Re: RLI liability coverage

[Guest guest]

Angie, I have not followed this topic closely, but I thought the original

question was regarding people who purchase bulk lotion and then add other

ingredients? It seems to me that this was not covered in your discussion

with the underwriter, or at least it didn't appear to be in her reply to

you. Someone posted some of the language in the contract the other day, and

from that, it looked like if you added ingredients, you would not have

coverage. This makes sense to me because by adding ingredients you could

compromise the formula, especially the preservative portion of it.

Pat.

Peace, Joy, Serenity

House of Scents tm. Body Oils, Fragrance Oils, Incense, Candles, Soap, Etc.

pat@...

www.houseofscents.com/

> From: Randy_Hacker@...

> To: angelalt54@...

> :

>

> As per our discussion this afternoon, I understand that you are buying

> personal care product ingredients in bulk which are received in buckets.

> You use these bulk ingredients to make your own personal care products and

> then you sell them. In addition, you are separating the ingredients into

> smaller quantities and selling them as part of your product line. Your

> business activities are acceptable under our Personal Care Product

> classification for the In-Home Business Policy.

>

> Re-labeling products becomes an underwriting concern, because the BOP

> coverage forms we use do not exclude coverage for this activity. So from

> an underwriting standpoint, we elect not to issue coverage for individuals

> who place their labels over top of manufacturer's labels or replace a

> manufacturer's label with their own label. We address this on the new

> business application. If you were to take the buckets of bulk ingredients

> you purchase and place your label over top of the manufacturer's label on

> the buckets and sold them, this would not be acceptable. We would elect

> not to write a policy for you in that case.

>

> I hope that I have been able to address your concerns with regards to this

> matter. Please feel free to contact me at any time should you have

> additional questions. I can be reached at , extension 5424 or

> via email at Randy_Lange@....

>

> Thank you,

>

> Randy Lange

> Senior Product Administrator

[Guest guest]

Pat -

I've discussed this at length with my RLI agent and he's very clear that

the exclusion is *solely* for people who merely *repackage* bulk

ingredients. If the ingredients are altered by the insured in some way --

fragrance, color, etc. -- the exclusion does *not* apply. I.e., if you buy

bulk unscented lotion, add fragrance and color, package with your own label

and sell it, you *are* covered. What is not covered is repackaging and

selling products *without* altering them in some way.

I do think that is covered in the letter; the first paragraph says that

" [using] these bulk ingredients to make your own personal care products " is

" acceptable under our Personal Care Product classification for the In-Home

Business Policy. " Then she says, " If you were to take the buckets of bulk

ingredients you purchase and place your label over top of the

manufacturer's label on > the buckets and sold them, this would not be

acceptable. "

In fact, she goes farther than my agent, who does not believe merely

putting the ingredients into smaller containers under your label is acceptable.

At 03:48 PM 9/27/2001 -0500, you wrote:

>Angie, I have not followed this topic closely, but I thought the original

>question was regarding people who purchase bulk lotion and then add other

>ingredients? It seems to me that this was not covered in your discussion

>with the underwriter, or at least it didn't appear to be in her reply to

>you. Someone posted some of the language in the contract the other day, and

>from that, it looked like if you added ingredients, you would not have

>coverage. This makes sense to me because by adding ingredients you could

>compromise the formula, especially the preservative portion of it.

>

>Pat.

>

>Peace, Joy, Serenity

>House of Scents tm. Body Oils, Fragrance Oils, Incense, Candles, Soap, Etc.

>pat@...

>www.houseofscents.com/

> > From: Randy_Hacker@...

> > To: angelalt54@...

> > :

> >

> > As per our discussion this afternoon, I understand that you are buying

> > personal care product ingredients in bulk which are received in buckets.

> > You use these bulk ingredients to make your own personal care products and

> > then you sell them. In addition, you are separating the ingredients into

> > smaller quantities and selling them as part of your product line. Your

> > business activities are acceptable under our Personal Care Product

> > classification for the In-Home Business Policy.

