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Ecommerce product liability 101: Protecting yourself & your business

Ecommerce product liability 101: Protecting yourself & your business

Most brick-and-mortar merchants understand the importance of a comprehensive business insurance policy. If a shopper slips and breaks an arm, the store owner doesn't want to be on the hook for an expensive medical bill. If a hurricane roars in and blows the roof off, they want to rest assured that repair costs aren’t going to bankrupt them.

Online retailers may operate in a different realm from their brick-and-mortar counterparts, but that doesn’t mean they’re immune to risk. Just ask consumer electronics manufacturer FITURBO, whose hoverboard caught fire and burned down a buyer’s home. Or novelty toy creator Buckyballs, whose rare earth magnets have been swallowed by hundreds of children, leading to injuries and even deaths.

Both of these instances are examples of product liability, and while they may seem sensational or irrelevant to the kitchen table crafter, they provide an important reminder to all sellers to be conscious of potential hazards. Even if you’re selling the most innocuous of goods—organic chocolate, bath salts, bow ties for dogs—product liability is something you should be aware of and guard against. By doing your due diligence now, you’ll potentially save yourself a ton of grief down the road.

Here are some types of product liability you might encounter as an online merchant, as well as some proven strategies for mitigating risk. 

What is product liability?

According to Cornell University Law School, product liability is the responsibility of a manufacturer, supplier, or seller of a product for damage caused by that product. In North America, product liability claims generally arise from design defects, manufacturing defects, and “marketing” defects. Here's a quick rundown of what each of those things mean:

  • Design defects are inherent, meaning they exist before the product is manufactured, and will occur even if the product is perfectly manufactured. An example of a design defect could be airbags that aren’t thick enough to absorb the impact of a collision, or a backyard swing set whose pegs aren't strong enough to secure it to the ground.
  • Manufacturing defects have to do with how an individual product was made. In this case, only a portion of the many individual products manufactured are affected. For example, a propane canister with a crack in the seal may leak, causing an explosion that would not have occurred had the canister been properly manufactured.
  • Marketing defects deal with improper instructions and failures to warn consumers about the latent dangers of a product. Consumer protection laws require manufacturers and merchants to disclose detailed information about their products, especially where public health and safety are concerned. Perishable food and chemical products are especially susceptible to this type of claim.

Now that you have a grasp on where things can go wrong in the supply chain—just about anywhere—let’s look at some of the things you can do to protect yourself. 

Deal only with reputable vendors who sell quality products

If you rely on manufacturers and suppliers for your inventory, as most stores do in one way or another, it can be tempting to go with whoever offers the best deal. But don't jump into a partnership without doing due diligence. 

The old adage “you get what you pay for” may not always be true, but it does apply most cases. Take the time to research your suppliers to make sure their reputation, production capability, and quality are up to scratch. If the price is suspiciously low, ask yourself why. Is it really worth chancing a product liability suit to save a couple bucks?

Provide detailed, accurate descriptions of the products you’re selling

One obvious but important difference between online and brick-and-mortar retail is the degree to which customers can inspect and interact with products. Up-close physical assessments aren’t possible in the digital domain, meaning consumers depend on ecommerce merchants to provide high-quality, accurate descriptions and visuals to help them "inspect" goods and determine whether or not they’re safe.

If you're not careful, one small error in the way a product is described or marketed can turn into one giant headache and a whole slew of dissatisfied customers. 

Research and comply with consumer protection regulations

Never leave a child unattended. For topical use only. Contains mature subject matter.

These are all examples of consumer protection advisories, or alerts that provide information about the risks associated with certain products and services. As the Canada Business Network puts it, “Attracting new customers to your business is essential, but you need to follow a few rules.” If you sell food products, make sure to include nutritional information on the label. If you sell electronics and want to advertise their energy efficiency, you should first get them certified by a regulatory body.

Research the regulations for your industry and make sure you’re ticking all the boxes. 

Have a comprehensive terms and conditions page on your website

A disclaimer stating that you’re not liable for any problems associated with your product won’t absolve you of all responsibility, but it’s a good idea to have a clear and comprehensive terms and conditions page that includes some limitation-of-liability clauses.

As Moz explains, "LOL" clauses restrict what a customer can get from you in the event of an issue with your product. “In other words, you can put a cap on the amount of money the unsatisfied client is entitled to receive.” Note that just because you have an LOL clause, that doesn’t mean it’s enforceable. It needs to be reasonable, clear and conspicuous—and even then, enforceability varies by jurisdiction. Still, it’s not going to do you any harm.

Learn more about terms and conditions for ecommerce in the next post in The Ultimate Guide to Starting an Online Store.

Purchase separate product liability coverage

If you feel like your business is particularly vulnerable to product liability issues, you might want to look into purchasing separate product liability insurance coverage. Insurance agents familiar with product liability can advise you on selecting a policy that covers your risks. Just be sure to find one who understands the business you run.

Summing up

Many merchants think that because their product isn’t overtly harmful, product liability doesn’t concern them. This is a dangerous way of thinking. If you run an online store, it's essential to have a firm grasp on the potential risks to both your customers and your business. Merchants who overlook product liability open themselves to complaints, conflicts and lawsuits, giving themselves no recourse but to accept full liability.


Find more helpful articles in The ultimate guide to starting an online store.

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