The short version
- You are the seller of record. The contract of sale is between you and the buyer, and a supplier agreement does not change who the buyer's claim is against.
- In most US states a seller in the distribution chain can be held strictly liable — the buyer proves the product was defective and caused harm, not that you were careless.
- The EU has rebuilt this. Under the revised Product Liability Directive, in force from 9 December 2026, liability moves down the chain to the importer, the authorised representative, then the fulfilment provider when the manufacturer is outside the EU.
- The FTC shipping rule catches dropshippers more often than product liability does: ship within your advertised time or 30 days, or get consent to the delay or refund.
There is a version of this question that gets asked constantly and answered badly: "if my supplier makes the product, surely they are responsible for it?" They are responsible, in the sense that they can be sued and that you may be able to recover from them. That is a different question from who the customer's claim lands on first, and in practice the two answers diverge almost immediately.
Dropshipping is a fulfilment arrangement, not a legal structure
Strip out the logistics and the transaction is ordinary retail. The buyer contracts with your store. You take the money, you set the price, you write the listing, your name is on the invoice and often on the packaging. The supplier never enters into a contract with the customer and usually does not appear anywhere the customer can see. Every consumer-law consequence follows from that: the right to reject faulty goods, the distance-selling cancellation right, the warranty claim and the refund obligation all point at you.
Which means the supplier agreement is not doing what many people assume it does.
Who the injured buyer can actually reach
A product you never handled injures a customer. Who can they sue and collect from?
Manufacturer is identifiable and within reach
They can be brought into the case. You are usually still named as the seller, but your indemnity has real value because there is someone to enforce it against.
Manufacturer is overseas or unidentified
The claim stops at the first party the court can reach. Selling under your own brand into your own market, that is you — with no collectable recovery behind you.
The US position: you are in the chain of distribution
Product liability in most US states runs on strict liability rather than negligence. The claimant has to establish that the product was defective and that the defect caused the harm. They do not have to show that you knew, that you should have known, or that you did anything wrong at all. Everyone in the chain of distribution — manufacturer, distributor, retailer — is exposed on that basis.
Some states limit a non-manufacturing seller's exposure once the manufacturer has been identified and can be brought before the court. That relief is worth checking in the states you sell into, but note the condition it depends on: a manufacturer who is identifiable and subject to the court's jurisdiction. An overseas factory reached through a marketplace listing is typically neither.
The EU has just rewritten the answer
Two European instruments matter here and they do different jobs. The General Product Safety Regulation has applied since 13 December 2024 and is about placing products on the market at all: any product sold to EU consumers needs an economic operator established in the EU who is responsible for it, and the offer itself must show that person's name and contact details. Without one, a non-EU seller cannot lawfully place the product on the EU market, and marketplaces enforce this by removing listings.
The revised Product Liability Directive (EU) 2024/2853 is about who pays when the product hurts someone. Member states must have it in national law by 9 December 2026. Its structure is a cascade, and the cascade is the point.
| Position in the chain | When they carry it |
|---|---|
| Manufacturer | First in line, wherever they are established |
| Importer and authorised representative | Where the manufacturer is established outside the EU — the importer is liable in the first instance |
| Fulfilment service provider | Where there is no EU importer or authorised representative to point at |
| Online platform | Where it presented the product such that an average consumer would believe it came from the platform or from a trader under its control — and only where it fails to promptly identify a relevant economic operator in the Union |
Read that cascade as a dropshipper. If your supplier is outside the EU and you are the one bringing the goods in, you are the importer, and the importer is liable first. The design intent is explicit: the injured consumer should always have a defendant inside the Union.
What a supplier agreement can move, and what it cannot
The agreement can settle
- A contractual claim to recover from them afterwards
- Product specification and the compliance evidence you hold
- How returns and defect reports are routed
- Insurance cover, and a recall procedure that names who does what
The agreement cannot touch
- Who the customer sues — that follows the sale, not the stock
- Your refund, cancellation and delivery obligations
- Strict liability as a seller in the chain of distribution
- The importer position, if you are the one bringing goods in
Everything on the right lands on you the moment a buyer complains. Everything on the left only helps afterwards, and only if the supplier still exists.
The rule that catches almost every dropshipper
Long before anyone is injured, the ordinary failure mode is delivery. The FTC's prompt delivery rules require a seller to have a reasonable basis for expecting to ship within the time advertised, or within 30 days where no time was stated. If that slips, you must contact the buyer and give them the choice of accepting the delay or cancelling with a refund.
Dropshipping from an overseas supplier with a three-week transit time and no visibility into dispatch is a business model built directly against that rule. The obligation is yours, not the supplier's, and "the factory was slow" is not a defence — the rule is about whether you had a reasonable basis for the promise when you made it. A shipping policy that states honest windows, and a listing that repeats them, is the cheapest fix available.
