Small Businesses and Product Liability

Small business owners and operators should understand how product liability law may affect their business operations. This is especially important if the business organization is engaged in the manufacturing, distribution, or sale of products to the public. 

Product liability is the body of law that holds manufacturers, distributors, suppliers, retailers, and others who make products available to the public liable for any injuries those products cause. Usually liability is limited to tangible personal property. Other areas of the law would apply to services, e.g. medical malpractice to medical care, and to real property.

Issues of product liability and defective products are typically associated with large manufacturing corporations, major retail chains, or joint business ventures. However, product liability law applies equally to small businesses and start-up companies. Small businesses are bound by state and federal laws when it comes to providing products that are safe, effective and free from potentially harmful defects. 

Even small businesses, including small retailers, can be found legally liable for injuries caused by any of the three major types of product liability claims:

• Manufacturing defects;
• Design defects;
• Failure to warn of known defects, also known as “marketing defects”

What Factors are Considered When Determining the Liability of a Small Business?

Most product liability claims are based on general legal theories such as negligence, strict liability, and breach of warranty. In some states, various consumer protection laws may also apply to a particular situation or product. The most common factor in most product liability claims is that of negligence. 

Negligence can be proven when:

• The small business owes a duty of care to the consumer, i.e., providing a safe product and including warnings of possible dangers associated with the product;
• The business breached their duty of care, i.e., by not following safety regulations;
• The breach of duty was the actual and proximate cause of the plaintiff’s injury or losses; and
• The breach resulted in measurable harm to the plaintiff.

If any of these elements are not shown, it will serve as a defense, and the small business cannot be held liable for injuries caused by a defective product. For example, if an injured person cannot demonstrate that they suffered measurable losses, the small business cannot be held liable for negligence. 

If a product liability claim is based on a theory of negligence, In general, courts are likely to consider the following factors in a product liability lawsuit:

• Whether the manufacturer adequately tested the product;
• Whether the company followed industry standards and customs in its testing of the product;
• Whether the small business complied with the related regulations and laws; these will vary from state to state and according to the type of product involved; and
• Whether the business has kept pace with scientific findings and developments related to the product, e.g. has the business kept up-to-date on testing, standards and recalls.

In other words, small business owners and operators should keep themselves well-informed regarding the standards in the particular industry in which they work. They should also stay abreast of recalls and other information issued from government agencies regarding the products with which they deal.  

However, other legal theories such as strict liability and breach of warranty can also provide the basis for a product liability claim. Warranties are statements by a manufacturer or seller concerning a product during a commercial transaction. Claims of liability for harm caused by defective products based on a breach of warranty theory usually focus on one of three types:

• Breach of an express warranty: Express warranty claims are based on explicit statements made by the manufacturer or the seller of a product about the product (e.g., “This chainsaw is useful in gardening”).
• Breach of the implied warranty of merchantability: The implied warranties are not expressly stated, but rather are implied in the expectations of consumers common to all products. For example, consumers expect that a tool is not unreasonably dangerous when it is used for its intended purpose, unless the manufacturer or seller specifically disclaims this understanding. 
• • The implied warranty of merchantability is a guarantee that a product does not have design defects, manufacturing defects, or improper labels. It is implied in every commercial transaction involving products unless the fact that it does not apply is expressly stated.
• • Implied warranties are implied as a matter of law from the very act of manufacturing, distributing, or selling the product. State laws set the statute of limitations on how long a consumer can wait to make a claim for breach of an implied warranty after buying a particular product.
• Breach of the implied warranty of fitness for a particular purpose:  If a seller knows the particular purpose for which a customer is purchasing a product and knows that the customer is relying on the seller’s skill or judgment, then the product comes with an implied warranty of fitness for the particular purpose for which the consumer is purchasing the product..

Rather than focus on any specific conduct of the manufacturer, strict product liability claims are centered on the product itself. Under strict liability, the manufacturer is liable for harm caused by a defective product, even if the defect was not the result of any negligence on the part of the manufacturer..

Under a strict liability theory, a person injured by a product needs only to prove the following:

• The defendant manufactured, distributed, or supplied a product;
• The product was defective;
• The defect caused injury to the person; and
• The plaintiff sustained damages as a result of the injury.

Notice that there is no requirement for showing negligence or other basis for fault on the part of the manufacturer or retailer.

What are Some Recommended Steps To Avoid Products Liability?

One important step a business can take is to make sure that products have the appropriate warning labels and instructions.  

Warnings and labels should be clear, concise, and easy to understand. Diagrams and pictures are helpful, as well as the use of multiple translations into different languages. Many product liability claims arise because of “inadequate warnings”- that is, the warnings are either non-existent or difficult to understand. 

Finally, liability may depend on the specific role that your small business plays (manufacturer, assembly line, distributor, etc.). It is sometimes possible for a small business to be held liable for product liability if it incorporates or uses a defective part in its product, even if the part was manufactured by a different company. When dealing with multiple distributors or assemblers, it is helpful to negotiate a contract with other parties that addresses liability amongst the parties.  

Do I Need a Lawyer for Issues with Small Businesses and Product Liability?

Small businesses can be a source of satisfaction and enjoyment for the owner/operator. You should take steps to inform yourself about how to protect your business assets. Products liability claims can be avoided through proper planning and by working closely with a lawyer for advice and guidance.

It would be wise to review your business’s products and the law of product liability with an experienced product liability lawyer in order to understand the law in your state and to identify how you can defend yourself against product liability claims. Both federal and state laws can apply, so it pays to consult an expert.

If you have become involved in a products liability dispute, an experienced defective products lawyer can represent you in court and determine the available defenses.