> >

> > Re-labeling products becomes an underwriting concern, because the BOP

> > coverage forms we use do not exclude coverage for this activity. So from

> > an underwriting standpoint, we elect not to issue coverage for individuals

> > who place their labels over top of manufacturer's labels or replace a

> > manufacturer's label with their own label. We address this on the new

> > business application. If you were to take the buckets of bulk ingredients

> > you purchase and place your label over top of the manufacturer's label on

> > the buckets and sold them, this would not be acceptable. We would elect

> > not to write a policy for you in that case.

> >

> > I hope that I have been able to address your concerns with regards to this

> > matter. Please feel free to contact me at any time should you have

> > additional questions. I can be reached at , extension 5424 or

> > via email at Randy_Lange@....

> >

> > Thank you,

> >

> > Randy Lange

> > Senior Product Administrator

>

>

>

>

>

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>

>

>

[Guest guest]

> Speaking *just* in terms of liability, is that really more likely to

create

> liability than making a lotion from scratch and putting *no* preservatives

> in it? I doubt it, but there's no question *that* would be covered under

> the policy.

Unless there is an industry standards clause in the contract.

Pat.

Peace, Joy, Serenity

House of Scents tm. Body Oils, Fragrance Oils, Incense, Candles, Soap, Etc.

pat@...

www.houseofscents.com/

[Guest guest]

>Of course if you lied on the application, whether you intended to or not,

>you wouldn't have any coverage, would you?

I assume you mean " made a false statement " . As it happens, when a written

contract is unclear and subject to confusion, the language is construed

against the party who drafted it. If, in clarifying that language, you

have asked for, and received clarification from a person with " apparent

authority " to speak for the insurer (and, legally, email is recognised as

" written " ), you will likely be found to have exercised due diligence and

allowed to rely on the representations that were made to you. Even if

there was a question whether the agents can bind the insurer (which I

believe the law is clear that they *can*), there's no question that the

underwriter that Angie has been dealing with can. As recounted in her

emails, Angie has been very specific in her questions and the underwriter

has been equally clear in her answers.

> I find it difficult to believe that you can purchase a policy for as

> little as $150.00 that will cover the risks that people claim it will. I

> have to believe that somebody has their wires crossed and the insurer

> doesn't understand what they are covering, or the insured doen't

> understand the limits of the coverage.

Well, it's hardly a free lunch. The base policy (in NY, at least), is

$275 which provides $300,000 business liability coverage, which, in the

world of products liability litigation, isn't terribly much. If you

increase the coverage, the premium increases. When I increased my

liability in to the millions, the premium was significantly higher. And

that, I think, is the point. You buy coverage up to a certain

amount. Beyond that, liability is your own or, your excess carrier, if you

bought excess coverage. Again, it's your judgment whether you need

that. RLI prices its policy based on the amount of their exposure for your

actions. You may be found liable for $2 Million, but RLI is only on the

hook for $300,000. The rest is your problem. And, of course, you will be

unlikely to get coverage from them again

Insurance is experienced-based, both industry-wide and

individual. Premiums reflect what liability has actually arisen, not what

*might* -- even reasonably -- be expected to arise. I suspect that,

despite the *possibility* of liability -- which I think you and I agree can

be staggering and not to be ignored by people who make toiletries and

cosmetics -- the reality has been surprisingly few lawsuits for this subset

of the industry. That can change any day, and careless or foolish

manufacturers proceed at their own risk. One big lawsuit could change the

insurance situation dramatically and make insurance almost impossible to get.

At 02:50 PM 9/28/2001 -0500, you wrote:

> > Pat, the insurance companies don't parse out the nature of the ingredients

> > you add. " Ingredients " include raw materials like shea butter or olive

> > oil, as well as chemical compounds, like Germaben or Phenonip, polymers or

> > bulk base products. The insurance company isn't going to ask you what

>the

> > balance of parabens and diazolidinyl urea are in the preservative

> > formulation, nor if your supplier uses benzoin in a mixture.

