Legal eagles are watching two cases that could expand liability for on-line sales. In California, a plaintiff sued Etsy for damages arising from the death of her toddler who was strangled with an amber “teething necklace” purchased on the site. At the other end of the country, a Pennsylvania plaintiff was allegedly blinded in one eye when a dog leash, purchased online, unexpectedly retracted and struck her. Both cases involve claims brought against the online platform – Etsy in the necklace case and Amazon’s third-party seller platform in the dog leash case – but they’re a timely reminder about the risks of products liability litigation.
Products Liability: It’s Wide and Deep
Any business that sells products to consumers – whether on-line, at a brick-and-mortar shop, or in a festival booth – must consider the risks of products liability claims: lawsuits filed by people who allegedly are injured or suffer losses from defective or improperly performing products. Each state has adopted a different version of products liability law; the common thread is that the liability imposed in every state is broad.
It’s vital to understand how products liability works so you can consider the risk you face as a business owner. You probably already know that if you make a product that turns out to be defective and injures a customer, that customer can sue you for damages. Did you also know that under the laws of most states, the plaintiff doesn’t have to show you were negligent or did anything wrong in creating or manufacturing your product to prevail? That’s because most states have adopted “strict liability,” meaning that the defendant may be held responsible for damages even if the defendant did nothing wrong and didn’t intend to cause the plaintiff’s injury. The mere fact that the plaintiff was injured or suffered losses is enough. It’s scary to realize that no matter how carefully you create products, despite all the precautions you take in making them, a customer can sue you and win under strict liability.
Hold on to your handknit hat, however, because strict liability goes even broader than that. Under strict liability law, anyone involved in the sale of an allegedly defective product – not just the manufacturer, but anyone who sells or distributes the product – may be held liable for a plaintiff’s claimed damages. If you sell a loom in your booth at a fiber festival, and the loom was made by a separate company and has a defect that causes the customer injury, you may be held liable even though you had nothing to do with making or designing the loom. Simply stocking and selling it is enough in many jurisdictions.
Consider how this broad liability might apply to your craft-related business. A wee crocheted sweater with buttons may look darling on the customer’s baby, but what if the baby pulls off a button and chokes? Your organic hand cream smells lovely, but what if it causes an allergic reaction on your customer’s skin? Commercially-made items that you sell on your site or in your store – scissors, tools, rotary cutters, sewing machines – could have manufacturing or design defects which cause physical injury to the unlucky customer who buys them. In some jurisdictions, even warning labels won’t save you. The seller is held “strictly liable” for all damage resulting from the products it sells.
Given that the average jury award for a products liability case is over $7 million (yikes!), you’ve got to protect yourself and your assets from these kinds of claims.
A mother filed a lawsuite against Etsy earlier this year when her son was strangled by a teething necklace puchased from an Etsy seller.
Photo from the CBS News Los Angeles website.
Products Liability Insurance
Fortunately, there is a way to help protect yourself from this expansive liability. It’s called products liability insurance and it does just what it says: it protects you if a customer sues for damages based on the claim that you sold a defective or damaged product. It works like any other kind of insurance: you pay a premium and in return, your insurer will defend you if a customer claims that they have suffered injury as a result of a product that you sold. The insurer will pay legal costs and if you lose, the insurer will pay the damages (up to the limits of the insurance policy). Given the increasing cost of medical expenses, lawyer fees, and other damages and costs, products liability insurance can be a lifesaver for a small business.
Before you rush to your insurance agent yelling “Take my money!” gather some information. You’ll first want to review the terms of any insurance policies you’ve already purchased. Most businesses carry some sort of general insurance policy, often called “business liability insurance.” Business liability insurance is designed to protect you from claims brought by others, usually non-products related claims. For example, many business insurance policies cover property damage (say, if someone else’s property is damaged by your employee while she’s working); medical costs (the classic example is a customer who slips and falls on your shop’s floor and wants you to pay the hospital bill); and business libel (if a competitor claims you disparaged them). Determine whether your existing policy has any coverage for products-related claims, and if so, how much. If you aren’t sure, ask your agent.
Even if your policy does contain some coverage for products-related claims (most do not), you should think long and hard about whether that coverage is enough. Different kinds of businesses create different amounts of risk. For example, if you sell just fabric or yarn, your risk is likely lower than a business that sells tools, machines, or health/beauty products. How many products do you sell and what is your annual revenue? The bigger the business, the greater the risk. Do you sell any mass-produced objects? Higher risk. Items that are manufactured overseas where you cannot oversee the quality of production? Higher risk. Objects with sharp edges or moving parts? Even higher.
Now it’s time to check with insurance agents to discuss your potential exposure and to get some quotes on a products liability policy (or rider to your existing policy). Take some hard data with you – financial information like revenue, as well as a complete list of the products you sell; what proportion of your sales are apportioned to specific categories of products, and information about any prior complaints you may have had. This information will be important for the agent to assess your risk and to give you an accurate price quote.
Remember the vendors
Depending on the nature of the products you sell, you may also want to consider an additional endorsement to your policy called “Vendor Insurance.” A vendor’s endorsement extends your products liability insurance to other businesses which sell or distribute your product. Suppose you manufacture a high-risk item, let’s say a set of artisanal cooking knives. If Shop X is considering selling your knives, they may be concerned about their products liability risk should one of their customers purchase the knives and be injured. You don’t want a potential distributor to balk at selling your product due to expanded products liability risk. By getting a vendor’s endorsement, the shop has the added comfort of knowing that you have products liability coverage to cover them in case of a claim. Bigger companies may require you to obtain vendor’s insurance as a condition of doing business, so if your business is larger or you sell higher-risk products, you’ll want to discuss this endorsement (and any exclusions) with your agent.
We live in a litigious society, sad to say. Making sure that your business is adequately insured against products liability risk is an important step for business owners to take.
This article is intended for informational use only and does not constitute legal advice or create an attorney-client relationship. Consult a licensed attorney in your state to determine how the law applies to your unique situation. This article reflects my own personal views and not those of my employer.
Carol J. Sulcoski is an attorney by day and a knitting author, designer and dyer by night. Her latest book is “Yarn Substitution Made Easy” (Lark Crafts 2019). She lives outside Philadelphia with her three nearly grown-up children and a fluffy orange cat.