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Brand New Liability Insurance Covers CA Prop 65 and False Advertising Claims

An insurance policy now exists that has been specially arranged by experts in the dietary and supplement and herbal industries to protect against false advertising and CA Prop 65.

Author: Greg Doherty
Date: Aug 25, 2011 - 12:29:20 PM

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A particular liability insurance policy formulated 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 particular significance is coverage for Proposition 65 lawsuits, which have proliferated in California. Companies are experiencing the hurt of “bounty hunter” lawsuits including civil actions by various state or local authorities.

False Advertising Insurance

Prior to this policy having been announced, there was no coverage to be had for "false advertising.” Unfortunately many people presume they have such coverage under the “Personal and Advertising Injury” division 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 insurance for allegations of false advertising. With the release of this new policy, insurance is now purchasable. 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 specific trigger of litigation, which might 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 maybe 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 ( ).

Usual Proposition 65 settlement costs, 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 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 extension of coverage under one of the policy modules called Content Liability for Media Companies and Advertisers. This module provides broad 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 use various media to advertise can already have this form of coverage. The Prop 65/false advertising insurance is an expansion of coverage beneath 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 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, as well as 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 . Website:

View all articles by Greg Doherty

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