NBTY Raises Liability Insurance Requirements, Adds New Coverage Demands

Dietary supplement manufacturer NBTY Inc. (Ronkonkoma, NY) began enforcing higher liability and other insurance requirements in December for outside suppliers of raw materials and outside companies using NBTY to distribute finished products, reports Greg Doherty, a commercial insurance broker specializing in the dietary supplement industry. Doherty says NBTY’s actions to raise insurance requirements follow similar steps taken by Whole Foods Market last year and Walgreens previously.

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.

These changes will adversely impact suppliers’ insurance costs due to additional premiums, Doherty says-adding that NBTY may end up modifying the requirements to make them more feasible, especially for smaller companies. “In my experience, big companies think that all of their suppliers should have commercial insurance as comprehensive as theirs, but it just doesn’t work that way as a practical matter.”

“This is their initial rollout, and it is my opinion that they will be getting pushback on some of the requirements, just like Whole Foods did last year,” he adds. “For our clients, Whole Foods made some exceptions, which in my opinion was the right thing to do based on suppliers’ individual circumstances.”

He concluded, “I suspect that NBTY will alter these initial requirements and/or make exceptions as may be appropriate…”

Meanwhile, these new NBTY requirements likely stem from the company’s 2011 acquisition by the Carlyle Group, Doherty says. As opposed to the new $3 million product liability minimum, “for the past several years, the product liability insurance requirements for NBTY have been pegged at $2 million,” says Doherty, the dietary supplement practice leader at insurance firm, Poms & Associates Insurance Brokers Inc. (Woodland Hills, CA).

Doherty also reports that NBTY has hired Global Risk Management Services (Irvine, CA) to implement the new insurance requirements among suppliers.