>

>This is true, but they will generally have language somewhere in the

>document protecting them if they realize what the risk is. Of course if you

>lied on the application, whether you intended to or not, you wouldn't have

>any coverage, would you?

>

> You are the

> > one in business and the insurance company expects you to exercise your

> > judgement. If you don't, they'll defend you, but they may not renew your

> > policy.

>

>True, if the policy is written, in all likelyhood they will defend you or

>settle a claim. However, when they realize the risk, that will be the end of

>the policy.

>

>I have no personal interest in this one way or the other, but I find it

>difficult to believe that you can purchase a policy for as little as $150.00

>that will cover the risks that people claim it will. I have to believe that

>somebody has their wires crossed and the insurer doesn't understand what

>they are covering, or the insured doen't understand the limits of the

>coverage. I have learned in life that there is no such thing as a free lunch

>and if this policy covers everything that I am hearing, it is as close as

>any of us can expect to come to a free lunch.

>

>Pat.

>

>Peace, Joy, Serenity

>House of Scents tm. Body Oils, Fragrance Oils, Incense, Candles, Soap, Etc.

>pat@...

>www.houseofscents.com/

>

>

>

>

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>

>

>

[Guest guest]

At 03:40 PM 9/28/2001 -0500, you wrote:

>What I am speaking about is the person that buys a base and adds infused

>oils to

>the base that could compromise the effectiveness of the preservative.

Speaking *just* in terms of liability, is that really more likely to create

liability than making a lotion from scratch and putting *no* preservatives

in it? I doubt it, but there's no question *that* would be covered under

the policy.

Jeanne Edna Thelwell

----------------------------------

" Technique without ideals is a menace. Ideals without technique are a

mess. " -- Karl Llewellyn

[Guest guest]

Hi Pat,

I absolutely understand and it was one of the examples I used when talking

to my agent. I guess the real answer is so far there hasn't been that sort

of a claim yet and if and when there is or it begins to be a problem then

RLI will probably change their policy.

Cybilla

[Guest guest]

> Unless there is an industry standards clause in the contract.

>

The " industry " , however, would be the industry they define in their

lines which, in this case, is home-based personal care products.

(They specifically do not cover people with manufacturing facilities

outside of the home). I suspect it would be hard to identify

the " standard " for that industry and, if identified, it might very

well *not* violate the industry standard since many home-based

manufacturers don't use preservatives or use ineffective ones --

precisely the reason you formed this list.

[Guest guest]

As a side note, on the question of whether the responses Angie gets from

the underwriter are binding on the company, this is from the RLI website:

" Binding authority at the underwriter's desk

This unique level of underwriting autonomy is fundamental to our success.

RLI underwriters have real authority - and are responsible for profit. At

each of our branch offices you'll find underwriters hand-picked for their

unique blend of skills. Each is a seasoned professional who gave up the

executive suite to return to the underwriting desk. Each is exceptionally

talented in underwriting individual risks. Each possesses the experience

and entrepreneurial instincts needed to identify emerging opportunities in

overlooked " niche " markets. When you talk to an RLI underwriter, *you talk

to a principal*, and a substantial shareholder in the company. " (emphasis

added).

As a matter of agency law, that statement alone is enough to create

" apparent authority " which can be relied upon by the insured.

And, just for background, RLI is an A.M. Best " A " rated company (the

standard rating service in insurance) which wrote over $250 million in

coverage last year. This is not intended as an endorsement of RLI, but to

point out that we are not talking about a small company that doesn't know

what it's doing; this is a major company that is quite capable of assessing

risks and setting a price on them. In fact, RLI's reputation is built on

selling to " niche " markets that aren't heavily covered. (They wrote the

first contact lens policies, for instance, and there *was* a time -- I'm

old enough to remember, when individual lenses cost so much you bought an

insurance policy to cover loss and damage.)

