How To Protect Your Business Against A Defective Product Liability Claim

Protecting your ecommerce business against a Defective Product Liability Claim
Fledgling online businesses are often surprised by the fact that the liability for a product’s safety does not sit squarely with the manufacturer. As an online retailer, you must take steps to ensure that any product you supply is safe to use (for its intended purpose). If a defective product you supply results in a customer’s injury, you could end up facing an injury claim.

How is my business exposed?

Anyone in the supply chain, from the manufacturer to the retailer, is potentially liable if a defective product results in the final buyer being injured by the product. An injured buyer could have grounds to make a ‘product liability’ claim if the faulty product caused their injury. Depending on the circumstances, a claim could be brought against the manufacturer, importer, distributor or retailer. Although the majority of defective product liability claims are ultimately pursued against the manufacturer, the retailer will often be first in the firing line. An injury compensation claim can be crippling, especially for a new or small business. Depending on the severity of the injury, compensation awards can exceed £100,000s. Both UK and EU law require retailers to take ‘reasonable’ steps to make sure that any product they sell is safe to use for the purpose for which it is intended, or for any purpose for which it could, foreseeably, be reasonably used. If you fail to make the appropriate safety checks, or you are not insured, a claim could mean financial ruin. Even If you do have suitable insurance in place, the policy small print might void your cover if you cannot demonstrate that you took all reasonable steps to ensure the safety of the product.

On what basis can a defective product claim be made?

The majority of defective product claims are made under the Consumer Protection Act 1987. The Act is the primary legislation giving consumers the right to claim compensation against the manufacturer or importer of a defective product if the product causes damage, death or personal injury. This legislation also contains a ‘strict liability’ test. Strict liability means that a claimant (the injured consumer) does not have to prove that the producer was negligent in order to make a successful claim. In other words, the producer could be successfully sued even if they did carry out safety checks and were not aware of the product’s faults or defects. If a claimant can establish that the producer was negligent, then legal action could be taken on the basis of this negligence instead. With negligence claims the law assumes that both the manufacturer and supplier have a legal duty of care to the consumer and anyone else that could reasonably be expected to make use of the product. If the product is deemed to be potentially dangerous if defective (e.g. a power tool) this duty of care could even extend to a bystander. Unlike the Consumer Protection Act, the common law principle of negligence can also apply to a retailer. If the retailer can be shown to be negligent then the retailer could also be sued. To make a successful claim against a retailer, importer, distributor or manufacturer, the claimant would need to demonstrate that there was a breach in the duty of care. It would also be necessary to show that the injury was foreseeable (e.g. being burned by an overheating hair dryer) and that the defective product was the cause of the injury. Retailers are further exposed if they were aware that the product was faulty or if they failed to check whether the product met the relevant safety standards. Retailers must also consider how they market a product for sale. If a product is presented, marketed or mis-represented in a way that could foreseeably lead to an injury, the retailer could be held liable.

What about property damage?

If a component part of a product you supply fails leading to property damage, you could be sued under the Consumer Protection Act if the cost of the damage exceeds £275. If you supply plumbing parts, for example, and the failure of a component part results in a property flooding – a compensation award could be considerable.

What if the consumer misuses the product?

Again, this depends on whether the customer could be ‘reasonably’ expected to use (or misuse) the product in the manner that led to the injury. You should try to anticipate how a product might be used in ways other than its intended use. Once you have identified the ways in which the product could be used you should ensure that there are adequate safety warnings and instructions. Examples of such warnings include:
  • Keep out of reach of children
  • Do not use near water
  • Contains small parts – choking hazard

What if the product fails but no one is injured?

Chris Salmon, Director of Quittance Legal Services said: “If there is no damage to property or injury sustained, the consumer would not be able to sue you. However, if the failure highlights a potentially dangerous flaw in the product, you could still be prosecuted.” “Depending on the type of product, you could face a fine of up to £5,000 and a prison sentence of up to six months if you fail to follow specific safety regulations.”

Is the law biased in favour of consumers?

