Strict liability

If you sell products, use potentially dangerous tools or chemicals, or run certain high-risk operations, you could be held responsible for injuries or damage even if you did nothing wrong. That’s called strict liability, and it’s one of the most important legal concepts small business owners need to understand.

In short, strict liability means you can be held legally responsible for harm your product or activity causes even if you took every reasonable precaution and weren’t negligent.

In other words, whether or not you were careless, made a mistake, or knew about a problem, you can still be liable if someone is injured and your product or business activity was the cause.

If someone is injured and your product or business activity caused it, you can still be liable.

You should pay close attention to strict liability if you:

• Sell physical products (online or in-store)
• Manufacture or assemble items
• Distribute or import goods
• Use chemicals, tools, or machinery
• Operate in construction, cleaning, landscaping, food, or retail

Even service businesses can face strict liability if they sell products as part of their work.

The key difference is that negligence focuses on how you acted, while strict liability focuses only on what happened, the harm itself.

With strict liability, the injured person doesn’t need to prove you were careless. They only need to show:

• Your business made, sold, or used something
• Someone was injured
• The injury was caused by that product or activity

This is why strict liability creates serious risk for small businesses—even very careful ones.

Product liability means the product you designed, produced, distributed, or sold had a defect that ended up hurting the purchaser of the product. Alternatively, it might have damaged the buyer’s personal or business property.

Defects are at the core of product liability lawsuits. Normally, plaintiffs will allege that the small business sold a product that had:

A manufacturing defect: This is a problem in a mass-produced product that made it more dangerous to use and that caused customer injury or property damage. Selling a defective product automatically exposes you to strict liability even though you took reasonable steps to assure the product was free of defects.

A design defect: A manufacturing defect normally only applies to isolated units that leave production with a flaw. However, a design issue produces an entire product line with defects.

In addition, plaintiffs might allege that the business failed to warn them of the inherent, but not necessarily obvious, dangers of using a product.

For example, a candy bar manufacturer might include a warning on its product labels that it made the candy on equipment exposed to peanuts. This warns consumers with peanut allergies to avoid eating those candy bars.

Not putting that warning on the label might subject the candy manufacturer to consumer lawsuits for failure to warn.

Strict liability can affect your business in ways beyond just lawsuits:

• Higher insurance premiums after a claim
• Reputational damage if your product is seen as unsafe
• Lost contracts if clients require proof of coverage
• Financial stress from legal defense and settlements

Even one strict liability claim can be devastating for a small business without proper coverage.

Strict product liability relaxes the burden of proof a plaintiff must meet in pursuing legal action against a small business. As a result, it makes running a business much riskier than under standard liability rules.

In practice, this means businesses that design, manufacture, wholesale, or sell products need robust liability insurance to protect them in case they’re sued under strict liability rules.

Standard general liability insurance provides coverage for product liability lawsuits under the products and completed operations aggregate limit. However, if your firm manufactures or sells high-risk products, you may want to boost your protection by adding a product liability endorsement to your general liability policy.

First and foremost, plaintiffs must prove that:

• The product they purchased had a defect.
• The defect resulted in them suffering property damage or bodily injury.
• The defect made the product unreasonably hazardous to use.

No, those without a direct relationship to the product—bystanders, guests, family members, and others—still have grounds to sue if a product defect hurts them or damages their property.

If you’re sued under a strict liability tort (wrongful act) scenario, your attorney may raise one or more common legal defenses. These include:

Assumption of risk: Here your lawyer will try to prove the plaintiff knew or should have known about the risk of operating the product and the person voluntarily assumed that risk.

Federal regulation: Your attorney may also argue you complied with all relevant federal safety regulations, making you immune from strict liability exposure.

Statute of limitations: Finally, your attorney might try to convince a judge the plaintiff failed to file the claim soon enough after the loss was discovered (or should have been discovered).

While you can’t eliminate strict liability, you can reduce your risk:

• Test products and keep safety records
• Use clear warning labels and instructions
• Vet suppliers and manufacturers
• Keep quality control documentation
• Train employees on safe handling procedures
• Maintain strong insurance limits

Insurance is your financial backstop—but good documentation and safety practices help prevent claims in the first place.

Insureon helps small business owners compare business insurance quotes with one easy online application. Start an application today to protect yourself against strict liability claims arising from your product design, manufacturing, and sales activities.