What Insurance Do Online Sellers Need to Protect Against Customer Lawsuits in Canada?

You’ve built your online store and orders are coming in, but what happens if a customer claims a product they bought from your small business injured them or damaged their property?

Product liability lawsuits where consumers sue over alleged product defects, such as faulty consumer goods or manufacturing defects can hold online sellers or retailers liable, even if they didn’t manufacture the product themselves. That makes product liability insurance for online sellers in Canada crucial.

Consumers may sue an online business if they suffer an allergic reaction to a product (including food) or if an item they bought damages their property. Consumers may also take legal action against a retailer if they visit a physical store and suffer an injury. 

In Canada, anyone in the supply chain – including resellers, importers, and online marketplace sellers – can be named in a lawsuit.

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A Zensurance survey of Canadian consumers found most (69.3%) would sue a small business if injured in a slip-and-fall accident on their premises, and 14.67% said they’d sue a retailer or online seller if a product they bought damaged their property or injured them

Most survey respondents (58.8%) also said they would openly discuss legal action they are taking against a business with friends, family, and colleagues, highlighting how negative word-of-mouth opinions consumers share with others could be detrimental and lead to a loss of business.

Also noteworthy, a 2023 survey found seven out of 10 Canadian small business owners had to deal with a legal dispute in the past three years, representing a 230% increase from 2015.

So, if you sell online – even part-time – this article will help you understand how to protect your business and finances from customer lawsuits and other liability risks with a customized e-commerce insurance policy.

Can You Be Sued for Selling Products Online in Canada?

According to Statistics Canada, nearly one in three of Canadian businesses use e-commerce platforms to sell goods, with digital sales reaching $347 billion in 2023. An estimated 32% are small businesses that often use company websites and third-party marketplace platforms, like Amazon, Shopify, and Etsy.

Online marketplaces do not take on the responsibility for the products sold by third-party sellers. 

For instance, Amazon requires many professional sellers earning $10,000 or more per month to carry at least $1 million in general liability insurance.

Before assuming you’re covered, check what third-party platform you’re using requires you to have as an online seller. Even if the marketplace you’re using does not require you to carry insurance, Canadian product liability laws still apply, and you can be personally liable if you operate as a sole proprietor.

And if embroiled in legal action, it’s expensive for a business owner or online seller to hire legal representation to defend themselves in a lawsuit. For example, in Ontario, hourly rates of senior lawyers may range between $350 to $750 per hour.

Even a minor claim can cost $25,000 or more in legal fees before reaching court.

What Insurance Does an Online Seller or E-Commerce Business Need?

To protect against customer lawsuits and financial loss, most Canadian online sellers should consider the following types of coverage: 

• General Liability Insurance covers third-party bodily injuries or property damage that occur on your business premises or because of your operations. For example, general liability insurance may cover damages caused to others due to a slip-and-fall accident.

• Product Liability Insurance covers claims made by customers that a product you sold to them injured them or damaged their property – even if you did not manufacture it. It covers third-party property damage or bodily injury caused by a product you sell, manufacture, or distribute.

• Cyber Liability Insurance helps online retailers and sellers recover from data breaches or cyberattacks (ransomware, phishing) that compromises your confidential data as well as repairs and restoration of the software systems damaged due to a cyber event. It’s essential coverage if you collect customer emails, payment details, or personal data.

• Errors and Omissions (E&O) Insurance covers online businesses that provide advice, digital services, coaching, or consulting online. Also known as professional liability insurance, this type of insurance helps business owners deal with allegations of professional negligence, errors, mistakes, and failing to deliver a service as promised.

• Commercial Property Insurance is essential if you store inventory at home or in a warehouse. It covers damages and losses to your business property, contents, and inventory caused by fire, internal water damage, natural disasters, theft, and vandalism.
  
  Note: Most homeowner insurance policies do NOT fully cover online business inventory or product liability claims.

How Much Liability Insurance Do Online Sellers Typically Need?

Many small online sellers may pay a few hundred dollars per year, depending on the risk factors they face.