Dropshipping agreement template
Full text, free to read and copy — product specification and compliance, defect handling, returns routing, indemnity, insurance and the recall clause most supplier agreements leave out.
What the supplier agreement has to do
Since the agreement cannot redirect the customer's claim, its job is narrower and more specific: make the supplier bear the cost of a problem you are obliged to fix in front of the customer, and make that obligation collectable.
The clauses that decide whether recovery is real
- Compliance warranty — the supplier warrants the goods meet the safety standards, labelling and marking requirements of every market you name. Name them; a warranty of general compliance is unenforceable vagueness.
- Indemnity covering product liability claims, regulatory action and recall costs, not merely "defective goods".
- Product liability insurance, with a minimum limit, evidence of cover supplied annually, and you named as an additional insured. This is the clause that turns an indemnity into money.
- Recall cooperation — who identifies affected units, who funds the notice, who refunds. Recall costs dwarf the claim in most consumer cases.
- Governing law and a forum you can actually use. An indemnity enforceable only in a foreign court is a rhetorical device.
- Documentation on demand — test reports, conformity declarations, batch records. You will need these within days if a regulator asks.
- Defect and return routing, with timescales, because you will be refunding the customer before the supplier has agreed to anything.
- Right to terminate immediately on a safety issue, without a cure period.
The insurance clause is the one to fight for. An indemnity from a supplier with no assets in your jurisdiction and no insurer is a promise you will never convert into a payment, and every other clause in the agreement inherits that weakness. If a supplier will not evidence product liability cover, you are effectively self-insuring the whole product line.
The obligations that arrive before any of this
- Refunds and returns. The buyer's cancellation and faulty-goods rights are against you, and you cannot make them wait for a supplier — see what your refund policy has to offer.
- Description accuracy. Supplier copy is frequently exaggerated, occasionally translated badly, and sometimes claims certifications the product does not hold. Republishing it makes the claim yours.
- Intellectual property. Marketplace suppliers sell counterfeits and copied designs, and listing one exposes you directly. A DMCA notice can arrive against your listing for a product you never inspected.
- Import duties and customs. Being the importer of record has tax and declaration consequences separate from liability.
- Data. You are passing customer names and addresses to a third party, which makes the supplier a processor to be named in your privacy policy.
The honest summary
Dropshipping is not legally risky because it is dropshipping. It is risky because the model concentrates two things that ordinary retail keeps apart: full seller responsibility, and no relationship with the product or any control over it. The businesses that survive it are the ones that treat supplier selection as a legal exercise rather than a margin exercise — sampling and testing before listing, insisting on evidenced insurance, and refusing product categories where a defect injures somebody rather than merely disappointing them.
Electricals, anything containing a lithium cell, children's products, cosmetics, supplements and safety equipment are where the claims are. They are also where the margins look best, which is not a coincidence, and the two facts should be read together before you build a catalogue.
Sources
- Directive (EU) 2024/2853 on liability for defective products
- Bird & Bird — the revised Directive and non-EU manufacturers
- Reed Smith — what supply chain economic operators need to know
- GPSR: the responsible person role
- Holland & Knight — CPSC finds Amazon responsible for third-party seller products
- Amazon files suit challenging the CPSC distributor determination
- FTC — Selling on the internet: prompt delivery rules
General information, not legal advice. This guide explains how these documents and rules generally work. Law varies by jurisdiction and changes, and none of it is applied to your circumstances here. For anything consequential, consult a licensed attorney where you are.
Frequently asked
If my supplier made the defective product, why am I liable?
Because you sold it. The buyer's contract is with your store, and in most US states everyone in the distribution chain can be held strictly liable for a defective product. Your supplier can still be liable to you, but that is a separate claim you have to bring and win. The customer is not required to chase your supply chain.
Does a disclaimer in my terms protect me?
Not against a consumer. Terms cannot exclude liability for defective products causing personal injury in the UK or EU, and consumer protection rules in many US states reach the same result. A disclaimer has more effect in business-to-business sales, but for a consumer store it mostly signals that you have thought about the wrong problem.
Do I need product liability insurance for dropshipping?
Requiring it from your supplier is necessary but not sufficient, because the claim arrives at you first and their policy may not respond to a claim brought against you. Your own cover is what pays the defence costs while any recovery from the supplier is being argued about, and defence costs alone can exceed the value of the claim.
What is an EU responsible person and do I need one?
Since 13 December 2024, products sold to EU consumers need an economic operator established in the EU who takes responsibility for compliance, and the offer must display their name and contact details. If neither you nor your supplier is established in the EU, you need to appoint one — otherwise the listing is not lawful and marketplaces will remove it.
Does using a marketplace shift the liability to the platform?
Partly, and it is moving. The CPSC has treated Amazon as a distributor for goods it fulfils, and the revised EU Product Liability Directive lets a platform be liable as a distributor where it presented the product as its own and cannot promptly name an EU economic operator. Neither development removes the seller from the claim; both add a defendant.