As e-commerce sales continue to soar, questions are arising as to whether the manufacturer, seller or online platform — or some combination of the three — is responsible when a product sold causes harm or damage.

The answers may hinge on numerous factors, experts say.

These include the particular product being sold, the manufacturer’s size and location, its associated risks, the state where litigation is filed and — not least — the most easily accessible deepest pocket. 

Product liability risks are expected to increase in light of e-commerce’s flourishing growth, according to experts, who say coverage is available in both the admitted and excess surplus lines markets.

Meanwhile, court rulings so far have been a mixed bag (see related story).

Retail e-commerce’s estimated percentage of total retail sales increased incrementally from 5.6% in the first quarter of 2013 to 14.8% in 2022’s third quarter, when they totaled $265.9 billion, adjusted for seasonal variation, according to U.S. Census Bureau data. 

Justin Cardullo, Atlanta-based vice president and general liability head for Hiscox USA, said, “The downturn in shopping malls and kind of that rush to online shopping had a tailwind through the pandemic, where some people that may have been more reluctant to do their shopping online before the pandemic” became more comfortable doing it “really out of necessity.”

Hiscox focuses its e-commerce business on retailers that have between $1,000 and $5 million in gross sales, with many in the $10,000 to $100,000 range of annual sales, he said. 

Most e-commerce websites contractually require sellers to provide additional insureds/hold harmless provisions and “have some form of checking to make sure people’s policies are in place,” said Steven Bartell, Chicago-based senior broker, casualty, with Burns & Wilcox Ltd. 

For example, Amazon.com requires sellers with a “Pro Merchant” account and gross sales of at least $10,000 a month for three consecutive months to obtain $1 million in liability coverage per occurrence and in the aggregate, according to Next Insurance Inc., a Palo Alto, California-based insurtech.

The policy must include coverage for products liability, products/complete operations, bodily injury, personal injury, broad form property damage and broad form contractual coverage, and name Amazon and its assignees as additional insureds. On-line platforms including Amazon had no comment or did not respond to requests for comment for this story.

E-commerce-related claims fall into broad categories of property damage from defective products that cause water or fire damage, and injuries to either people or pets, said Chris Rhodes, chief information officer for Next Insurance, which focuses on small businesses.

As online sales rise, more e-commerce-related lawsuits are being filed, experts say. Yet there is no consensus so far as to who is ultimately responsible for product liability.

“There’s potential liability for all parties involved in the chain of commerce, and there’s a sort of split of authority among the various jurisdictions” as to whether companies such as Amazon or eBay can be held liable, said Jaime L. Regan, a member of Harris Beach LLP in New York.

One issue may be the entity’s association with the product. If the warehouse from which the product is sold is just acting as a sales venue for the manufacturer, plaintiffs will “just go up the line to the last persons who touched it,” said Chris Pennock, Windsor, California-based senior vice president and owner of broker Calender Robinson Co. 

Another factor is where the seller is located, say experts, who often point to the challenge of tracking down Chinese companies. 

This reflects the global market’s nature, with buyers forced to go overseas to obtain products from companies that may not have significant assets or a U.S. presence, said Sam Terzich, executive vice president of Rolling Meadows, Illinois-based Gallagher Basset Specialty.

It can also be a challenge to access detailed information about the products’ manufacture and the supplier’s safety standards, Mr. Rhodes said.

Mr. Bartell said of U.S. companies that import from China, “ultimately, insurance carriers view you as the actual manufacturer because there’s going to be very limited recourse to go back and subrogate against a Chinese company.” 

There have been cases where plaintiffs have won rulings against foreign entities but nobody can find them “so they’re basically just holding a vacant judgment,” Ms. Regan said.

Experts say this means the easily-identified and located online platforms are often considered the deep pocket.

“Online parties are going to be the easiest target, and courts must sort out if the platform is fairly responsible in this situation,” said Jared R. Friedmann, a partner with Weil Gotshal & Manges LLP in New York. This means determining if the platform played an active role in the product’s design, manufacture or distribution or is only providing a service to a third party, he said. 

“The litigation battle has been over the question of whether platforms are, in fact, sellers,” said Eric Goldman, a professor at Santa Clara University School of Law in Santa Clara, California.

Most states operate under some kind of strict product liability regime for personal injury clams where “everyone in the chain of distribution is equally responsible” for the injured party, said Thomas P. Kurland, a partner with Paterson, Belknap Webb & Tyler LLP in New York. 

“The idea behind that is, the injured purchaser doesn’t have to figure out who to see or worry about jurisdictions or any of these sorts of legal technicalities,” Mr. Kurland said. Instead, it is left to the parties to allocate the issue of liability among themselves, he said.

Resolution depends on an analysis of each state’s particular consumer protection laws, Mr. Friedmann said.

Before 2019, courts consistently held that online retailers were not strictly liable, but case law in California, New Jersey, New York and Pennsylvania suggests there has been a “sea change, so to speak, in how certain venues treat these online retailers,” said Patrick Carroll, Kings Park, New York-based director, U.S. casualty claims consulting, for Aon PLC. “I still think it depends on the venue,” he said.

“My guess would be that we’re going to see courts looking to protect the public and in doing so holding online retailers to a higher standard in the future,” he said.

Jeremy K. Robinson, a partner with plaintiffs law firm Casey Gerry Schenk Francavilla Blatt & Penfield LLP in San Diego, noted, “There are still several states where Amazon can’t be held strictly liable because of statutes enacted long before the online marketplaces existed. … I see that changing.” 

Experts say e-commerce risks are insured by a wide variety of admitted and surplus lines insurers. 

“There’s no shortage of insurers” but which is used depends on factors including the product and the seller’s size, said Gary Grindle, Farmington, Connecticut-based executive vice president with Amwins Insurance Brokerage LLC. 

Rates, terms and conditions, and capacity varies, according to Mr. Cardullo of Hiscox, with the market slightly tougher for manufacturers and online platforms because of their complexity.

Hiscox is among the participants in Amazon Insurance Accelerator, a digital insurance network in which Marsh LLC is collaborating, through which small businesses can obtain product liability coverage.