Is Your Store Selling Insurance Without a License? A Merchant's Guide to Shipping Protection Fees
How state law defines insurance, why a "protection" label may not settle the question, and how to check your own checkout.
Back to the resource centerKey takeaways
- State law defines insurance by what a contract does: a promise to pay for a loss caused by an uncertain event.
- Regulators look at what the product does, not only at its name. The NAIC has warned that unlicensed sellers "may claim these products are warranties, guarantees, or protection plans."
- In California, insurers need a certificate of authority, and people who sell insurance need a producer license.
- Merchants are named as defendants in several shipping-protection class actions. Most of those complaints focus on how the fee is shown at checkout.
- The safest setup is real insurance from a licensed program, offered as a clearly labeled opt-in.
What counts as insurance under state law?
Each state writes its own definition. Two examples:
“Insurance is a contract whereby one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event.”— California Insurance Code § 22, leginfo.legislature.ca.gov
“'Insurance contract' means any agreement or other transaction whereby one party, the 'insurer', is obligated to confer benefit of pecuniary value upon another party, the 'insured' or 'beneficiary', dependent upon the happening of a fortuitous event in which the insured or beneficiary has, or is expected to have at the time of such happening, a material interest which will be adversely affected by the happening of such event.”— New York Insurance Law § 1101(a)(1), nysenate.gov
New York also defines a "fortuitous event" as "any occurrence or failure to occur which is, or is assumed by the parties to be, to a substantial extent beyond the control of either party."
Put those definitions next to a typical checkout fee:
| Element in the statutes | What it can look like at checkout |
|---|---|
| One party promises to pay or "indemnify" | "We'll refund or reship if your order is lost, stolen or damaged." |
| Another party pays for that promise | A separate fee the shopper pays at checkout. |
| A contingent, unknown or fortuitous event | A carrier loss, damage in transit or porch theft, none of which you or the shopper controls. |
| The buyer has something to lose | The shopper has paid for goods that may never arrive. |
When all four line up, the arrangement may be treated as insurance, depending on your state, terms and facts.
Does calling it "shipping protection" change anything?
Not by itself. Whether a product is insurance is decided by state law and regulators, based on what the product does, not what it is called.
The NAIC's July 2024 consumer alert says unlicensed sellers "may claim these products are warranties, guarantees, or protection plans," and that "Unlicensed entities are not legally allowed to sell insurance products." (NAIC)
New York's insurance regulator reached a similar conclusion about a different product in 2010. A company promised to pay when a religious item was lost or stolen. The Office of General Counsel concluded that an entity that does this "is not offering a service contract," and that "Loss or theft of a phylactery constitutes a fortuitous event." (NY DFS OGC Opinion 10-11-12) The opinion concerned a different product, not parcels.
Who needs a license to sell insurance?
Usually two different licenses are involved. California shows both.
The insurer: certificate of authority
"A person shall not transact any class of insurance business in this state without first being admitted for that class." Admission is secured "by procuring a certificate of authority from the commissioner." (Cal. Ins. Code § 700(a)) Section 700(b) adds penalties for knowingly doing so without one.
The seller: producer license
"Unless exempt by the provisions of this article, a person shall not solicit, negotiate, or effect contracts of insurance … unless the person holds a valid license from the commissioner authorizing the person to act in that capacity." (Cal. Ins. Code § 1631)
Legitimate shipping coverage therefore normally involves both a licensed insurer and a licensed producer or agency. A surplus lines carrier placed through a licensed surplus lines broker is another route. If your store collects the fee and pays claims itself, ask counsel which rules apply.
Can a merchant be sued over a shipping protection fee?
Yes. Several consumer class actions name the store, not only the app. These examples show that merchants get named; they are not cases about selling insurance without a license, as far as we know. The complaints we could review focus on how the fee was presented, and we have not reviewed the Barz complaint. Everything below is an allegation unless a court has ruled. Status is as of October 2026.