Insurers will weigh multiple factors about your operations to determine a price for an annual policy, including:

• Your location
• The type of products or services you provide
• The volume of products sold and if you sell to consumers in or outside of Canada or both
• Where the products you sell are sourced from
• The coverage, coverage limits, and deductibles you choose
• Your annual and projected revenue
• Your business insurance claim history

Most online marketplaces require sellers to carry a minimum of $1 million to $2 million in liability coverage and will request to see a certificate of insurance (COI) to verify you are insured.

What Happens If You Don’t Have Online Sellers Insurance?

If you’re operating an online or e-commerce business without any liability insurance, and a legal action is initiated against you, you can be personally liable for:

• Your own legal defence expenses
• Any out-of-court settlements reached with a plaintiff
• Any court-ordered judgments against your business

A single lawsuit – even one that is dismissed or determined to be frivolous – could freeze your operations, drain your savings and cash flow, severely damage your reputation and lead you into bankruptcy.

Online Seller Insurance Checklist for Canadian E-Commerce Businesses

Designed for Amazon sellers, Shopify store owners, Etsy sellers, and independent online retailers in Canada, use this checklist to determine what type of insurance coverage your online business may need:

1. What Are You Actually Selling?

• List all the products you sell (physical goods, digital products, services or advice)
• Do you manufacture, import, rebrand, or resell products?
• Are any products you sell considered high risk? (Beauty products, food or supplements, electronics, children’s items)

2. Where Do You Sell?

• Your own website (e.g., Shopify or WooCommerce)
• Third-party marketplaces (Amazon, Etsy, etc.)
• Social media platforms (Instagram, Facebook Shops)
• Do you sell outside Canada (e.g., to U.S. customers)?

3. Inventory and Property Protection

• Do you store inventory at home?
• Do you store inventory at a warehouse where you rent space?
• Do you rely on expensive equipment to run your business? (Computers, packaging tools, printers)

Note: Homeowner insurance policies often do NOT fully cover a small business’s inventory.

4. Marketplace Requirements

• Have you reviewed the third-party marketplaces’ insurance requirements?
• Do you need to name the platform as an additional insured?
• Do you have a valid certificate of insurance (COI)?

5. Financial Reality Check

• Could you afford to pay $25,000 or more in legal defence fees?
• What would happen if a customer claimed a product you sold them injured them?
• Would a lawsuit shutter your business?

6. Final Step: Protect Your Business

If you’re unsure about your exposure, the safest next step is to get a customized e-commerce insurance quote tailored to your products and sales volume.

Frequently Asked Questions About Insurance for Online Sellers in Canada

Do I legally need insurance to sell online in Canada?

In most cases, no. It’s not legally required just to start selling online, but it’s often contractually required and strongly recommended. Many marketplaces (like Amazon) require sellers to carry liability insurance once they reach certain sales levels. Even if it’s not mandatory, you can still be sued if a customer claims your product caused injury or damage.

Can I get coverage if I’m just starting out?

Yes. Many insurers offer coverage for new and part-time online sellers – even if you operate from home or haven’t generated much revenue yet. Getting coverage early can help you meet marketplace requirements and protect yourself from unexpected lawsuits as you grow.

How much does online seller or e-commerce insurance cost in Canada?

It depends on what you sell, your revenue, and where you sell (Canada only or including the U.S.). Many small online sellers may pay a few hundred dollars per year for a policy. The best way to know your cost is to request a personalized quote based on your products and sales.

What does liability insurance cover for Canadian e-commerce businesses?

Liability insurance for online sellers in Canada typically covers product liability (injury or damage caused by products you sell), your legal defence costs, settlements and court judgments, and third-party bodily injury or property damage. This protection applies whether you sell through your own website or platforms like Amazon and Shopify.

Protecting Your Online Business Is Protecting Your Future – Get a Free Quote

Don’t wait until a customer files a claim. Protect your online business before a lawsuit threatens your savings, reputation, and growth.

Get the right, low-cost e-commerce insurance for online sellers in Canada entirely online right now and protect your online selling business as it grows.

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