NBTY Inc., following in the footsteps of Whole Foods Markets last year and Walgreens before, has recently begun enforcing higher liability and other insurance limits. These changes will adversely affect suppliers’ insurance costs, according to Greg Doherty, dietary supplement practice leader at Poms & Associates Insurance Brokers Inc.
“For the past several years the product liability insurance requirements for NBTY have been pegged at $3,000,000. I suspect that these new requirements, both in terms of limits and breadth of coverage, are connected to NBTY’s acquisition by Carlyle,” says Doherty, referring to the acquisition of NBTY by Carlyle Group in 2011. “In my experience, big companies think that all of their suppliers should have commercial insurance as comprehensive as theirs, but it just doesn’t work that way as a practical matter.”
The new requirements, rolled out in December and which NBTY may modify so as to make them more practical, especially for smaller suppliers, include the following minimums:
- Product liability in the amount of $3,000,000
- Commercial general liability (not including product liability) in the amount of $8,000,000
- Employee Dishonesty coverage in favor NBTY in the amount of $1,000,000
- Errors and omissions coverage and Cyber Liability coverage in the amount of $5,000,000
- Automobile coverage in the amount of $1,000,000
For many NBTY suppliers, these requirements will mean additional premiums, in some cases substantial.
The process of implementing the new requirements, and gathering the necessary documentation from suppliers, will be the responsibility of Global Risk Management Services (GMRS) of Irvine, Calif., which has been retained by NBTY for this purpose. Exceptions to these requirements can reportedly only be made by NBTY, not GMRS, according to a spokesperson at GMRS.
“This is their initial rollout and it is my opinion that they will be getting pushback on some of the requirements, just like Whole Foods did last year,” continues Doherty. “For our clients, Whole Foods made some exceptions, which in my opinion was the right thing to do based on suppliers individual circumstances. I suspect that NBTY will either alter these initial requirements and/or make exceptions as may be appropriate, based on individual suppliers circumstances. This is just beginning of this story. ”