As a wholesaler, you can be held liable for products that injure someone, damage property or make people sick, even though you didn’t make them. Who owns the goods at each step, and who carries the risk if they’re lost or damaged on the way, depends on your sales contract and shipping terms. Your insurance needs to line up with both.
Product liability follows the chain of distribution
Product liability means a court can hold your business responsible for injury, illness or damage caused by a product you sold. The most common causes are defects in design or manufacturing, and problems with labelling, instructions or safety warnings.
Anyone in the chain of distribution can be named: the manufacturer, the importer, the wholesaler and the retailer. Claims often start with the retailer, who then turns to the wholesaler, who turns to the manufacturer. If the manufacturer is overseas, no longer in business or uninsured, the claim can stop with you.
Where wholesalers take on extra risk
Some activities increase your exposure because they make you look more like the manufacturer:
- modifying a product in any way, however minor;
- repackaging or relabelling, especially if the new packaging has incomplete instructions or warnings;
- installing or repairing products;
- knowing about a defect or recall and not passing it on;
- importing products, particularly ones that can be dangerous;
- handling or storing food and beverages improperly, leading to illness;
- failing to warn about allergens such as nuts, eggs or milk.
There are also federal reporting duties to know about. Under the Canada Consumer Product Safety Act, anyone who manufactures, imports or sells a consumer product for commercial purposes must report a product incident to Health Canada, and to the business they got the product from, within two days of becoming aware of it.
Who owns the goods, and when?
This is the question many wholesalers haven’t thought through. Ownership and risk matter because they decide whose insurance responds when a shipment is damaged, stolen or lost.
In Ontario, the Sale of Goods Act says ownership of goods passes when the buyer and seller intend it to pass. If the contract doesn’t say, the Act sets default rules. As a general rule, risk passes with ownership unless the parties agree otherwise.
For goods moving across borders, many contracts use Incoterms, the international trade terms published by the International Chamber of Commerce. The current version is Incoterms 2020. They set out when risk and costs pass from seller to buyer. For example, under EXW (Ex Works), the buyer takes on the risk once the goods are made available at the seller’s premises, while under DDP (Delivered Duty Paid), the seller carries the risk all the way to the named destination. One point that’s often missed: Incoterms don’t decide who owns the goods. Ownership needs its own clause in your terms of sale.
What this means for your insurance:
- If you carry the risk while goods are in transit, you need cargo or transit coverage that matches.
- If you sell on terms where the buyer takes the risk at your dock, your customers should know that.
- If you hold customers’ goods, or a supplier holds yours, check who’s insuring them.
Reducing the risk of a claim
Good records are the best defence. Track everything that comes into and leaves your warehouse, with batch or lot numbers so products can be traced quickly. Record where and when products were made, expiry dates, and any repackaging or modifications you’ve done. If there’s a recall, good records let you find the affected stock fast and limit the damage.
Food wholesalers should also know the traceability rules under the Safe Food for Canadians Regulations, which require most food businesses that import, export or ship food across provincial borders to trace food one step back to the supplier and one step forward to the customer.
On the insurance side, look at product liability limits, whether you need product recall coverage, and whether your suppliers carry product liability and can name you as an additional insured.
Where your business and family overlap
Plenty of wholesale businesses start, or still run, partly from home. Overflow stock sits in the basement. Samples and orders ride around in the family SUV. A spouse helps pack and ship on weekends.
That’s where gaps appear:
- Home policies generally exclude or tightly limit business property, so inventory in the basement may not be covered if there’s a fire or a break-in.
- Your commercial property policy may only cover stock at the locations listed on it. Your home address may need to be added.
- Personal auto policies cover the vehicle, not the stock inside it, and regular business use needs to be disclosed.
- Liability for a customer picking up an order at your house usually falls outside your home policy’s personal liability coverage.
Looking at the business and household policies side by side is the simplest way to make sure the inventory is covered wherever it happens to be that week.
Next step
If you wholesale or import products and want to check how your contracts and coverage line up, book a review and we’ll go through it together.
Common questions
Can a wholesaler be sued for a product it didn't make?
Yes. Anyone in the chain of distribution, from the manufacturer to the retailer, can be named in a product liability claim. Claims often start with the retailer and work back up the chain, and if the manufacturer is overseas, out of business or uninsured, the wholesaler or importer can end up carrying the claim.
When do goods become the buyer's responsibility?
It depends on the contract. Under Ontario's Sale of Goods Act, ownership passes when the parties intend it to, and risk generally passes with ownership unless you agree otherwise. Shipping terms such as Incoterms set when risk and costs pass, but they don't decide ownership, so spell that out in your terms of sale.
Does my product liability policy cover recalls?
Usually not. Product liability covers injury and property damage to others. The cost of pulling products off shelves, notifying customers and destroying stock is normally a separate product recall coverage.
Is inventory kept at my house covered?
Often not, or only to a small limit. Home policies generally limit or exclude business property, and your commercial property policy may only cover stock at listed locations. Tell your broker about every place you keep inventory, including your home and vehicles.