A particular liability insurance policy formulated by experts in the dietary supplement and herbal industries was newly rolled out at the Nutrition Business Journal Summit Conference in Dana Point, CA. Although at first focusing on the dietary supplement/herbal product industries, the coverage can apply to any business. Of unique 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
Prior to the announcement of this policy, there was no coverage to be had for "false advertising." Unfortunately most people assume they have such coverage under the "Personal and Advertising Injury" section of their commercial general liability policy. The truth, commonly exposed following 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 announcement of this recent policy, coverage is now obtainable. The new policy precisely defines what constitutes "false advertising" which will trigger the coverage.
Proposition 65 Coverage
Again, heretofore there has not been any insurance coverage obtainable 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 biggest single trigger of litigation, which can be initiated by public enforcers like state or local district attorneys or private plaintiffs suing "in the public interest." Experts have said that there are possibly thousands of products sold in California with lead levels higher than the legal threshold, and lacking the proper warning labeling mandatory on the packaging of such products. Companies selling these products 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 costs, 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 numbers 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 expansion 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 including print, digital and audio media. Companies that seriously use various media to advertise could by now have this type of coverage. The Prop 65/false advertising insurance is an extension of insurance underneath this module and can not be purchased on a standalone basis.
The insurer is in the beginning 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 might be negotiable and increased under certain terms.
The new policy also contains a module for insuring first-party and third-party costs arising out of a breach of data security, including notification costs, data restoration, crisis management, credit monitoring, cyber investigation, cyber extortion, and civil fines and penalties.