Product liability in e-commerce

Product liability in e-commerce

Anyone who makes a mistake must - as a rule - bear the consequences. In online commerce, this principle is illustrated by the warranty, for example: If a retailer sells a product that has a defect at the time it is handed over to the buyer, which then becomes apparent later, the retailer may have to rectify the defect.

Dec 20, 2020

7 min read

In the case of warranty, liability primarily relates to the purchased item itself. However, if a defect in the product causes bodily injury, for example, the warranty is of little help to the injured party - in this case, there is no obligation to compensate for any medical treatment costs, which the injured party would be left with. In this respect, there are other legal bases that ensure that liability must be assumed for an injury. These include the Product Liability Act. It has a number of special features that deviate from the usual conditions. Reason enough to take a closer look at it.

No contract and still liability

The obligations of the product liability law can affect several groups of persons, from the manufacturer to the seller. The standard case concerns the manufacturer. If a defect in a product kills someone, injures their body or health, or damages (another) object, the manufacturer must compensate the injured party for the damage caused by the defect. According to the law, the manufacturer is the person who produced "the final product, a basic material or a partial product" - in simple words, the producer. This also includes persons who assemble a product from several parts, so there is also liability with regard to purchased parts. Up to this point, only some of the online retailers are affected. However, other groups of people are also considered to be manufacturers. This includes, for example, anyone who claims to be the manufacturer - i.e. who attaches his name, trademark or "other distinctive mark" to the goods (quasi-manufacturer), or who imports the product.

If you as an online retailer have not been affected up to this point, one last point remains: If the manufacturer of a product cannot be identified, the liability must be borne by each supplier. Online retailers should take preventive action here and document the supply chain of their products well. Here, it is possible to name the manufacturer or upstream supplier within one month and thus free oneself from liability. However, there is an exception to this exemption from liability in international situations. If both the importer and the manufacturer are located in a third country, but only the manufacturer can be named, full liability remains. It is quite possible that several persons in the supply chain are responsible for product safety according to the law. In that case, the injured party can hold each of these persons liable, and to the full extent of the law. The responsible parties are then obligated to compensate each other for any damages - depending on who is responsible for the defect. The liability is therefore not based on the contract with a buyer, but on the legal responsibility. Moreover, it may not be excluded or limited vis-à-vis the injured party before the damage occurs.

Clarification can avoid liability risks

The linchpin of product liability is the defect of the product - i.e. a movable object. This means that virtually every consumer good is affected, as well as packaging materials, foodstuffs and various other things. On the other hand, essentially only land, buildings and pharmaceuticals are excluded. Even if the product was not intended for sale or was not otherwise manufactured for distribution with an economic purpose, liability does not apply. The defect must have existed when the product was placed on the market, i.e. in any case when the product was offered for sale. A defect exists if the product does not offer the safety that can be expected by an average, reasonable consumer from an objective point of view - the opinion of the general public is thus decisive. It is expressly not a defect if an improved product is offered later. In order to assess the safety of the product, the law looks in particular at the presentation, the use and the time of marketing. For those who must be liable for the safety of a product, this fact provides a starting point for avoiding liability that gets out of hand.

Sources of danger should not be swept under the carpet, but rather appropriate, clear safety instructions should be included in the instructions for use to prevent misuse, for example. In principle, the manufacturer must base this on the expectations of the general public at the time the product is placed on the market, not on future safety requirements. However, this must not obscure the fact that there is an obligation to monitor the product. For example, production may have to be adjusted over time, and reactions may also be necessary with regard to older products - such as notices or even recalls. However, there is no liability for misuse. Incidentally, it is not a question of fault on the part of the person responsible; liability exists in principle irrespective of this. It does not help to refer to the proper monitoring of employees or the production process. Instead, the decisive factor is the fact that a hazard has been created.

What about the fault of the injured party?

On the side of the injured party, however, fault can play a role - in favor of the responsible party. If the latter has contributed to the damage, this can lead to a reduction in liability. Here, for example, warning notices can pay off: If one is ignored, this can lead to contributory negligence on the part of the injured party. Something similar applies in the result if the damage was caused simultaneously by a product defect and the action of a third party. However, in this case the person responsible for the product or the manufacturer must initially be fully liable.

But who actually has to prove what? This is an extremely relevant question in practice. In principle, the injured party bears the burden of proof on the one hand for the existence of the defect itself, and on the other hand must prove that this defect is actually the cause of the damage, and it must also be possible to prove the damage. However, this is also only the basic principle. For example, the injured party does not have to prove that the defect was also present at the time the product was placed on the market, but only that it was present at the time the damage occurred. In addition, the so-called "prima facie evidence" comes into play here: according to this, typical sequences of events do not have to be proven by the injured party, but it can be assumed on the basis of general life experience that they are true. However, a manufacturer has the option of proving otherwise.

Liability in the millions

Ultimately, the question arises as to the extent to which liability can arise here. Here it depends on the type of damage that has occurred. First of all, there may be damage to an object. However, liability does not apply to damage to the object from which the damage originated, but only to damage to other objects. Here is an example: A hotplate has a fault, the temperature limiter is defective. This causes the hotplate to overheat. Fire damage occurs to the table on which it is placed by the user, and the plate itself is also destroyed. In this case, compensation under product liability is only possible for the table, not for the hotplate itself. The amount of liability for property damage is unlimited. However, the injured party must pay an amount of 500 euros himself.

In the event of bodily injury, the maximum amount is limited to 85 million euros. In this case, the costs of treatment and any financial losses resulting from the fact that the injured party can no longer work as before must be borne. For example, costs may be incurred for hospital treatment, physiotherapy or even a pension. Instead of a pension, a settlement can also be agreed. In the event of the death of a human being, the liability to pay compensation is also limited to a maximum of 85 million euros. In itself, the Product Liability Act only gives rise to claims on the part of the injured party. In this respect, similar principles apply as in the case of bodily injury. In addition, there may be costs for burial and maintenance for any dependents, such as the injured party's children. The law also provides for appropriate compensation for the suffering of surviving dependents.

Conclusion

As it turns out, a defect in a product can have profound consequences. However, this does not apply indefinitely; a claim under the Product Liability Act can become time-barred or even expire. The limitation period here is three years. It does not begin to run until the party entitled to compensation has become aware of the damage and the defect and also knows who must pay compensation. It is also sufficient that he should have had knowledge in each case - i.e. that he was at least negligent in not knowing about it. If the injured party ignores an obvious defect after the damage has occurred, he cannot later claim that he was unaware of it. The time limit still runs.

Apart from the statute of limitations, liability expires 10 years after the product has been placed on the market. In order to record this point in time and, if necessary, to be able to exempt oneself in the event of a liability claim being asserted, the placing on the market should be documented accordingly, for example by means of batch numbers. In summary, it can be stated that the Product Liability Act gives rise to a considerable liability risk. Primarily affected by this are the manufacturers of the products. However, online retailers can also be held liable if they do not properly record their supply chain. Finally, an appropriate product liability insurance can be urgently recommended. If liability arises, it will be covered by the insurance to the contractually agreed extent.

Melvin Dreyer

Melvin Dreyer

Legal editor for Händlerbund