How “Safe Drinking Water” (Proposition 65) poses a financial threat to your business

Posted by Kathleen Kozlowski on Mar 12, 2019 10:33:00 AM
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Sometimes laws with the best of intentions — To prevent pollution of the state's drinking water sources from "chemicals known to the State of California to cause cancer and birth defects or other reproductive harm" and to inform and provide warnings to customers of the presence of these chemicals — just become impossibly burdensome.

For those companies that use any sort of chemicals on their premises, even cleaning supplies, Prop 65 is a serious liability. There are currently over 800 chemicals on the State’s list of toxic substances and that list continues to grow longer every day and warning labels appear on everything from coffee to flip-flops. Instead of protecting the public, Prop 65 has turned into a cash cow for attorneys looking to milk businesses for failing to post a Prop 65 warning. Even California’s Attorney General has expressed concern over the “frequency and magnitude of attorney’s fees recoveries” for Prop 65 settlements, many involving insignificant exposure to a listed chemical.

Prop 65 lawsuits are extremely profitable for law firms. 70% of the total costs incurred from 2010 to 2017 ($128.5 million) went directly to reimbursing attorney costs and legal fees regardless of guilt or innocence. Defending your company against predatory lawsuits can cost your company a bundle. Civil penalty, a payment in lieu of further penalty and reimbursements for attorney and legal fees add up quickly.

Failure to comply with California’s Prop 65 warning requirements can result in fines of up $2500 per day, per violation. Any business with 10 or more employees is subject to Prop 65’s labeling requirements if California consumers visit their place of business or buy their products — even if the product is purchased online, sold through another retailer or the company is located or headquartered outside of California. In August of 2018, Prop 65 shifted the majority of liability to the manufacturer, producer, packager, importer, supplier or distributor making the entire chain of production and distribution liable for any labeling violations even though there may be no health threat to the public or to the the employer’s employees. This means you must work with your producers, packagers, importers, suppliers or distributors to ensure proper labeling at every stage of the process has been in compliance with Prop 65.

What can you do?

Review the list of the State’s toxic substances every 6 to 12 months to make sure you are in compliance. Beware of chemicals with no “safe harbor level” threshold. There are over 500 chemicals without a safe harbor threshold. Suggested compliance guidelines for safe harbor levels are:

  • For reproductive toxins, Proposition 65 requires this level to be set 1,000 times lower than the chemical’s “no observable effect level,” which is the amount shown not to harm humans or laboratory animals
  • For chemicals listed as cancer causing, the “no significant risk level” is low enough that exposure wouldn’t cause more than one case of cancer per 100,000 individuals over a 70-year lifetime
  • Use the long form warning (see below).

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While long form warnings are not a requirement of Proposition 65, Article 6 strongly recommends that companies use the long form warning, which involves identifying at least one Proposition 65-listed substance in the warning. By using the long form warning from the outset, you protect your supply chain from costly re-labeling activities.

If you have fewer than 10 employees, your business may be exempt from the warning requirement. Additionally, if your company is able to prove that the amount of the chemical on your property or in your products is very low — below the specified exposure level — a warning may not be required. Use caution here though. Only a third of the substances on the list have an acceptable content level identified. Err on the side of caution.

  • Hire a third party to assess your particular situation and mitigate possible violations
  • Make sure your insurance coverages are up-to-date and and you have a business continuity plan in place in case of a frivolous lawsuit again you or any business in your supply chain.

Final Thoughts

Your Commercial General Liability insurance may or may not cover your Prop 65 liabilities. Your claim would have to show that bodily harm had resulted from the exposure to your product. Your CGL policy will not cover legal expenses or penalties resulting from a Prop 65 labeling violation. If you have questions, don’t hesitate to give us a call. Let us help you mitigate your risk.

Topics: Liability Insurance, Manufacturing, Prop 65




Wood Gutmann & Bogart Insurance Brokers is California's premier, full-service regional insurance brokerage. We provide a complete range of commercial, personal and employee benefits insurance products and services. We are proud to be ranked among the Top 100 Independent Insurance Agencies by Insurance Journal and one of the Best Places to Work by the Orange County Business Journal.

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