NBTY to Be Flexible About Higher Insurance Requirements, UNFI Starts Raising Limits

February 20, 2013

A source says NBTY expressed a willingness to discuss exceptions to the new requirements.

Following a January announcement that dietary supplement manufacturer NBTY Inc. (Ronkonkoma, NY) is now requiring higher liability insurance limits for the companies it works with, insurance broker Greg Doherty, who first broke the NBTY news, now reports NBTY indicates it will be try to be flexible in its approach.

NBTY’s new insurance requirement minimums include, 1) product liability of $3 million, 2) commercial general liability (not including product liability) of $8 million, 3) employee dishonesty coverage-in favor of NBTY-of $1 million, 4) errors and omissions coverage and cyber liability coverage of $5 million, 5) automobile coverage of $1 million.

Doherty says that in a February conference call between his company and NBTY to discuss the new requirements, “the overwhelming sentiment NBTY expressed to us is that, while these appear to be hard and fast requirements, they are willing to discuss exceptions to the guidelines.” The company has formed an internal committee to review any requested exceptions, reports Doherty, who is the dietary supplement practice leader at insurance firm Poms & Associates Insurance Brokers Inc. (Woodland Hills, CA).

“Small companies will no doubt seek numerous exceptions,” he says. “For example, the wisdom of a small raw materials supplier to have errors and omissions coverage, as well as cyber liability, is questionable. NBTY indicated that they understand this and is willing to accommodate their suppliers on a case-by-case basis.”

The new insurance requirements would apply to outside suppliers of raw materials and outside companies using NBTY to distribute finished products.

In recent years, several companies in the dietary supplement space have raised insurance requirements for suppliers. These include Walgreens and Whole Foods Market. In January, Doherty reported that U.S. natural product and food distributor United Natural Foods Inc. (UNFI; Providence, RI) began enforcing higher liability insurance requirements.

“They did this sometime last year but it is now just hitting the radar screens of UNFI suppliers, many of which currently have a standard $2 million limit of insurance,” Doherty says. He calls UNFI’s new insurance requirements “unusual”: $3 million per occurrence and $5 million aggregate. By contrast, he says, normally the occurrence and aggregate limits match.

“Some companies are going to find it difficult to match the new requirements, so as to provide what UNFI wants-no more, no less,” he says. He added that to help companies, his firm Poms & Associates has helped develop an insurance plan that will accommodate the required $3 million per occurrence and $5 million aggregate.

“Most of the big box chains, and GNC and Vitamin Shoppe, have an insurance requirement of $5 million,” he continues. “Now some of the large distributors and manufacturers of dietary supplements are asking their suppliers to match the insurance limits that their customers demand of them. I see this trend continuing.”