One webshop orders smart plugs from a Chinese wholesaler, packs them in its own boxes and sells them under its own brand name. Another works on a dropshipping model: the customer orders from the webshop, the Far Eastern seller ships the goods directly to the customer, and the webshop never sees the product. A third is a traditional importer: it brings in garden grills by the container and sells them on to resellers. All three think that if the product catches fire and the customer's kitchen burns down, that is the manufacturer's problem. As a broker, what I see is that this is the most common misunderstanding in traders' liability insurance: in product liability, the Hungarian Civil Code (Ptk.) does not look at who screwed the product together, but at who brought it into the EU and who put their name on it. This article is about the liability of importers and distributors – and about the fact that product liability insurance and product recall cover are two separate things.
- Under the product liability rules of the Hungarian Civil Code (Ptk.), the importer of a product brought in from outside the European Economic Area (the EU, Norway, Iceland and Liechtenstein) is liable for product damage in the same way as the manufacturer, and anyone who puts their own name or brand on the product also counts as a manufacturer – the argument “we only distribute it” offers no protection here.
- In dropshipping, the webshop often does not know who the importer is; if the manufacturer or the importer cannot be identified, the distributor is liable as the manufacturer until it names them to the injured party – and the EU General Product Safety Regulation, applicable from December 2024, requires a responsible economic operator established in the EU in the first place.
- Product liability insurance pays for bodily injury and property damage caused to others by a defective product, but typically not for the costs of a recall or the value of the product itself; product recall cover is a separate add-on, with a sublimit and with content that varies from insurer to insurer.
Who is the “manufacturer” under the Civil Code?
Under the Civil Code, product liability is strict: the manufacturer is liable for damage caused by a defective product regardless of fault or culpability, and product damage means death, bodily injury or damage to health caused by the defective product, as well as damage caused to other property – an item for private use – above the value threshold set by law. The key is the concept of the manufacturer, which in the product liability chapter is much broader than in everyday language: the manufacturer is the producer of the finished product, of a component part or of a raw material; anyone who presents themselves as the manufacturer of the product by placing their name, trade mark or other distinguishing sign on it also counts as a manufacturer; and in the case of an imported product, anyone who brings the product into the territory of the European Economic Area in the course of their business is liable in the same way as the manufacturer. And if the manufacturer of the product – or, for an imported product, the importer – cannot be identified, every distributor of the product is to be regarded as the manufacturer until, at the injured party's request and within the deadline set by law, it names the manufacturer, the importer or the person from whom it obtained the product. The manufacturer is relieved of liability only on the grounds listed in the law – for example, if the defect could not be detected according to the state of scientific and technical knowledge when the product was put into circulation – and the burden of proof is on the manufacturer. In a judgment delivered in December 2024 (C-157/23), the Court of Justice of the European Union also held that anyone who appears as the manufacturer by using the manufacturer's name or logo cannot argue against the consumer that it did not make the product itself – the concept is to be interpreted broadly in the interest of consumer protection.
Importer, own brand, dropshipping: three situations
The traditional importer's position is the clearest: it brought the product into the EU, so it is liable for product damage as if it had manufactured the product – and the practical value of a recourse claim against the Chinese manufacturer is typically slight. A trader selling under its own brand counts as a manufacturer even if it buys the product from an EU wholesaler: its own name printed on the box brings the liability with it. Dropshipping is the most uncertain. If the seller outside the EU ships the goods directly to the Hungarian customer, the webshop does not formally import, but it sells in its own name and is therefore a distributor – and if the manufacturer or the importer cannot be identified, the injured party proceeds against the webshop, which has to name the party before it in the chain within the deadline. In practice, naming a Far Eastern platform seller achieves little: if that seller cannot be reached, the webshop is left with the liability. On top of this comes the EU General Product Safety Regulation (GPSR), applicable from 13 December 2024, which provides that a product may be placed on the market only if there is a responsible economic operator established in the EU – a manufacturer, importer, authorised representative or fulfilment service provider – whose name and address appear on the product or its packaging. And the member states must transpose the revised Product Liability Directive ((EU) 2024/2853) by 9 December 2026: it extends liability beyond the importer to the authorised representative, and where there is neither, to the fulfilment service provider and, in certain cases, to online platforms. So the legal risk of dropshipping is not decreasing but increasing – this is worth thinking through with a lawyer, not reading off an insurance quote.
What does product liability insurance pay for – and what not?
Product liability insurance pays for bodily injury and property damage caused to third parties by a defective product placed on the market by the insured, up to the limit set in the policy conditions, with a deductible. It does not pay for the product itself: replacing or taking back the defective smart plug, or the customer's claim for a refund of the purchase price, are matters of statutory and commercial warranty, not product liability – I wrote about these in the article on the insurance questions of webshops. Hungarian policy conditions typically exclude pure financial loss (the customer's loss of profit) and products sold with a known defect, and they either exclude products shipped to the USA and Canada or make them subject to a separate clause; how goods without certification or of undocumented origin are treated varies from insurer to insurer. For importers and traders selling under their own brand, the insurer asks in its risk assessment for the supply chain, the declarations of conformity, the CE marking and the product documentation; if the company's scope of activity in the policy is “retail” but in reality it imports and is building its own brand, this raises a disclosure and change-reporting issue when a claim arises. Product liability belongs to the family of activity-based liability covers, but it is a separate module: a general liability policy does not necessarily include it.
Product recall: the other cover
If it turns out that a batch of the smart plugs may overheat, the company does not have a single loss to settle; it has to recall the units it has placed on the market – product safety rules may require this, and the authority may order it. The cost of the recall (notifying customers, return shipping, storage, testing, destruction, extra work) typically falls outside product liability insurance: that applies to loss that has already occurred, not to prevention. This is what product recall cover is for; on the Hungarian market it is typically an add-on clause to product liability insurance, with its own sublimit: it pays the insured's own recall costs and, depending on the insurer, the recall costs of customers and resellers as well, and generally only if the defect could cause bodily injury or property damage – a recall launched for purely quality (not safety) reasons is often excluded, as is the value of replacing the product. The insurer also expects a proper recall procedure: a written recall plan, traceable batches, documented notification. Together, the two covers give a coherent picture: one for loss that has occurred, the other for the cost of averting loss – and in line with the logic of the article what business insurance covers, both pay only for what is an insured event under your contract.
What should you do now?
Map out your own chain for each product group: who the manufacturer is, who brought the product into the EU, whose name is on the product, and whether the party before you in the chain can be reached in writing, in a verifiable way. Collect the declarations of conformity and the product documentation – both the authority and the insurer ask for these. Check in your existing liability policy whether product liability is included, with what limit and what territorial scope, and whether recall is excluded. If you are building your own brand or running a dropshipping operation, request quotes with a precise description of the activity, and ask about the recall clause separately. If you contact me with this map of your chain, I prepare the comparison of the offers and the paperwork – the decision on the legal structure rests with your lawyer and you.
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Sources
- Hungarian Civil Code (Ptk., Act V of 2013) – product liability rules (Book Six, product liability)
- General Product Safety Regulation (EU) 2023/988 (GPSR) – responsible economic operator; applicable from 13 December 2024
- Directive (EU) 2024/2853 on liability for defective products (revised Product Liability Directive)
- MTR Legal – Extending manufacturer liability: CJEU judgment in Case C-157/23 (19 December 2024)
- Your Europe – Product requirements, compliance: obligations of manufacturers, importers and distributors
