Are you liable for goods you sell on your website?

Are you liable for goods you sell on your website?

by Stephanie Morrow, December 2009

Today, many companies benefit from having an e-commerce Web site. The advantages of selling online are many. The operational costs of a Web site are generally far less than that of a physical location, and you can usually pay someone to maintain the site for you, eliminating the time and effort of updating it. Don't like dealing with customers face-to-face? Sell your products online and you might never see them in person.

Despite huge differences, brick-and-mortar operations and virtual storefronts share a concern that is common to most businesses, that of product liability. A disclaimer on your Web site stating that you are not liable for problems won't protect you from being liable for whatever product you're selling. But don't worry. There are ways to guard your business, online and offline, from potential product liability problems before they occur.

What Is Product Liability?

Product liability is the responsibility of a manufacturer or supplier of a product, or the seller of the product, for damage caused by that product. In the United States, claims associated with product liability are based on negligence, strict liability, breach of warranty, or various consumer protection claims. Most product liability laws are determined at the state level and vary from state to state.

A basic negligence claim consists of proof of (1) a duty owed by the manufacturer, (2) a breach of that duty, (3) that the breach caused the customer injury, and (4) an injury. Product liability negligence claims are usually those claiming a design defect, a manufacturing defect, or a failure to warn about a potential defect.

A breach of warranty occurs when a promise is broken. Either a product is defective or it is not what the buyer expected. The latter is common in e-commerce, since Internet customers don't physically see what they've bought until it arrives on their doorstep.

Consumer protection is government regulation to protect consumers' interests. For example, consumer protection laws require businesses to disclose detailed information about products, particularly in areas where safety or public health is an issue, such as food or other perishable products.

As a seller, probably the most threatening form of product liability is strict liability. Rather than focusing on the behavior of the manufacturer, as in negligence, strict liability claims focus on the product itself. In this type of claim, the customer must prove that the product is defective or unreasonably dangerous. Strict liability for defective products can potentially be very costly and dangerous to the seller. It doesn't end there; liability costs can also affect the manufacturers, wholesalers, retailers and anyone else involved in distributing the product.

Protection from Product Liability

There are ways to protect yourself from potential product liability claims. The first step is to deal only with reputable vendors who sell quality products. Make sure you know what you are selling and ensure that the descriptions on your Web site match the actual product. If a product includes a service agreement or a warranty, make sure that it is legally reliable.

If you are hit with a product liability claim, always remember that the consumer must prove that the product was defective. There are three types of product defects that incur liability: design defects, manufacturing defects, and defects in marketing. This is why you should always know what you are selling and how it is marketed on your Web site.

If you still feel you need added protection from liability, you might want to purchase product liability insurance coverage. This is particularly important if you make a product that could possibly harm someone. For example, sellers of perishable items that may spoil, such as chocolates or cheese, can benefit from product liability insurance. Many businesses selling via the Internet do not have product liability coverage. Because of this, there is no recourse for a business owner if an accident happens and he or she is left with full liability.

Just because a particular product sells well in retail stores, it does not mean it will necessarily sell well online. In fact, many products cannot be sold easily over the Internet because of high product liability issues. Before building your e-commerce store, evaluate your product's appropriateness for online sales. In particular, consider potential product liability for customers who will not physically see it when purchasing over the Internet.

Because product liability laws vary from state to state, you should consult with a legal professional before selling a product on your site.