E-commerce business owners often look for ways to increase their cart size to in turn increase the revenue of their business. Many resort to adding package protection, a form of warranty or guaranty that a package will arrive undamaged. However, many of these package protection products may run afoul of state insurance law.

E-commerce merchant liability typically ends when a package is handed over to a transportation carrier, such as UPS, USPS, or Fed Ex. In turn, the carrier’s liability typically ends upon delivery of the product to the consumer’s residence. However, there has been an increase in “porch pirates,” those who steal delivered products from a consumer’s porch. Theft of a product from a consumer’s porch is an incident considered beyond the carrier’s control, leaving the consumer with the risk. If the package costs less than the consumer’s homeowners insurance, it may not be worth making a claim. E-commerce merchants, therefore, have offered package protection to fill this gap.

However, package may run afoul of insurance regulations. To provide insurance under many state laws, a party must be licensed by the state in which the insurance is provided. Insurance is typically defined as a contractual agreement to assume any risk of loss outside of the consumer’s control, and package protection often meets this definition.

Some companies, such as Route, have stepped in to fill this gap. Route has particularly raised millions of dollars in capital, which allows it to seek licensing to provide licensed insurance services in a number of states.

If you offer package protection, it is worth speaking with one of our e-commerce attorneys to determine if you need to be registered as a licensed provider of insurance under state law.