage and Limitations

The Prop 65/false advertising coverage is an extension of coverage under one of the policy modules called Content Liability for Media Companies and Advertisers. This module provides wide coverage for perils arising out of creating and distributing content for all forms of communications together with print, digital and audio media. Companies that seriously utilize various media to advertise can by now have this form of coverage. The Prop 65/false advertising coverage is an extension of coverage under this module and can not be purchased on a standalone basis.

The insurer is initially limiting two elements of Prop 65 settlements, civil penalties and/or payments in lieu of civil penalties, to a $100,000 maximum sub-limit of insurance, which can be negotiable and amplified under specific terms.

The new policy also contains a module for insuring first-party and third-party costs arising out of a breach of data security, plus notification costs, data restoration, crisis management, credit monitoring, cyber investigation, cyber extortion, and civil fines and penalties.

Greg Doherty is Dietary Supplement Liability Insurance Broker and a member of Consultants Association for the Natural Products Industry (CANI) and the American Herbal Products Association (AHPA). Doherty can be reached at (818) 449-9317 or info@GregDoherty.net . Website: http://www.gregdoherty.net