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New Insurance Requirement Could Cripple eBay Drop Off Stores.

January 25th, 2008 by Skip McGrath

On January 16th, eBay announced a massive overhaul to the eBay Trading Assistant Program that will take effect on February 11th.

The overhaul of the Trading Assistant Program (an eBay program that helps consignment sellers find customers and sell their items on eBay) was long overdue. eBay’s program provides for a Trading Assistant Directory where people who have merchandise to sell can locate registered TA’s in their local area to sell the goods on consignment for them.  The program also includes access to branded marketing materials produced by eBay and a new lead generation program to help TA’s promote their business.

The TA program, and the directory, had become clogged with thousands of inactive and/or inexperienced sellers. Many active Ta’s felt the program was basically broken.

The new announcement contains welcome and needed changes to the program, but there are a few big hurdles for some TA’s.  Today I will cover the insurance requirements for eBay drop off stores.  I will cover other important changes over the next few days.

In the past, if an eBay seller had a drop off location, this could be indicated in the directory. Now drop off sellers must agree to a separate agreement. The new term for eBay drop off sellers is Registered eBay Drop Off Location (REDOL).  The REDOL program contains many changes and constraints not required in the past.  One of the most onerous requirements is the Insurance Requirement. To sign up as a REDOL you must agree to obtain insurance as follows:

Insurance Requirements. You must maintain comprehensive public liability insurance, including products liability coverage, covering all Retail Locations, Items and Retail Location assets, personnel, and activities on an occurrence basis with a combined single limit for bodily injury, death, or property damage of not less than $2,000,000. eBay may increase the minimum coverage requirement annually in eBay’s discretion for any reason including, without limitation, to reflect inflation or other changed circumstances. You must also carry (1) casualty insurance in a minimum amount equal to the replacement value of your interest in Retail Locations, Retail Location furniture, fixtures, and equipment and the Items, (2) bailee’s insurance sufficient to cover total loss or destruction of all Items, (3) a $25,000 bond to protect your sellers checks, (4) business interruption insurance in an amount sufficient to cover fixed expenses and (5) Internet insurance coverage in the minimum amount of $1,000,000 per BLIP, with coverage for intellectual property, errors and omissions and personal injury;

Liability insurance is regulated state by state.  In many states this insurance is impossible to obtain. In others it is both difficult and expensive.  Product liability insurance is prohibitively expensive and bailee insurance is very difficult to find because the insurance company has no way of knowing in advance what the bailment is.

Bailee insurance is property and casualty insurance on inventory, merchandise and goods you hold for others.  For example, if your dry cleaner burns down and they lose your shirts, the shirts do not belong to the dry cleaner, they belong to you, so the dry cleaner’s bailee insurance would cover them.  This is easy for an insurance company to figure out for a dry cleaner because all they have is clothing.  But an eBay REDOL store could have anything from expensive jewelry and art to used guitars, tools and old pasta machines.  Getting bailee insurance when the insurance company does not know the nature of the goods is difficult. It’s not impossible –you can insure almost anything these days if the price is right, but this may be too great an expensive for a small independent drop off store.  The franchise chains have it a little easier as they have buying power.

The other difficult issue is product liability insurance. Here again unless you specialize in one type of merchandise (and many TA’s do), neither you or the insurance company know from one day to the next what type of product you will be selling.  Some products such as toys and baby cribs, tools and small appliances are expensive to insure, while something like vintage fashions would not be.

I called my business insurance broker –a large B2B Seattle firm, and described an eBay drop off store, what they sold and the insurance requirements.  It took him a week to find coverage and the annual premium quote was $41,000. It did not include bailee insurance, and the product liability insurance portion was 80% of the total. My agent did say he could get me bailee insurance if I could specify and limit the type of goods.

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