What is Product liability?

Most commercial liability is fault based: someone has to have done something wrong. Product liability works differently. If a product is defective and that defect causes injury or damage, the producer is liable regardless of how carefully the product was designed, tested, or manufactured. The claimant proves the defect, the damage, and the causal link, and nothing more.

Who counts as a producer is where businesses are most often caught out. The manufacturer of the finished product is the obvious answer, but the definition also captures the maker of a component or raw material, any business that puts its own name or trademark on the product, and the importer who brings goods into the European Union. A wholesaler sourcing directly from a factory outside the EU takes on the manufacturer's liability position, which is rarely priced into the decision to buy there.

A further rule closes the gap. A supplier who cannot identify their own supplier or the producer within a reasonable period is treated as the producer themselves. Purchase records are therefore not just an accounting matter; they are the evidence that keeps liability with the party that actually made the goods.

A product is defective when it does not provide the safety a person is entitled to expect, judged on how the product was presented, the use that could reasonably be anticipated, and when it was placed on the market. Inadequate instructions or missing warnings can make an otherwise sound product defective. The later arrival of a safer model does not by itself make the earlier product defective.

The damage covered is narrower than many buyers assume. Death and personal injury are covered, as is damage to property other than the defective product itself, provided that property was intended and used for private purposes. Damage to the product itself and pure economic loss fall outside the regime entirely and have to be pursued through breach of contract, warranty, and whatever the supply terms provide.

Two time limits run in parallel. A claim expires three years after the injured party became aware of the damage, the defect, and the identity of the producer. Separately, liability lapses ten years after the individual product was placed on the market, and that long-stop applies even if the defect surfaces later.

The European framework has been rewritten. Directive (EU) 2024/2853 replaces the 1985 product liability regime and must be transposed into national law by 9 December 2026. It brings software, digital services, and updates within the definition of a product, and eases the claimant's evidential burden in technically complex cases. Any business selling connected equipment should assume its exposure widens rather than narrows.

Because liability towards the injured party cannot be contracted away, the only meaningful protection sits upstream and sideways: an indemnity from the manufacturer in the purchase agreement, and product liability insurance in your own name. General public liability cover typically excludes damage caused by the insured's own products, so the two policies are not interchangeable.

Product liability is a low-frequency, high-severity risk. It rarely materialises, and when it does the claim can exceed a mid-sized company's annual profit, while the contractual protection against it fits into two or three clauses.

Those clauses are seldom monitored. Loio (2026) reports that 71% of contracts are never checked for compliance after signature. An indemnity negotiated at the outset that quietly disappears from the supplier's updated terms at the first renewal offers exactly as much protection as no indemnity at all.

For importers the exposure is structural rather than accidental. Buying directly from a manufacturer outside the EU moves the producer's liability onto your balance sheet, and the lower purchase price was usually the reason for buying there in the first place. That trade-off deserves to be made deliberately.