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dropshipper liability

by sitekrafters
6 replies
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If I sell shoes via a dropshipping supplier, am I liable if one of the shoes has a nail inside that causes physical harm to the customer? The product is shipped directly from the supplier/manufacturer and I have no way of checking the shoes before they are shipped to the customer.

Thanks
#dropshipper #liability
  • Profile picture of the author Importexport
    This is an important question and deserves an answer.

    Retailers, whether dropship resellers or bricks and mortar stores, are in the front line when it comes to liability to customers for faults or as your question refers to, injury.

    A retailer has legal recourse to make a claim against the business that supplied him/her, and if that supplier is a wholesaler they will claim against the manufacturer. Many, if not most dropship wholesalers purchase their goods from manufacturers in China and in most cases that gives them little hope of successfully claiming against the manufacturer.

    Customers usually find the retailer the easiest target, and often they are because they don't have the financial resources to defend themselves and often don't have product liability insurance. That insurance is a business necessity unless you have sequestered your assets.
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    • Profile picture of the author OnlineStoreHelp
      This is not a simple answer unfortunately and so I will try and answer it as best as possible in a short forum post.

      As a retailer you are not necessarily liable for the manufacturing defect that causes third party bodily injury or property damage to someone. Usually it is only in cases when through your own negligence you allowed the product to sell (you knew it was causing harm to people, yet continued to sell it.) In some cases you will see litigation against a retailer but 9 times out of 10, it is against a manufacturer. That being said, you might be the person the customer comes and complains to when it happens. But, being a dropshipper, you can make it difficult for that to happen. In all my years as a risk manager, I only saw one retailer get named in a lawsuit for a defective product (a big box retailer) and all they did is punt it to the manufacturers insurance company (additional insured by contract).

      So how do you protect yourself.

      Terms and Conditions (with click through agreement): Have a strong terms and conditions here is key. This would include making sure you limit any liability, create a choice of venue, and even language stating any claims due to manufacturers defect are wholly the responsibility of the manufacturer. They have to click to agree or they are meaningless.

      Additional Insured: Most large retailers require their manufacturers to have liability insurance and add them as an additional insured. This means if they get sued, they just punt it to the insurance company. As a small dropshipper, good luck with that. Most likely you won't get, you will just have standard purchase orders. Your wholesaler is the only that will most likely have it, you might be able to get one from them, but again, good luck with that.

      Limited liability entity: Run your business through a multi-member LLC, C Corp or S Corp to restrict liability. Just make sure you don't co-mingle personal and business.

      Liability and Product Liability Insurance: A package policy will cost you less than $1000 a year starting out and will not only provide insurance, but access to panel of lawyers in case you get sued.

      Your best bet is not to sell anything that could be a hazard without the above in place. Most branded merchandise, the manufacturer will stand bye since they don't want the negative publicity. Hope this helps.
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  • Profile picture of the author Ecommerce Advice
    I'm not a lawyer - but I'm fairly sure that if you are using a dropshipper outside of your country and you take the order and payment you would be liable.

    It would then be up to you to go after the manufacturer. Which could be very hard especially if they are in the Far East.

    Look into getting liability insurance it's often easier than you think.
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    • Profile picture of the author sitekrafters
      what if the manufacturer is in the US?

      Originally Posted by Ecommerce Advice View Post

      I'm not a lawyer - but I'm fairly sure that if you are using a dropshipper outside of your country and you take the order and payment you would be liable.

      It would then be up to you to go after the manufacturer. Which could be very hard especially if they are in the Far East.

      Look into getting liability insurance it's often easier than you think.
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  • Profile picture of the author malia
    Everybody is correct, but with this one thing---

    I only saw one retailer get named in a lawsuit for a defective product (a big box retailer) and all they did is punt it to the manufacturers insurance company (additional insured by contract).
    In the case he mentions above, typically ALL parties are insured and when the claim is filed, the retailer's INSURANCE COMPANY usually "punts" it to the manufacturer's insurance company. Typically if you are a sole proprietor and someone comes after you, you don't have the resources, or know how, to do this. And typically if the dollar amount is low, you're fighting it out in small claims court.

    While a "click to accept" terms and conditions policy on your website is great standard practice, it doesn't mean someone still can't sue you. It will not supersede that consumer's rights. When you consider that the consumer could reside in a state that is more strict with regards to product liability than your state, it could even be worthless.

    That doesn't mean that it should not be done, just don't put up T&C policy and think you are covered, get general liability and product liability insurance. If you're in a low risk category, and you are not the manufacturer, and not the importer, it should be very affordable.
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  • Profile picture of the author taxpayment1
    Im not 100% sure, but being the "supplier" I would most likely say yes. You would be liable. That is a very jumpy topic, that most of us do not really know or can give a strong 100% positive answer for you. I hope You work all out.
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