I promised a PS6 and $5,000 cash to a follower who liked and shared. The winner selection software glitched, and I accidentally announced the wrong winner. Then, the console got lost in the mail. Now, the “real” winner and the “announced” winner are both suing me for fraud and breach of contract, and the State Attorney General is inquiring about illegal lottery laws.
Key Takeaways
- Sweepstakes vs. Lottery: If you require “consideration” (money/effort) to enter, it’s an illegal lottery. You must have a “No Purchase Necessary” option.
- Regulatory Fines: Insurance covers the lawsuit from the angry winner. It does NOT cover the fines from the FTC or State AG for running an illegal lottery.
- Fulfillment Bonds: For high-value giveaways (over $5k in FL/NY), you are legally required to buy a Surety Bond before the contest starts.
- Errors & Omissions (E&O): This covers the mistake of announcing the wrong winner (a clerical error).
The “Why” (The Trap): The Contest Exclusion
Many standard policies have a “Contest, Lottery, and Sweepstakes Exclusion.”
Insurers hate giveaways because they are legal minefields.
If you didn’t buy specific “Prize Indemnity” or “Promotion Insurance,” or ensure your E&O covers sweepstakes admin, you are exposed.
Also, shipping a $1,000 console? That needs Inland Marine (Cargo) coverage. If it’s lost, and you didn’t insure the package, you owe the winner a replacement out of pocket.
[IMAGE: Screenshot of “Official Rules” template with the “No Purchase Necessary” clause highlighted]
The Investigation: I Called Them
I asked, “I messed up a giveaway. Am I covered?”
1. Lloyd’s of London (Specialty Brokers)
- The Verdict: They write specific “Prize Indemnity” insurance. This is what brands use when they offer a “$1 Million Hole in One” prize. It’s expensive but covers the payout if someone wins.
2. Standard Creator Liability (Thimble/Next)
- The Verdict: Likely Denied based on the “sweepstakes” exclusion or “breach of contract” exclusion. They cover negligence, not prize fulfillment failure.
3. LegalShield (Pre-paid Legal)
- The Verdict: Not insurance, but useful for drafting the “Official Rules” to prevent this mess in the first place.
Comparison Table
| Risk | Standard Liability | Prize Indemnity Policy | Surety Bond |
| Sued by Winner | Likely Excluded | Covered | N/A |
| Lost Prize (Mail) | No | Yes (if added) | No |
| State Fines | No | No | Pays the State (You repay Bond) |
Step-by-Step Action Plan
- Buy the Console: If it was lost, buy another one immediately and ship it with signature required. Fulfilling the prize usually stops the lawsuit.
- Contact Counsel: If the AG is involved, you need a lawyer. Do not speak to investigators without one.
- Draft Official Rules: Never run a giveaway without a 5-page legal document linked in the bio.
- Check Bonds: If you are running a giveaway in NY or FL over $5,000 value, you must bond it.
FAQ
Can I just say “Not liable for lost mail”?
You can say it, but if you promised a prize and didn’t deliver, you breached the contract. You are liable.
What if a bot won?
Your Official Rules should have a “disqualification” clause for bots. Without that clause, the bot owner can technically sue.
Is cash better?
Cash avoids shipping issues, but “Cash Giveaways” trigger more scrutiny from banking regulators and the IRS.