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Etsy Sellers: Why You Need Product Liability Insurance

woman making jewelry

As an Etsy seller, have you ever taken a look at the terms and policies you agreed to when you first joined Etsy? Do you know what the Etsy Seller Protection Policy actually covers you for?

When you break it all down, you realize how many costly claims Etsy is leaving you exposed to.

Each year, thousands of businesses are faced with product liability claims. Since 2011, the steady increase in the cost of product liability claims has risen by 39.58%. Research based on Insurance Canopy’s policyholders shows the average cost of a claim was $25,336 in 2020.

Product liability insurance helps to protect your business from the financial devastation caused by claims. Let’s dig a bit deeper into insurance for Etsy sellers with some common questions sellers like you may have.

Q: Do I need business insurance to sell on Etsy?

A: In short, no—Etsy does not currently require sellers to have insurance. It’s easy to think just because Etsy doesn’t require you to have insurance, you don’t even need it. However, having product liability insurance is highly recommended for anyone running an online shop of handmade goods. 

You may have heard about product liability insurance when Amazon updated their seller requirements in 2021. They now require sellers who meet a certain number of monthly sales to carry product liability insurance. It’s likely other e-commerce marketplaces, such as Etsy, may follow Amazon’s lead.

As a small business owner, it’s wise to be proactive in protecting your financial assets and lowering your risk of claims. Why wait for Etsy to tell you to get insurance when you could do it now? After all, a product liability claim can often carry a hefty price tag of hundreds or even thousands of dollars.

Woman uses hands to paint portrait on a canvas on the floor of her studio.

Q: What exactly is a product liability claim? Am I at risk of one?

A: A product liability claim means you are being held liable for your product causing bodily harm or property damage. You could be asked to pay for: 

  • Medical bills and lost wages
  • The cost to repair or replace damaged property
  • Funeral expenses
  • Compensation for emotional pain and suffering

A claim could also result in legal fees, a pause in your business operations, and even damage to your reputation as an Etsy seller.

If you sell handmade products on Etsy, you are at risk of a product liability claim. Whether you make every part of your product or only customize pieces of it, there is still the possibility of an accident occurring. A customer can file a claim for reasons such as:

  • Choking on small parts
  • Injuries from broken pieces
  • Allergic reactions
  • Damages from faulty parts or designs
  • Permanent stains or marks
  • Burns or shock from electrical components
  • Failure to provide adequate warnings or labels

For sellers who use pre-made pieces as part of your products, you run the unique risk of manufacturing defects—one of the most common claims we see at Insurance Canopy. Because your online shop is where a customer purchased the product, they can name you and the manufacturer as responsible parties in a claim. 

If this happens, you may have to issue a recall statement, notify customers, offer refunds, and scrap any unsold products containing the damaged piece.

Woman opens package to find broken pottery, but the Etsy seller has product liability insurance.

Q: But wait, what about the Etsy Seller Protection Policy? Can it help me if I receive a product liability claim?

A: Unfortunately, no. Etsy currently has a limited protection program—the Etsy Seller Protection Policy. Any eligible seller is automatically enrolled in the program and there is no application process. Let’s revisit the term “limited.” Etsy seller protection applies only to disputes between a buyer and seller over refunds and shipping errors.

As stated in the Seller Protection Policy, “When you and an eligible order qualify, Etsy will not hold you financially responsible for non-delivery or not-as-described cases that result in a refund. Etsy will also work with you to investigate chargebacks, and help you deal with any other issues that come up with your Etsy shop.”

The only financial support Etsy will provide is in the case of non-delivery or not-as-described situations. If you did have a product liability claim filed against your shop, Etsy may help you navigate through your next steps, but you are ultimately the one who has to pay.

At the end of the day, the Seller Protection Program should not be thought of as a type of insurance for etsy sellers.

A man confidently works on a metal piece in his home studio, which is covered with etsy seller insurance.

Q: Can Etsy be sued for a product liability claim instead of me?

A: Etsy has millions of dollars to spend on a smart legal team who thought about this exact situation. Under the Warranties and Limitation of Liability section of Etsy’s Terms of Use, Etsy cannot be held liable for the quality, safety or legality of an item. Pay close attention to this next part.

According to the Etsy Terms of Use, “Any legal claim related to an item you purchase must be brought directly against the seller of the item. You release Etsy from any claims related to items sold through our Services, including for defective items, misrepresentations by sellers, or items that caused physical injury (like product liability claims).”

OOF. That means you, as the seller, have to pay every last penny of a product liability claim. But, that’s not all you might have to pay for. Etsy’s indemnification policy even goes on to say, “…if Etsy gets sued because of something that you did, you agree to defend and indemnify us.”

Essentially, this means you are promising to not hold Etsy or their employees accountable for any legal claims, fees, or demands that are part of a liability claim against your shop. You also might have to pay Etsy for any legal action they must take on behalf of your claim.

The cost of just one claim is starting to add up pretty fast now…

A women looks on her laptop for etsy seller insurance so she can protect her handmade pottery business.

Q: So, where can I get product liability insurance for Etsy?

A: You can’t always find product liability insurance at the same place you get home, auto, or medical insurance. Instead, you need an insurance company who specializes in product liability coverage for online sellers. (Spoiler alert: this very article you’re reading is published by one!)

Insurance Canopy has been offering unique, customizable, and affordable product liability insurance policies for more than a decade. We help businesses like yours get protection that’s specifically made for the online marketplace space.

Our policies include a variety of coverages so you can tailor your protection plan for your individual needs. The application process is also entirely online, allowing you to apply from anywhere at any time.

With Insurance Canopy’s product liability insurance for Etsy sellers, you can rest easy knowing we have your back. Our policies can help reduce or eliminate the cost of claims Etsy does not cover—even in some cases involving product recalls or indemnification.

Get Etsy Seller Protection Today!

Everything you create is handcrafted with care, detail, and patience. You put hundreds of hours into your products and your storefront to ensure your customers have a great experience. That deserves to be protected with high-quality, trustworthy insurance.

Let Insurance Canopy be your partner in protection. Start your application for an insurance quote today and get back to creating worry free.

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