Product liability lawsuits filed in US federal district courts reached an eight year high of over 56,000 in 2019—an increase of almost 30 percent from the previous year’s reported 43,457 cases. In total, damages from product liability cases amounted to some $132 Million; a mere fraction of the $1.2 Billion paid out in punitive damages during the preceding five years.
There’s a common misconception that product liability is only applicable to manufacturers. But the reality is that product liability law can apply to any number of parties in a distribution chain, including retail sales. Retail liability is predicated on the assumption that retailers have carefully reviewed and vetted product lines to ensure they are functional and safe for consumer use. And for the most part, retailers have taken extensive preliminary steps to safeguard against defective and misleading products. But online commerce is a constantly evolving medium. And as commerce evolves, so does the chain of liability.
Amazon and Product Liability
Modern product liability law emerged at a time in which the Amazon business model was non-existent, largely as a distinction between injuries arising from a defect in a product line as opposed to the threat of injury from the use of the product itself. The need to operate in the better interest of the general public was subsequently becoming more prominent, affecting both manufacturers and distributors in both marketing and operations.
But the Amazon business model has changed the face of retail. The lines between manufacturing, distribution and sales are no longer so clear cut. Where physical retailers can be held liable for product injuries if preventative steps aren’t taken to prevent the sale of defective products, Amazon functions as a middle-man between manufacturers and distributors—which largely means they can’t always exercise the same level of control. And for the most part, state and federal courts have recognized this oversight and sided on behalf of Amazon in most product liability cases.
But the lack of clarity between responsible sales in eCommerce and manufacturer liability is beginning to change, driven in no small part by the rise of third-party sellers on Amazon.
Amazon, Third Party Sellers and the Law
Amazon’s policy on defective items only maintains that they will replace any damaged, incorrect or malfunctioning orders. It does not indicate any legal or financial responsibility for injuries arising from defective products.
Product liability laws vary substantially from state to state, making it difficult for retailers to establish any universal policy for coverage. Certain standards established by the Federal Trade Commission are implicit, and diminished quality control in eCommerce has resulted in numerous statewide bills—most recently California Act HB 3262, which would require online marketplaces to be held strictly liable for all damages caused by defective products at the same level as a physical retailer.
While Amazon does maintain strict product and safety compliance requirements for third-party sellers, the lines between liability and compliance aren’t always so clear. A judgement filed with the California Court of Appeals in April sided on behalf of a plaintiff who suffered severe burns after the battery for a hoverboard purchased from a third-party seller on Amazon caught on fire. The court further ruled that that Amazon’s practices constitute a direct link in the the chain of distribution indicating that under California law, “strict liability on the manufacturer and retailer alike affords maximum protection to the injured plaintiff and works no injustice to the defendants, for they can adjust the costs of such protection between them in the course of their continuing business relationship.”
But the California ruling isn’t the first time liability between Amazon and third party sellers has been established in a product injury case. A similar finding was also filed in California in November of 2020 stating they could be strictly liable for a defective battery manufactured by a third-party; while Amazon is currently appealing a ruling with the Supreme Court of Texas holding it liable after a battery in a remote control sold by a third party was swallowed by a toddler, causing internal damage.
Can Third-Party Sellers Protect Themselves on Amazon?
While a large number of third-party marketplace operate overseas, domestic sellers are bound to an official business solutions agreement which explicitly states that they must indemnify and hold Amazon harmless for any faulty claims sold through their marketplace.
Amazon won’t necessarily protect sellers from lawsuits as demonstrated by recent rulings with state courts. Just like any other business, liability insurance can help protect your assets and fulfill any obligations resulting from litigation. According to Amazon’s business agreement, sellers meeting the insurance threshold of $10,000 in monthly sales for three consecutive months must maintain general commercial liability insurance at their own expense. While sellers may balk at this requirement, it’s a necessary preventative measure that benefits them as much as it benefits Amazon. Product liability lawsuits against retailers may once have seemed rare, but they’re on the rise. Liability insurance is just one solution that protects third-party businesses. And it’s a small price to pay for the security that helps third-party marketplaces to prosper.
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