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Product Liability Insurance for Foreign Manufactured Goods in Ecommerce

Foreign Manufactured Goods

Amazon and Shopify have significantly increased in popularity, especially in the last two years, as many consumers shifted towards online shopping due to the pandemic. Ecommerce businesses are certainly a great option for selling products. However, there are certain risks involved with the online sale of products, especially when importing products from another country.

As a seller of imported goods, your exposure to liability claims might be unclear. However, by importing the products of others and then selling it to consumers in the United States, you can and likely would be the responsible party in a product liability case. Below, we have provided some information related to product liability issues you might face when selling foreign imported goods in the U.S. through online platforms.


Product Liability (and Insurance!) on Imported Goods

Many business owners do not understand that even if they aren’t manufacturing products they sell online, they can still be held liable for them. If the products you sell on your online store are imported from outside of America, consumers may hold you liable for all aspects related to those products.

It is your responsibility to ensure that your products have proper label information and they comply with industry standards. Moreover, if you are using a third-party distributor like Shopify, don’t think they will be liable for any issue or harm caused by your products.

It can be difficult for you to obtain general liability insurance on your products when they are manufactured outside of the U.S. Although Amazon and Shopify rely on this since sellers mostly sell imported goods on these platforms, most U.S.-based insurance carriers are unwilling to offer coverage. It is mainly due to claims and the inability to bring claims to companies outside of U.S. jurisdiction.


What can Ecommerce Businesses be Held Responsible For?

Manufacturing problems, quality problems, and inaccurate product labeling and cautions are the most common grounds for holding you accountable for the products you import and distribute. Some of these might include;

·       Defects in the Manufacturing Process

If a product fails to function as intended due to a fault, includes something it shouldn’t, or lacks something that should be included, you could be made responsible for manufacturing flaws. This indicates that the issue did not originate during the item’s design process but rather during the manufacturing and assembly stage.

·       Design flaws

When you’re working with an item that’s been poorly or incorrectly designed or one that hasn’t been thoroughly tested, you’re dealing with design flaws. If a design flaw produces bodily harm or property damage to a consumer, you may be held accountable.

·       Wrong Labeling Including Repackaging and Relabeling

If you don’t warn consumers about the obvious and not-so-obvious hazards of utilizing the goods sold by your online store, you may be held accountable. This could also be the result of a blunder in the product’s marketing. Warnings should be clearly communicated in the product manual and on a tag attached to the item.


What can You Do to Protect Yourself?

The first step in protecting your company from lawsuit charges is to ensure you have the right insurance (speak to an agent.) If you cannot acquire product liability insurance from U.S.-backed carriers, there are options in the non-admitted arena that are equally reputable and reinsured by the largest reinsurance carriers in the world. Here are a few tips that will make you a more attractive risk to all companies involved.

·       Only do Business with Reliable Vendors who Trade High-Quality Goods

It can be enticing to go with anyone who provides the best rate if you depend on suppliers and manufacturers for your goods, as most e-commerce businesses do in some form. However, before entering into a partnership, be sure you’ve done your homework.

Spend time researching your vendors to ensure that their image, production output, and quality are all up to par. If the price appears to be unusually low, there might be a catch. It’s also a good idea to get certificates of liability from these vendors so that you have something to fall back on in the event of an unexpected claim.

·       Ensure Safety Regulations

As an importer of products, you are solely responsible for specific safety regulations. You will be in charge of ensuring that the acquired product conforms to relevant industry standards and legal regulations, as well as ensuring that the consumer receives correct safety warnings, markings, and directions. Therefore, you should make every effort to obtain crucial data from suppliers that may be required in the context of these obligations and in the case of a future claim.

·       Third-Party Testing

You should get your products tested by third parties to detect any faults that the product might have. With third-party testing, you will reduce the likelihood of claims arising due to an issue in the imported product sold on your online store. Not only that, but you might be able to receive third-party certification, establishing that the product has no-fault. Then in the event of any liability, you will be in a strong position as the third-party certification will act as evidence that your product didn’t have any fault prior to being delivered to the customer.

·       Establish Operations in the U.S.

If you import products from outside the U.S., have some operations in your native country. For instance, you might be selling multiple products on your website. Not all of them have to come from another country. You could also sell local products to reduce some of the liability that might result from claims against imported goods.

·       Implement a Product Recall Policy

A product recall is a procedure for collecting faulty or potentially dangerous goods from customers and compensating them. Therefore, it is essential that you establish a product recall policy to protect your online business.

With this policy in place, you will be able to quickly recall products that have been sold to customers as soon as you find out there’s a defect in them. While you might face a few claims, you will be able to save yourself from major liability as most of the defective products would be recovered before they can become a cause of lawsuits.


Final Verdict

While running an online business has many perks, a few caveats also exist. When it comes to product liability, be prepared to protect yourself against customer claims. Follow the recommendations provided above to reduce the likelihood of claims against your business and set yourself up to appear far more attractive to insurance carriers.