An insurance policy now exists that has been specifically arranged by experts in the dietary and supplement and herbal industries to protect against false advertising and CA Prop 65.
A unique liability insurance policy put together by experts in the dietary supplement and herbal industries was only just rolled out at the Nutrition Business Journal Summit Conference in Dana Point, CA. Although primarily 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 hurt of “bounty hunter” lawsuits and civil actions by various state or local authorities.
False Advertising Coverage
Prior to this policy having been announced, there was no coverage available for "false advertising.” Sadly many people assume they have such insurance under the “Personal and Advertising Injury” division of their commercial general liability policy. The truth, often discovered 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, insurance is now purchasable. The new policy particularly 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 largest single trigger of litigation, which can be initiated by public enforcers such as state or local district attorneys or independent plaintiffs suing “in the public interest.” Experts have said that there are perhaps thousands of products sold in California with lead levels exceeding the legal threshold, and without the proper warning labeling required 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).
Typical Proposition 65 settlement expenses, which some have labeled as “legalized extortion,” include 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, including 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 general coverage for perils arising through creating and distributing content for all forms of communications including print, digital and audio media. Companies that heavily make the most of various media to advertise may already have this type of coverage. The Prop 65/false advertising insurance is an expansion of insurance beneath 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 coverage, which could be negotiable and increased under certain conditions.
The new policy also contains a module for insuring first-party and third-party costs arising out of a breach of data security, as well as notification costs, data restoration, crisis management, credit monitoring, cyber investigation, cyber extortion, and civil fines and penalties.
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