Product Liability in the USA

If you want to sell your products in the States, product liability is a topic you really need to understand before you start. The story of the cat in the microwave is just one of the famous examples. Whether that case ever happened or not: if you want to win the American market, you should protect yourself and your business from lawsuits and enormous damage awards. On this page we have put together everything you need to know about US product liability, from the risks to the steps you can take to prevent them.

1Product liability in Europe

Since the end of 2024, European product liability has rested on a new foundation. Directive (EU) 2024/2853 of 23 October 2024 on liability for defective products repeals the old Directive 85/374/EEC of 1985. Member states must transpose it into national law by 9 December 2026; it applies to products placed on the market from that day, while the 1985 version still governs older products. The new directive expressly covers software, digital services and updates, and makes it easier for injured parties to prove their case. So if you produce for both the EU and the US market, liability is getting stricter in both.

2The legal framework for product liability in the USA

2.1Basics & liability

Unlike in Europe, American product liability is governed at the level of the individual US states, not by the federal government. In principle, though, lawsuits rest on three legal bases:

1. Warranty liability: Breach of warranty covers liability for a product's properties and for damage the product causes. It is governed by contract and applies regardless of fault.
2. Duty of care: Alongside contractual liability, liability for negligence covers the statutory product liability claims. It depends on fault and relates directly to the manufacturer's duty of care. The injured party must prove a negligent breach.
3. Strict liability: Strict liability in tort deals with damage caused by defective products. It applies regardless of fault and is shaped not by statute but by case law.

With product defects, the burden of proof for the link to the damage in the USA lies with the injured party. Companies can be held liable for many kinds of defects, spanning everything from design and production to actual use, as well as parts from suppliers.

In general, liability in the States extends to everyone in the distribution chain: importers, suppliers and manufacturers as well as retailers and designers. The plaintiff decides whom, and how many of them, to hold liable.

Unlike in Europe, damages in the USA are not set by a judge but by a jury made up of ordinary citizens. The jury decides the verdict; the judge simply ensures the proceedings are conducted properly.

Besides damage caused directly by the product, and non-material damage as well as consequential damage, the States also have punitive damages, a form of exemplary damages that usually make up the bulk of the award.

2.2Litigation

US courts interpret their own jurisdiction very broadly. Even the slightest connection to America is enough for a lawsuit. A complaint in the USA only has to meet minimal formal requirements. It can be filed easily for a low fee and served by mail. Evidence is only needed once the case is under way. In the States, legal costs are borne by each party itself.

Before trial comes discovery, a kind of pre-trial investigation. The parties identify evidence, answer written questions from the other side and hand over requested documents. Failing to disclose is penalized.

With expert witnesses in the USA, it is not just about neutrality and expertise, but about whether their evidence convinces the jury. The American legal system also allows collective lawsuits, known as class actions, where plaintiffs sue as a group. There is a lead plaintiff, but the judgment applies to everyone affected.

3Prevention for companies in the USA

The best way to reduce the risk of product liability lawsuits is, of course, to avoid product defects. But since mistakes do happen, you should also shift liability and fend off claims.

That means identifying potential risks and hazards as early as the design phase. Regular checks should also document quality. Manufacturers must monitor production and, where needed, make adjustments or recall products. For consumer products on the American market there is a reporting obligation to the Consumer Product Safety Commission (CPSC).

Here are more measures to protect yourself and your company against product liability claims:

• Corporate structure: To sell to American customers, it often makes sense to set up a separate US company to shield the parent company and ring-fence the risk. Naturally, you should choose a limited liability entity (such as the C Corporation). Watch out, however, for possible veil piercing. A US subsidiary only makes sense if it also manufactures the products it sells locally. If the parent company is the manufacturer, it is liable too.

• Product development: Industry and safety standards and legal norms should, of course, be taken into account and met during development. At federal level, the standards of these agencies matter: the US Consumer Product Safety Commission, the environmental agency EPA, the Food and Drug Administration, the transportation safety board NTSB, the National Highway Traffic Safety Administration and OSHA for workplace safety. For industry-specific quality standards there are bodies such as the National Electrical Manufacturers Association NEMA as well as the NFPA and Underwriters Laboratories.

• Jurisdiction: If you agree on a foreign jurisdiction for your company, US courts will usually recognize it. Plaintiffs can then only sue in the States if they show special grounds (for example, product liability claims involving personal injury or death).

• Choice of location: Some states are particularly strict on product liability, others less so. While Delaware and Virginia are considered business-friendly, California and Florida lean more toward consumers. That is why the legal landscape can be an important factor when choosing where to set up.

• Warnings & instructions: How warning labels are worded and designed is essential for product liability. They should clearly communicate the potential hazards of the product and be prominent and easy to understand. Signal words and symbols are used as well. Instruction manuals should not simply be translated but genuinely adapted to the US market. The ANSI Z535.6 standard from the American National Standards Institute helps with this.

• Insurance: Product liability insurance always makes sense. It should cover all damage occurring during the policy period, plus legal and court costs. Agreements with suppliers and customers help as well.

4Product liability insurance in the USA

If your company exports to the USA, make sure your insurance covers not only business trips, exhibitions and trade fairs but also foreign trade and installation. Because the liability risk is higher, that is not always included automatically. You should also plan for extended reporting (tail) coverage. Warehouses, production sites or other branches in the States have to be insured directly in the USA . While it is common for court costs to be offset against the insured sum paid out, damages such as punitive damages are not covered by any policy.

Important for marketplace sellers: Since August 2021, Amazon has required mandatory product liability insurance in the States. This applies to businesses selling on the US platform with more than $10,000 in monthly sales. Amazon must be listed on the policy as an additional insured.

By the way, you can find the key terms and facts about US health insurance here.

5Product liability in the USA: what this means for you

Selling in the States always carries a higher liability risk. That is why you should arrange local insurance coverage in advance to protect yourself against enormous damage claims and lawsuits. Under US product liability law, also keep in mind that even a structure with an American subsidiary can, in some cases, lead to piercing the corporate veil. The subsidiary then does not provide the shielding effect you expected. Finally, factor the legal landscape into your choice of location and, if possible, pick a business-friendly US state. Read more about the legal framework on our pages on legal certainty in the USA and employee lawsuits; you will find an overview of every building block of your US market entry there too.

In short

• In the USA, product liability is governed by the states; plaintiffs rely on breach of warranty, negligence or strict liability.
• Everyone in the distribution chain can be liable, and a jury decides on damages, often including punitive damages.
• US courts interpret their jurisdiction broadly; before trial comes discovery, with far-reaching disclosure obligations.
• Protection can come from your own US limited liability company, US standards in product development, an agreed place of jurisdiction, your choice of location and warnings adapted to the US market.
• Product liability insurance that covers foreign trade and installation always makes sense; no policy covers punitive damages.

How we help you

• Form a CorporationThe US corporation (Inc) for growth, investors and your visa.
• US market entrySubsidiary, staff, taxes: your start in the US market.
• Tax structureA clean structure between parent company and US subsidiary, or between you and your US company, coordinated with your accountant.
• Sales taxRegistration and returns in the states where you have nexus.
• Company formation consultationEntity type, state and tax consequences, before you commit.