- Allegation Barz v. Corso Commerce, LLC and BruMate, Inc. (C.D. Cal. 8:25-cv-00918). The merchant, BrüMate, is a co-defendant with the app provider. As of the court's October 2025 scheduling order, a jury trial was set for December 8, 2026. Later events were not confirmed. (docket)
- Allegation DeMarco v. DNVB, Inc. d/b/a Thursday Boot Co. (S.D.N.Y. 1:25-cv-03076). Only the merchant is sued. A summary of the complaint describes "Falsely advertising "Free Shipping and Returns in the US" when a "Shipping Protection" fee is automatically added to purchases." The case is pending. (TINA)
- Allegation Scola v. Edikted LLC (S.D. Cal. 3:26-cv-04937, filed Aug 31, 2026). Only the merchant is sued. A news summary says the fee was added "without their consent." The docket shows the complaint and summons only. (docket)
Most of these complaints focus on presentation: pre-selected toggles, "free shipping" claims next to an added fee, and unclear disclosure. Licensing is a separate question. A store can face both. See the full shipping protection lawsuits tracker.
How do you audit your own checkout?
Place a test order on desktop and mobile and answer these questions in writing.
| Check | What a safer answer looks like |
|---|---|
| Is the fee pre-selected? | No. The shopper adds it. |
| What is it called on the page and on the receipt? | A plain, accurate name that matches what the product is. |
| Who pays claims? | A named insurer under a named policy, not your store's operating account. |
| Who keeps the fee? | You can explain where every dollar goes. |
| Who decides claims? | A licensed program with written claim rules, not ad hoc store discretion. |
| Can you name the insurer and producer? | Yes, with license numbers you can look up. |
| Do your shipping claims match? | No "free shipping" promise that a required-looking fee undercuts. |
| Is the price shown before payment? | Yes, next to a link to the terms. |
How do you fix a risky setup?
- Use licensed insurance. Offer coverage issued through a licensed program, and keep its policy and license documents on file.
- Make it opt-in. Leave the box unchecked. Let the shopper choose.
- Label it honestly. Name the product, the price and who provides it. Link the terms.
- Fix nearby claims. Review "free shipping" banners and receipt line items.
- Write down the claims path. Tell shoppers where to file and who decides.
- Get a legal review. Ask counsel to review the final checkout in the states where you sell.
InsureShip is one licensed option: licensed by the California Department of Insurance (license #0G55434) and licensed in all 50 states, with coverage up to $5,000 per shipment for loss, damage and theft, including porch piracy. Claims are filed online and handled by InsureShip. Established in 2012, it is underwritten by Navigators, a Hartford company, rated A+ by AM Best (Navigators Insurance Company, as of 2024). InsureShip is integrated with Shopify, WooCommerce, Checkout Champ, BigCommerce and other platforms (integrations built with our fulfillment partner RapidFulfillment); see integrations. For step-by-step help, read how to switch to licensed shipping insurance.
Frequently Asked Questions
Is all shipping protection illegal?
No. Many programs are insurance-backed and sold through licensed producers. Whether a given product is insurance, and who must be licensed to sell it, is decided by state law and regulators based on what the product does.
If my app provider is licensed, am I covered?
Not automatically. Ask who the insurer is, who the producer is, and what role your store plays. Also review how the fee appears at checkout, since several lawsuits focus on presentation.
Does a disclaimer saying "this is not insurance" solve the problem?
Not necessarily. Regulators look at what the product does. The NAIC warns that unlicensed sellers may call their products warranties, guarantees or protection plans.
Is a pre-checked shipping protection box allowed?
This varies, and it is being litigated. Several class actions allege that pre-selected fees are deceptive. An opt-in box is the more cautious choice.
Where can I check a license?
Use your state insurance department's lookup or the NAIC Consumer Insurance Search for insurers. California's CDI has a public license lookup.
Want a licensed setup at checkout?
InsureShip is licensed by the California Department of Insurance (#0G55434) and in all 50 states. Established in 2012. Underwritten by Navigators, a Hartford company, rated A+ by AM Best (Navigators Insurance Company, as of 2024). Pricing averages about $1 per order but varies; see pricing.
Talk to InsureShipSources
Last checked October 8, 2026. General information, not legal advice. Cal. Ins. Code § 22 · Cal. Ins. Code § 700 · Cal. Ins. Code § 1631 · N.Y. Ins. Law § 1101 · NAIC consumer alert (Jul 18, 2024) · NY DFS OGC Opinion 10-11-12 · NAIC: surplus lines · Barz v. Corso Commerce docket · DeMarco v. DNVB docket · TINA: Thursday Boot · Scola v. Edikted docket · Top Class Actions: Edikted · CDI license lookup · NAIC Consumer Insurance Search · The Hartford: Navigators fact sheet (Apr 2025)
Written by Kyle Gibson, Compliance Auditor · Updated October 9, 2026