State Farm Insurance Sues Amazon After Huge Payout

State Farm Insurance is suing eCommerce giant Amazon to reclaim a payout for one of their insured parties. An LED light fitting that was sold by a third-party seller allegedly caused a fire in the home of a customer, leading them to sue Amazon. Since September last year, Amazon have required sellers to purchase liability insurance to avoid being held responsible for damages caused by items sold on their platform. The sellers, who are insured by State Farm, were protected by the liability insurance they purchased, protecting them from a nasty lawsuit which could have ended their business.

So why are State Farm Insurance suing Amazon?

Here’s where it gets interesting. State Farm inially accepted the claim on behalf of their clients and paid  $246,215 in damages. However, after the payout, they decided that the responsible party in the story is none other than Amazon itself. State Farm Insurance is claiming that while Amazon is not the manufacturer or seller of the LED lights, it was their responsibility to include a warning on the product page, alerting potential buyers that the product was a fire hazard. 


State Farm want Amazon to pay them back for the payout that they gave out, claiming that their client wasn’t responsible for the lack of warning on the product page.

Who is really responsible here?

Essentially, the courts will have to decide who is really responsible here. But the lawsuit raises an interesting point worth thinking about. Who is responsible for products sold by third parties on eCommerce platforms and marketplaces? As third party sellers grow in volume, so does the volume of claims made from customers. It makes sense that they will have to assume more and more responsibility for what they sell, but the line must be drawn somewhere. 

What's the moral of the story?

You may be asking yourself what all this means for Amazon sellers. Here’s the answer, liability insurance is a non-negotiable. Without State Farm Insurance, the sellers themselves would be totally liable for the initial damages and would have had to go through the headache of legal battles with the customer and with Amazon. 

By having liability insurance, they were entirely covered and didn’t have to worry about their business going under due to a payout of hundreds of thousands of dollars. 

If you’re still on the fence about whether or not you need liability insurance, now is the time to get covered and minimize the risk that your business will collapse. Get a quote today and save up to 30% on your liability insurance.


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