Given their size and profitability, I suspect that liability in our

industry has simply not materialized at the level to escalate

premiums. Does this mean people should do silly things like upset the

preservative balance in bulk lotions by adding other materials without

thought? Of course not. But insurance does cover a multitude of " silly "

actions and you pay for the consequences.

Jeanne Edna Thelwell

----------------------------------

" Technique without ideals is a menace. Ideals without technique are a

mess. " -- Karl Llewellyn

[Guest guest]

>>only thing I have to go by is what my agent tells me what my

policy covers.

In reality the reverse is true. The policy you have will determine what is

covered - but more important is to read the *exclusions* in your policy.

Pat, commercial policies are frequently written on a receipts basis -- the

annual premium is adjusted based on gross receipts.

Jan Flood oakridge@...

[Guest guest]

> I assume you mean " made a false statement " .

No, if that is what I meant, then I would have said so. I said if a person

lied, and when I wrote that I was thinking of the statement that was posted

to this list a week or so ago, " ( " Do you repackage food or personal care

products to be sold under your own label? " Then it goes on to say

that if you answer any of the questions YES then you are not

elligable for coverage. ) " . If a person answers no to that question and part

of their business includes repackaging and selling under their own label, I

would consider that lying and I also think it would nulify the contract. The

" you " I refered to in my previous post was not intended to refer to you

personally, rather it was intended to refer any person.

As it happens, when a written

> contract is unclear and subject to confusion, the language is construed

> against the party who drafted it.

If the application is in fact written as it is above, there is nothing

unclear about it.

Even if

> there was a question whether the agents can bind the insurer (which I

> believe the law is clear that they *can*), there's no question that the

> underwriter that Angie has been dealing with can. As recounted in her

> emails, Angie has been very specific in her questions and the underwriter

> has been equally clear in her answers.

An Agent can temporarilly bind the insurer, but the final say is with the

underwriter. In this case the underwriter is saying something that conflicts

with what is on the application, but that is their problem. This has nothing

to do with what I asked about. I don't see what resellers are doing as a

great risk.

> Well, it's hardly a free lunch. The base policy (in NY, at least), is

> $275 which provides $300,000 business liability coverage, which, in the

> world of products liability litigation, isn't terribly much.

If you checked other insurers you know that $275 in NY is cheap.

If you

> increase the coverage, the premium increases.

That goes without saying.

When I increased my

> liability in to the millions, the premium was significantly higher. And

> that, I think, is the point.

Are you saying that RLI went past a million without passing off some of the

risk to another insurer?

> Insurance is experienced-based, both industry-wide and

> individual. Premiums reflect what liability has actually arisen, not what

> *might* -- even reasonably -- be expected to arise. I suspect that,

> despite the *possibility* of liability -- which I think you and I agree

can

> be staggering and not to be ignored by people who make toiletries and

> cosmetics -- the reality has been surprisingly few lawsuits for this

subset

> of the industry.

I think that part of the reason was that up until rather recently, it was

mostly soap makers that carried their coverage. Now that soap makers are

branching out into other areas, let us see what the future brings.

Pat.

Peace, Joy, Serenity

House of Scents tm. Body Oils, Fragrance Oils, Incense, Candles, Soap, Etc.

pat@...

www.houseofscents.com/

[Guest guest]

Hi Jan.

> Pat, commercial policies are frequently written on a receipts basis -- the

> annual premium is adjusted based on gross receipts.

Yes Jan, I am aware of this. I have been dealing with commercial policies

for over twenty years.

Pat.

Peace, Joy, Serenity

House of Scents tm. Body Oils, Fragrance Oils, Incense, Candles, Soap, Etc.

pat@...

www.houseofscents.com/