Product Liability - 3rd Party Resellers

With the digital economy booming during the COVID-19 crisis, people have turned to online shopping more than ever as lockdown and social distancing measures were introduced. With the increase of online consumers, it is significant that the e-commerce giant Amazon recently announced it will step in to handle consumer complaints about defective products. In the past, Amazon directed consumers to third-party sellers in the case where a defective product caused property damage or personal injury. As of September, Amazon will directly pay customers for their claims under US$1,000, which is great news for consumers. 

This is a significant change to its returns policy and we can expect rival marketplace e-commerce service providers will follow Amazon’s lead to protect their customers in this competitive online market. Lawmakers have also sought to update product liability laws for the e-commerce era to make Amazon, AliExpress, Lazada, Etsy, eBay and other companies liable for goods on their platform, just as retailers are held responsible for goods sold in their physical stores.

Superficially, third-party sellers may well think Amazon will be covering their product defect claims however, there is no free lunch. Amazon will take the customer claim information and step in to address the customer concern at its own cost, however, it will also separately pass on the liability to and pursue, the third-party seller.

Amazon has also announced a new policy requiring third-party sellers to obtain product liability insurance once they hit US$10,000 of sales in a month. We expect all major online marketplace platforms will align to also make product liability insurance mandatory for third-party resellers. Product liability insurance protects against legal liability claims for personal injury or property damage arising from products sold or supplied.

These latest announcements clearly show that pressure from consumers has changed the attitude of the online marketplace platforms towards protection for consumers receiving defective products. Third-party sellers without product liability insurance should not wait until their consumers encounter a problem with their goods, otherwise, defective products can create a potentially business-ending legal situation.