To some extent, yes. For example, consumers are not usually required to show how or why a product is defective, only that it is defective. In the case of intrinsically dangerous products such as lawnmowers or chainsaws, the product does not necessarily need to be defective for a claim to be successful. If the product does not have suitable warning signs or stickers and the user is injured, a claim could be possible even when the product was functioning normally.

What do you need to do?

There are a number of steps you can take to minimise the risk to your business and customers.

Check for accreditation

As a starting point, anything sold in the UK is governed by the General Product Safety Regulations 2005. This legislation states that only ‘safe’ products can be sold or introduced to the market. In the context of the legislation, ‘safe’ means that, under reasonably foreseeable use of the product, there is either negligible risk or the risk is minimised to a level that is compatible with the nature of the product. Certain product types and sectors, such as toys, low voltage electrical equipment, PPE and medical devices, are further governed by specific regulations. For example, toys supplied in the EU must also comply with the Toy Safety Directive (Directive 2009/48/EC) and the Toys (Safety) Regulations 2011. You should therefore check and make sure that the product you are selling complies with the relevant legislation and has the necessary approval of the official accreditation body overseeing safety. Don’t just take the manufacturers or importers word for it – ask to see the certificates of safety and compliance, or contact the accreditation provider.

Keep up to date

Sign up to any manufacturer safety notifications, product recalls and updates. You can also sign up to alerts from relevant safety bodies and forums. Your local Trading Standards office can provide some guidance, as will trade associations, the BSI, and EU safety and standards bodies.

Product recalls

Product recalls occur when a manufacturer discovers product defects or safety issues, and are not uncommon. In many cases a recall doesn’t mean that the product is explicitly dangerous, only that a flaw or potential hazard has been identified. You may have sold a product that was deemed to be safe at the time of sale. However if a safety concern is subsequently discovered, the manufacturer may issue a product recall notice with a view ro replacing or modifying the product. It may be the case that the consumer is notified directly by the manufacturer, if they have registered the product. More often than not people don’t register products and you should ensure you have a process in place to notify customers of product recalls. Whatever system you have in place, to track email addresses of buyers, for example, must comply with data protection rules. See the government-backed Code of Practice on consumer safety recalls for more detail.

Online retailer insurance

You are not legally required to hold product liability insurance as an online retailer. However, product liability insurance to protect against claims for personal injury or property damage caused by a faulty product is both affordable and readily available. In the event of a consumer being injured, a product liability policy would cover your legal fees as well as any compensation you are required to pay. Most established businesses will take out product liability insurance. Smaller, side businesses or hobbyist businesses often aren’t aware of their exposure or don’t take out insurance as they think the risk is low or the premium is too costly. However, even if you have a dropshipping side-hussle through Amazon, or you make and sell lamps on Etsy, your duty of care to customers is the same as for a large national business. You should make sure that your policy covers you if you import products from outside the EU, and if the manufacturer cannot be identified or has gone bust.

What impact will Brexit have?

Parts of the Consumer Protection Act are based on EU Regulations. The Act entitles consumers to make claims against businesses that import products into the EU. The Act enables UK consumers to pursue compensation in the event that the manufacturer is based outside the EU. On 1 December 2020 (Brexit D-Day), the Act will be superseded by the Product Safety and Metrology etc. (Amendment etc) (EU exit) Regulations 2019. This new legislation will cover any products imported into the UK, including from the EU.

Conclusion

This article is not intended to deter anyone wanting to set up an online retail business. In reality, product liability claims are few and far between.Most products sold in the UK meet the applicable safety standards and injuries resulting from defective products are rare. However, retail is increasingly moving towards new sales and shipping models. Dropshipping describes online businesses that sell products directly to buyers without ever actually stocking the products themselves. Dropshipping models can make it more difficult for retailers to discharge their safety obligations and monitor safety standards, as the retailer doesn’t ever physically handle the product. Whatever you intend to sell and wherever you source the product from, you must fully consider product safety and the potential impact that a claim might have.


Chris Salmon - QuittanceChris Salmon – Author Bio
Chris Salmon is a co-founder and Director of Quittance Legal Services. Chris is a regular commentator in the legal press.
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