How Strict Product Liability Laws Affect Small Businesses
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Your business can be held liable for a product even if it doesn't pose an obvious risk to consumers (à la hoverboards). To illustrate that point, consider the latest lawsuit against Johnson & Johnson. Reuters reports the company was ordered to pay $72 million to the family of a cancer victim after lawyers connected the dots between her ovarian cancer and talc Johnson & Johnson uses in its baby powder.

Chances are you already know that you have some degree of responsibility for the products you bring to the market. However, if you're like many small-business owners, you might not realize you can be held liable for the damage your products cause even when you've done nothing wrong.

What Is Strict Product Liability?

As you may know, product liability means that businesses are responsible for the goods they bring to the consumer. That responsibility belongs to every member of a product's distribution chain, including…

  • Manufacturers.
  • Distributors.
  • Suppliers.
  • Retailers.

States govern most product liability law, so the specifics vary from place to place. However, according to the National Paralegal College, many jurisdictions hold businesses strictly liable for their products.

Strict liability means a seller, manufacturer, or distributor is responsible for the damage its products cause even if the business takes every reasonable measure to prevent the defect. The person who brings the suit doesn't have to prove that the business was negligent to win their case — they just have to prove the tort (i.e., wrongful act) happened.

Say, for example, your business makes vacuum cleaners. In a bizarre sequence of events, one of those vacuum cleaners runs amok in a customer's home and sucks up their expensive Persian rug. When the customer takes you to court, they only have to demonstrate that…

  • The vacuum had a defect.
  • The vacuum caused the damage.
  • The seller intended for the vacuum to reach the consumer unchanged.

If the plaintiff can show you knew about the potential defect before the vacuum ate the rug, the judge may be able to award punitive damages.

If your business only sells the defective vacuums, you may still be on the hook for damages. According to AllLaw.com, the manufacturer may be the obvious defendant, but retailers, distributors, and suppliers can be sued, too. Legislators want injured consumers to receive compensation even if they can't prove which party is responsible for the product defect.

What Does Strict Product Liability Mean for My Business?

Strict product liability laws favor your customers. In a lot of ways, that makes sense. Consumers usually don't know how the sausage is made, so they require more protection.

Your protection, however, is in your hands. Here are some ways to minimize your product liability risk:

  • Purchase small business insurance. Many General Liability Insurance policies offer Product Liability coverage, which can pay for legal expenses when you're sued over defective products. Talk to your agent to make sure you have adequate coverage.
  • Give clear warning labels and instructions. A warning label and instruction manual may not protect your business completely, but they can help support your defense.
  • Consider liability during the design process. Manufactures can minimize their risk by keeping potential dangers in mind while designing their products. They may also want to take detailed notes on their safety feature choices.
  • Hire an attorney. A lawyer can help you create hold harmless agreements that ensure your suppliers or contractors are responsible for their own mistakes.
  • Review customer feedback. Customer reviews may alert you to potential trouble. Even if you think a customer's complaint is the result of misuse, that information may be worth considering for future versions of your product.

Learn more about strict product liability in the blog post "Paul Walker Wrongful Death Lawsuit Highlights the Concept of Strict Liability."

Product Liability Insurance: Further Reading