Ecommerce and defective product liability

Online retailers are often unaware of their exposure to product liability claims from customers. Sellers assume that it is the manufacturer who is solely liable for injuries caused by a dangerous product – that is not the case.

UK and EU laws require retailers to take steps to ensure the products they sell are safe to use. If retailers disregard their duties and a customer is injured by an item they sold, the retailer could be sued.

How could product liability affect my business?

Product liability, or defective product liability, is the legal term for a company’s obligation to customers in regard to damage caused by defective products.

Manufacturers, importers and retailers could all be liable for injuries caused by a product they sell, if the product was broken or defective in some way. The definition of “defective” is broad, and your business could be liable for a fault even if you were unaware a product was faulty.

An injured customer could take legal action against your business to recover compensation for their injury. For relatively minor injuries, compensation could be in the low £1,000s. Serious, life-altering injuries could result in compensation payouts of over £100,000.

By law, retailers must take reasonable steps to ensure the products they sell are safe and fit for purpose. If a retailer fails to take precautions and doesn’t have suitable insurance in place, a defective product claim could mean bankruptcy.

Product liability law

There are two main routes for a customer to claim compensation following an injury; under the Consumer Protection Act, and under the common law tort of negligence.

The Consumer Protection Act

The Consumer Protection Act 1987 sets out a consumer’s rights and companies’ obligations with regard to defective products. The Act imposes strict liability on a “producer” for an injury caused by a defective product. Producers are defined as the manufacturer or importer of the product.

Strict liability means that an injured consumer can take legal action against a producer without having to prove that the producer was negligent. This means that a manufacturer or importer can be sued for defects they were unaware of, and even if the producer carried out safety checks.

Negligence

Alternatively, an injured consumer can take legal action against a manufacturer or importer under the common law principle of negligence. The retailer of a product can also be sued under this principle if it can be established that the retailer was negligent.

To make a successful product claim, a customer must prove:

• The defendant (the retailer, importer or manufacturer) owed the customer a duty of care.
• That duty was breached by the defendant
• The breach caused the customer’s injury
• The injury was foreseeable

A retailer could be liable for a customer’s injury claim in circumstances like:

• The retailer knowingly sold a defective product, or,
• The retailer failed to take reasonable steps to check if the product met safety standards, or,
• The retailer failed to notify a customer of a product recall,
• The retailer mis-sold or improperly marketed a product in a way that could foreseeably cause an injury

A business could also be sued for breach of contract, but this route is less likely to apply in the case of B2C online retail.

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How are defective product rules applied?

As new types of products and product categories are developed, the law has evolved to protect consumers. There is a growing body of case law that expands and clarifies the rules and definitions of product liability.

In most cases, the law has developed to better protect consumers. For example, consumers don’t have to show how or why a product is defective, only that it is defective.

Inherently hazardous products, such as power tools, can cause serious injury without being defective. The definition of “defective” goes beyond mechanical or structural failures, however. A producer may be held liable for injuries caused by a working product if notices warning of the danger is missing or inadequate.

Post-Brexit changes

The Consumer Protection Act is partly an implementation of EU Regulations. Both the Act and the EU rules enable claims to be made against businesses that import defective products in the EU.

Under the Act, consumers have a route to recover compensation even if the ultimate manufacturer of the hazardous item is located in a jurisdiction that would make it difficult or costly for a UK or EU-based claimant to pursue legal action.

New legislation, the Product Safety and Metrology etc. (Amendment etc) (EU Exit) Regulations 2019 will come into force in December 2020 to amend parts of the 1987 Act. The new rules will extend the definition of importers to include companies that import from the EU into the UK, rather than just into the EU.

In addition, a new mechanism will be set up to handle defective product recalls and other notifications. This new system will replace the Rapid Alert System (Rapex) that shared defective product information among EU states.

From December 2020, UK producers will no longer be required to recall unsafe products identified via Rapex. UK producers will, however, need to adhere to any recall notices circulated by the new UK-based Rapex replacement.

How to protect your customers and your business

There are several steps that UK-based online retailers can take to help ensure the safety of their customers. The most obvious step is to only sell products manufactured and supplied by reputable, accredited businesses.

Check for accreditation

Many health, medical and safety-related products, suppliers and manufacturers require formal accreditation or certification. For some other sectors, it can be more difficult to assess the provenance of a given product or supplier.

From a legal perspective, you must take reasonable precautions to ensure the safety of the products. The General Product Safety Regulations 2005 (GPSR) require all products to be safe for “normal or reasonably foreseeable” use. What is considered reasonable will vary depending on the level of risk, but GPSR and other regulations also set out product-specific safety requirements?

Sign up to notifications (UK & EU)

To ensure you are up-to-date for any safety notices or recalls, you should sign up to alerts from applicable bodies and forums. Your local Trading Standards office can provide some guidance, as will trade associations, the BSI, and EU safety and standards bodies.

Proactive notifications to customers

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

There are a range of insurance products available to e-commerce businesses. The specific cover your business requires will depend on several factors, such as what markets you sell to, your exposure to cyberattacks, and the risk of business interruption due to supply or other issues.

You should make sure that your policy includes product liability cover. In the event that a customer is injured by a product you sold, product liability insurance will protect you and your business against the costs associated with defending a compensation claim. This insurance should cover legal costs and the cost of any compensation in the event of a successful claim.

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Protecting your customers and your business

Chris Salmon, Director of Quittance Legal Services said “In practice, product liability claims are relatively rare. Online retailers work downstream of importers and suppliers that also must adhere to safety rules, and the vast majority of products supplied to the UK market are safe to use and fit for purpose.”

“However, the rise of trends like dropshipping has meant that manufacturers outside the UK and EU are increasingly sending products directly to consumers, with the online retailer having little oversight or quality control over the product being sold.”

“Whatever your target market, whatever products you sell, it is important that you have fully considered product safety and the impact that a liability claim could have on your business.”

“Even if you have liability insurance in place, you must still maintain adequate safety checks and recall procedures. Failing to take reasonable steps to protect your customers could lead to an injury claim that could destroy your brand and reputation.”

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