Ravi and Claire spent two years building a smart water leak sensor in a shared lab space in Seattle's SoDo neighborhood. They raised a seed round, manufactured their first run of ten thousand units overseas, and signed a vendor agreement with a national home improvement retailer.
The agreement's insurance exhibit was two pages long. Their only insurance was a small office policy their landlord required.
What they asked for
Whatever the retailer needed to see before the first purchase order shipped: products liability with specific limits, and the retailer named as an additional insured under a vendors endorsement.
What the review found
Products liability had to be real, not a certificate. The retailer required $2 million per occurrence of general liability including products and completed operations, a vendors endorsement naming the retailer, and a carrier with a minimum financial rating. The founders' office policy had no products coverage for goods they manufactured.
Their inventory was uninsured in transit and in the warehouse. Ten thousand units were about to sit in a third-party logistics warehouse, then move by truck. The office policy covered their lab equipment, not goods in a warehouse across town or on a truck.
Investors would ask about D&O. They had a board with an investor seat and were planning a priced round within the year. They had no directors and officers coverage.
What we put in place
We placed general liability with a carrier that writes consumer electronics and understands the product: a device that sits near water and sends alerts. The policy includes products and completed operations at the limits the retailer required, a vendors endorsement naming the retailer, and worldwide coverage for products sold into the United States. We walked the founders through the underwriting questions about testing, certifications, and recall procedures, which carriers care about as much as revenue.
We added commercial property for their lab equipment and prototypes, plus a stock throughput policy covering inventory from the factory to the warehouse to the retailer's distribution center.
We placed directors and officers coverage sized for their stage, so it was in place before the next round's term sheet asked for it.
Why it mattered
The purchase order shipped on schedule. A few months later, a firmware update caused a batch of units to send false alerts, and a handful of customers complained. No one was hurt and no property was damaged, so it never became a liability claim. But because the carrier already understood the product, the conversation about a potential recall was a phone call with an underwriter, not a surprise at renewal.
If you make a physical product
- Read the vendor agreement's insurance exhibit before you sign it
- Make sure products liability covers goods you manufacture, not just sell
- Insure inventory in the warehouse and in transit, not just at your office
- Put D&O in place before investors ask, not after
See how we work with technology companies and startups, or ask for a free policy review before your next vendor agreement.