What Importers of Foreign Specialty Goods Need to Know About Supply Chain Liability, Contract Protections, and Risk Management

Imagine this scenario: you’re an importer of premium Italian specialty food products. You’ve built strong relationships with artisan producers overseas, and your products are in high demand across specialty grocers and distributors nationwide.

Then one day, you receive a demand letter—or worse, you’re named in a lawsuit—not because anything is wrong with your product, but because it was sold in California without the required Proposition 65 warning label.

This scenario is becoming increasingly common across the specialty food import industry—and the consequences can be significant. This article explains what Proposition 65 is, why importers can be held liable even when they don’t sell directly into California, and—most importantly—what steps importers can take today to protect themselves through stronger contracts, proper written notices, and effective risk management strategies.

What Is California Proposition 65?

California’s Safe Drinking Water and Toxic Enforcement Act of 1986—commonly known as Proposition 65 (Prop 65)—requires businesses to provide clear and reasonable warnings before exposing individuals to chemicals known to the State of California to cause cancer, birth defects, or other reproductive harm.

The California Office of Environmental Health Hazard Assessment (OEHHA) maintains the official list of regulated chemicals, which is updated at least annually and now includes over 1,000 substances.

For food products, common triggers include:

• Lead
  
• Cadmium
  
• Acrylamide
  

For other consumer goods, chemicals like DEHP, DBP, and antimony trioxide frequently appear.

Importantly, Prop 65 applies to any business with 10 or more employees that sells or distributes products into California—regardless of where that business is physically located.

A company based in Connecticut selling to a New York distributor who then sells into California can still be drawn into a Prop 65 enforcement action.

Penalties for non-compliance can reach $2,500 per violation per day, and because enforcement is often driven by private plaintiffs and law firms—not just government agencies—litigation is both frequent and costly.

Why Importers Are Squarely in the Crosshairs

Under Prop 65 regulations, the primary responsibility for providing warnings falls on upstream parties in the supply chain: manufacturers, producers, packagers, importers, suppliers, and distributors.

For importers of foreign goods, this creates a unique exposure. When a foreign manufacturer cannot easily be pursued under U.S. law, the importer becomes the most accessible party for enforcement. As a result, importers are often named in lawsuits or demand letters—even when they had no direct involvement in selling the product into California.

Key points to understand:

• Importers can be liable even without direct California sales
  
• Failure to label or provide proper written notice can trigger exposure
  
• If a distributor fails to pass along warnings, liability can still fall back on the importer

The Two Pathways to Compliance

Option 1: Label the Product Directly

The most straightforward approach is to affix a compliant Prop 65 warning label directly on the product or packaging before it enters the distribution chain.

This method:

• Reduces reliance on downstream parties
  
• Provides clear documentation of compliance
  
• Minimizes exposure to notice-related failures

Option 2: Provide Written Notice Down the Supply Chain

Alternatively, importers can provide written notice to downstream customers indicating that a Prop 65 warning is required.

This notice must:

• Identify the product and relevant chemicals
  
• Include compliant warning materials
  
• Provide instructions for online sales
  
• Be acknowledged in writing by the receiving party

Important: If a distributor fails to pass along the warning, the importer may still be held liable.

Using Sales Contracts to Shift and Limit Liability

One of the most effective—and often underutilized—tools available to importers is the sales contract.

Since 2018, Prop 65 regulations allow parties to allocate compliance responsibility through written agreements. While not a complete shield from liability, these agreements can significantly reduce financial exposure.

(Contract language remains as provided and does not need modification.)

Important Limitations: What Contracts Cannot Do

Even strong contracts have limitations:

• The consumer must still receive a compliant warning
  
• Liability can revert upstream if downstream parties fail to comply
  

In short, contracts help manage risk—but they do not eliminate it.

The Insurance Angle: Covering What Contracts Cannot Prevent

Even with proper contracts and compliance procedures, importers still face real litigation risk.

Insurance plays a critical role in protecting against:

• Defense costs
  
• Settlements
  
• Regulatory actions
  

Key coverages to review include:

• Commercial General Liability (CGL)
  
• Product Liability (including failure-to-warn claims)
  
• Product Recall Insurance
  
• Errors & Omissions (E&O)
  
• Umbrella/Excess Liability
  

Action Steps for Importers

• Audit your products against the OEHHA Prop 65 chemical list
  
• Identify any triggering substances
  
• Consider direct labeling when possible
  
• Update contracts with Prop 65 protections
  
• Implement written notice procedures
  
• Maintain documentation and acknowledgments
  
• Review insurance coverage annually
  
• Monitor updates to the chemical list
  

A Partnership Where Understanding Meets Action

If your business imports specialty food products—even if you don’t sell directly into California—this is a risk worth reviewing proactively. At Coughlin Insurance Services, we work closely with food importers, distributors, and specialty product companies to evaluate Prop 65 exposure, strengthen risk transfer strategies, and ensure insurance programs are aligned with real-world supply chain risks. A short review today can help prevent costly disputes, uncovered claims, and operational disruptions tomorrow.

Since 1947, Coughlin Insurance Services has committed its resources to assist distributors, importers, and exporters, ensuring they are protected against the unpredictable nature of the food trade industry. As specialists who understand the nuances and vulnerabilities of the global food distribution network, we have fine-tuned our insurance solutions to cater to this industry’s evolving dynamics. Our affiliations with the Association of Food Industries (AFI), National Frozen & Refrigerated Foods Association (NFRA), and the Peanut And Tree Nut Processors Association (PTNPA), reinforce our commitment to safeguarding your business with unparalleled expertise. We ask you to consider a partnership where understanding meets action.