Dropshipping Insurance: Product Liability When the Supplier Ships
When a supplier ships straight to your customer, the box leaves their warehouse but the claim comes to you. Here is how product liability works for dropshippers on Amazon and beyond.
The seller of record carries the claim
We work with hundreds of Amazon sellers, and the dropshipping question we hear most is a simple one: if I never touch the product, why do I need product liability? The answer starts with who the customer bought from. On Amazon, the buyer orders from your seller account, pays your business and sees your name on the order. When the product hurts someone, your business is the one in the lawsuit, next to the brand and anyone else in the chain a plaintiff’s lawyer can find.
Product liability law reaches well past the factory. Courts treat it largely as strict liability, so a plaintiff who proves the product was defective does not have to prove you were careless, and the chain runs from the maker of a component down to the retailer that made the sale. A dropshipper sits squarely in that chain, even though the goods never pass through its hands.
California, where Mithril1 is based, gives a reseller no such shelter. Its courts have held retailers strictly liable since Vandermark v. Ford Motor Co. in 1964, and in Bolger v. Amazon.com in 2020 a state appeals court applied the rule to Amazon itself for a product a third-party seller listed. Some states, Texas among them, shield a seller that did not make the product, but even there the shield gives way when the manufacturer is insolvent or beyond the court’s reach, which is common when the supplier is an overseas factory.
What Amazon’s drop shipping policy asks of you
Amazon allows drop shipping on one condition stated in its Drop Shipping Policy: you must be the seller of record. Your business has to be the only seller identified on packing slips, invoices, external packaging and inserts, and you need an agreement with the supplier that makes you the only seller of record. Any paperwork naming a different seller or supplier has to come out of the box before the order ships.
You also stay responsible for accepting and processing returns, and your Business Solutions Agreement still binds you. Buying the item from another online retailer after a customer orders, and having that retailer ship its own parcel, is the pattern the policy rules out, because the box arrives under someone else’s name. Amazon’s stated consequence for violations is a restriction on your ability to sell through its Merchant Fulfilled Network. Read the current policy in Seller Central before you set up a new supplier.
The insurance rule follows the same logic. Amazon asks the seller account to carry commercial liability once sales pass Amazon’s threshold, or at any level in enhanced-safety categories such as children’s products, cosmetics, ingestibles and lithium-battery goods. A supplier’s policy does not satisfy it, because Amazon wants a certificate naming your business, with Amazon added as additional insured. Our Amazon seller insurance requirements page covers the figures, limits and wording.
Reading a supplier’s certificate
A sound supplier carries its own product liability, and asking for proof is one of the first steps in vetting one. Ask for a certificate of insurance and check four things. The named insured should be the company you contract with, not a parent or sister business. The policy should be commercial general liability with products-completed operations, or a standalone product liability policy. The limits should match or exceed your own, and the dates should be current, with a renewal you will hear about.
Then look at territory, which is where many supplier policies fall short. A policy written abroad for a domestic manufacturer is usually built for claims brought at home, and some exclude suits filed in the United States and Canada outright. Ask the supplier in writing whether its policy responds to bodily injury claims brought in a US court, and keep the answer in your file. A US wholesaler or fulfillment partner with a US policy is a much simpler conversation.
Getting added through a vendor’s endorsement
A certificate shows that the supplier has insurance. A vendor’s endorsement makes part of it yours. The standard ISO form, CG 20 15, names each business that sells the supplier’s products as an additional insured for bodily injury and property damage arising out of those products, when they are sold in the vendor’s regular course of business. In a lawsuit naming both of you, the supplier’s insurer then defends you as well, within the endorsement’s terms.
The endorsement has edges worth knowing. It excludes warranties you give that the manufacturer never authorized, intentional physical or chemical changes you make to the product, and repackaging, unless a product is opened only to inspect, demonstrate or test it and goes back in its original container. Products relabeled after the manufacturer sells them are excluded too. For a dropshipper who adds a private-label sticker or bundles items in a new box, those exclusions matter. Our guide to additional insured endorsements covers the wider family of forms.
Ask for the endorsement to name your business, or for a blanket vendors endorsement that reaches any business the supplier has agreed in writing to protect. Then put that agreement in your supply contract.
Supplier contracts that back up the insurance
Insurance follows contracts. A short supplier agreement should hold an indemnity clause, in which the supplier agrees to defend you against claims arising from defects in its products, and a duty to carry product liability that responds to US claims at stated limits. Add a duty to name you as additional insured through a vendor’s endorsement, notice before the policy is cancelled or changed, and cooperation in a recall, including who pays to pull goods back.
Write in the drop shipping terms Amazon expects as well: you are the only seller of record, the supplier ships without its own invoices or branding, and it follows your packing instructions. Keep the signed agreement, the certificate and the endorsement together, renew all three each year, and ask for a fresh certificate whenever the supplier changes insurers.
Your own policy still comes first
A supplier’s coverage is a second source of money, not a substitute for yours. Its limits are shared with every other business it sells through, a policy can lapse between renewals without anyone telling you, and an overseas insurer is hard to reach when a claim arrives. Your own general liability with products-completed operations answers for your business directly, and it carries the additional insured endorsement Amazon needs to see.
Underwriters rate a dropshipper on what it sells and who makes it. Bring your product list with sales by product, each supplier’s name and country, the certificates and vendor’s endorsements you hold, your sales by channel and any complaints or claims so far. If you also sell on Shopify or Walmart, list those channels too. Our product liability insurance page explains the coverage itself, and the Amazon seller insurance hub links the rest of the series.
A few useful answers
Common questions
Do I need product liability insurance if my supplier ships the orders?
Yes. Your business is the seller of record, so an injured customer names you. Amazon also asks your seller account, not your supplier, to carry the policy once sales pass its threshold.
Does my supplier's insurance satisfy Amazon's requirement?
No. Amazon wants a certificate showing your business as the named insured with Amazon added as additional insured. A supplier’s policy can protect you as a second layer through a vendor’s endorsement, but it cannot replace your own.
Can I dropship products bought from another retailer?
Not when that retailer ships its own parcel. Amazon’s Drop Shipping Policy requires you to be the only seller identified on the packing slip, invoice and packaging, so another retailer’s box breaks the rule.
What should I check on a supplier's certificate of insurance?
The named insured, products-completed operations coverage, the limits, current dates and whether the policy responds to claims brought in US courts. Then ask for a vendor’s endorsement naming your business.
Does a vendor's endorsement protect me on products I repackage?
Generally not. The standard CG 20 15 form excludes repackaging and relabeling after distribution, apart from opening a product to inspect or test it and returning it to the original container.