7 Online Retailer Risks in Canada Liability Insurance Can Cover

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E-commerce liability insurance is vital coverage for online retailers and e-commerce businesses in Canada. Here are seven reasons why every online seller should have a customized policy to protect their finances.

7 E-Commerce Liability Risks Small Businesses in Canada Face

Running an e-commerce business in Canada exposes small businesses and online sellers to a range of risks that can lead to financial losses, lawsuits, or reputational damage. Here are the most common:

1. Product Liability

Any e-commerce business or independent online seller using third-party marketplaces such as Amazon or Etsy may face a legal dispute if a product they manufacture, distribute, or sell (including food) causes a customer to suffer an injury or if a product damages a customer’s property.

Example: An online seller sells a hand lotion to a customer that causes them to suffer an allergic reaction, and they seek medical attention. The customer could file a claim or lawsuit against the online seller for pain and suffering and to recover their medical expenses.

2. Cybersecurity Breaches

Cybercrime is one of the fastest-growing risks for Canadian e-commerce businesses. A single phishing attack, ransomware attack, or data breach could lead to stolen customer information, lawsuits, and reputational damage.

Example: An employee receives an authentic-looking email from a customer that contains a malicious link, and they click on it. Upon doing so, malware is installed on their work laptop, such as ransomware, that infiltrates your company’s network and grants a hacker access to your internal network to steal sensitive data.

3. Fraud and Payment Risks

Online fraud typically involves a cybercriminal using stolen credit cards, identity theft, or fake accounts to place an order for a product with an e-commerce business. The legitimate cardholder or individual may dispute the charge once they become aware of it. If the product has already been shipped, that’s inventory you’ve lost, and your small business may face fees from its payment processor for the fraudulent transaction.

Chargebacks are also a common threat to e-commerce businesses. It occurs when a customer disputes a payment with their credit card provider. Whether due to fraud, shipping delays, or an unhappy customer who’s displeased with the item they bought, your e-commerce business is obliged to refund the customer and cover any chargeback fees, which may cost between $20 to $100 per transaction.

Example: When a customer disputes an online purchase with their bank, the payment is reversed at the seller’s expense – banks and credit card providers typically side with the customer in ‘card-not-present’ transactions. Therefore, an online retailer could lose both the product and the sale revenue, plus incur an additional chargeback fee, if the cardholder claims the transaction was unauthorized or the item was never received.

4. Shipping and Fulfillment Risks

If one of your customers doesn’t receive a product they purchased from you in the expected timeframe, the item is damaged in transit, or never arrives, your customer will likely hold you liable for the situation, even if a third-party delivery company caused the problem.

Example: An online retailer selling coffee mugs faces losses when two mugs arrive at a customer’s home broken due to mishandling by the courier. The retailer must now pay a refund, the replacement costs, and absorb the cost of lost inventory, with limited recovery due to courier liability caps. The incident may also damage the retailer’s reputation and customer trust if the customer posts a negative review of their experience online.

5. Intellectual Property Infringement

Even if done inadvertently, using copyrighted images, texts, trademarks, or patents belonging to others without permission to promote the products you sell, or in your business’s marketing and website content, can lead to a lawsuit with the rights holder.

Example: An online retailer sells t-shirts with a logo resembling a well-known brand. The brand owner can demand that sales stop, seek damages through the courts, and force the product’s removal from your online store, resulting in financial and reputational harm.

6. Business Interruption

If your e-commerce business’s website goes down for an extended period of time because of a systems outage, a fire in your workplace causes extensive damage, forcing you to close, or your supply chain is upended because of a natural disaster or extreme weather, you’re out of business and losing money by the hour.

Example: An online retailer’s website crashes during a holiday sale, preventing customers from placing orders. Now, your small business is facing lost revenue, frustrated buyers, and potential long-term damage to your reputation. It can also leave you with unexpected, higher inventory storage costs that are not covered by the sales.

7. Marketing and Advertising Liability

Misleading customers by making exaggerated statements about the products you sell, failing to disclose limitations of a product, or even selling goods stating they are “Made in Canada” when they weren’t, can lead to lawsuits or regulatory sanctions against your online business.

Example: An online health supplement retailer claimed their pills were ‘clinically proven to cure insomnia in just three days.’ If the Competition Bureau of Canada determines that this claim is exaggerated or false, the retailer could face significant penalties, including fines, mandatory refunds to customers, and even legal action.

What Type of Insurance Do E-Commerce Businesses in Canada Need?

E-commerce businesses, independent online sellers, and online retailers in Canada require comprehensive e-commerce insurance to cover the liability risks they face. A standard e-commerce insurance policy may include:

• Cyber Liability Insurance: Every online retailer, e-commerce business, or independent seller should have cyber liability insurance. It safeguards your small business from costs associated with recovering from a cyber-attack, data breach, or online fraud.
  
  It’s designed to cover the costs of notifying your customers and repairing your data systems, as well as any legal expenses resulting from a data breach or cyber incident that compromises your computing systems and confidential data.
• Product Liability Insurance: Product liability insurance covers third-party bodily injury and property damage claims made against you caused by a product you manufacture, distribute, or sell. It’s critical coverage for any e-commerce business or online retailer to have.
  
  It’s often included in a general liability insurance policy or can be added to your overall policy.
• General Liability Insurance: General liability insurance is designed to cover third-party bodily injuries and property damage claims against your online business, whether they occur on your business property or from your regular operations.
  
  For example, if a customer is injured in a trip and fall at your place of business while picking up an order and requires medical assistance, general liability insurance may cover their medical and rehabilitation expenses.
• Commercial Property Insurance: Commercial property insurance covers damages and losses to your business premises, contents, and inventory if damaged by fire, water from a burst pipe, natural disasters, theft, and vandalism.
  
  Some commercial property policies may also include business interruption insurance to cover lost income and your business’s operational expenses if it’s forced to close for repairs following an insurable loss, such as a fire, or it can be added to a policy.

There may be other types of coverage your policy should include to adequately protect your e-commerce business. Speak to a licensed Zensurance broker if you have questions about what your small business’s policy should include.

Frequently Asked Questions About E-Commerce Insurance in Canada

How much does e-commerce liability insurance in Canada cost?

Several factors can impact the cost of an insurance policy for e-commerce businesses, including product and shipping location. For example, expensive products, such as luxury watches, tend to have a higher premium. For a low-risk small business, you can expect a starting annual cost of approximately $500 for a basic policy.

Is e-commerce liability insurance required by law in Canada?

No. However, many third-party marketplaces online sellers use, such as Amazon, require business owners to carry liability insurance if they reach specific sales thresholds.

How to Get Low-Cost E-Commerce Liability Insurance in Canada Quickly

Zensurance is Canada’s leading small business insurance provider, helping small business owners and independent professionals across various industries get the comprehensive, low-cost insurance they need online easily, including e-commerce insurance.

Complete our online application for a free insurance quote in just a few clicks.

Our team of experienced insurance brokers will shop our partner network of over 50 insurers to find the right coverage for your online business, tailor it to suit your requirements and budget, and issue policy documents and a certificate of insurance within 48 hours or less.