Amazon’s plan to avoid lawsuits: Pay customers $1,000 when products injure people

An Amazon delivery box sitting outside a door.

Getty Images | Jorge Villalba

Amazon today announced a new policy in which it will pay customers up to nearly $1,000 when a third-party product causes property damage or personal injury. Payments of any amount less than $1,000 will be made at no cost to sellers who hold valid insurance, but Amazon said it will also pay customers more than that when a seller refuses a valid claim.

When “a defective product sold through causes property damage or personal injury, Amazon will directly pay customers for claims under $1,000—which account for more than 80 percent of cases—at no cost to sellers, and may step in to pay claims for higher amounts if the seller is unresponsive or rejects a claim we believe to be valid,” Amazon’s announcement said.

Today’s announcement came less than a month after the US Consumer Product Safety Commission (CPSC) filed a complaint against Amazon over the sale of hundreds of thousands of hazardous products, including carbon monoxide detectors that fail to detect carbon monoxide, hair dryers without required protection from shock and electrocution, and flammable sleepwear meant for children. The CPSC wants Amazon to take more responsibility for dangerous products offered by third parties under the Fulfilled by Amazon (FBA) program, in which Amazon stores products in its warehouses and ships them to customers while taking a cut of the proceeds. As the CPSC noted, people “who purchase FBA consumer products on may reasonably believe they are purchasing the products from Amazon.”

The updated claims process seems to apply both to FBA products and those shipped by third-party sellers. Amazon said the guarantee holds “regardless of who sells” the product causing damage or injury.

Technically, payments can go up to $1 million

The change to Amazon’s “A-to-z Guarantee” will take effect on September 1. The claims process terms and conditions, which were updated today, don’t currently mention the $1,000 amount but say that compensation for property damage or personal injury “will be limited to (a) the purchase price of the product; and (b) compensation of up to $1 million for medical expenses, lost wages, and property damage proximately caused by a defective product.”

Obviously, Amazon doesn’t expect to pay $1 million for claims over third-party products very often. The promise to pay small claims at no cost to sellers could minimize objections from third-party merchants while giving customers a reason to avoid litigation. But Amazon customers should remember that they can still sue Amazon for bodily injuries or property damage, especially if the amount offered doesn’t cover their expenses.

“If you do make a claim through the A-to-z Claims Process, you agree you will not file a claim in an alternative forum (like a court or arbitration) until we have a chance to notify you of a decision on your claim,” Amazon’s terms say. Amazon says it “usually” resolves claims within 90 days and that customers can “withdraw a claim made under this process at any time.”

Amazon will investigate each claim

Amazon urges sellers to buy insurance and said it has “worked with an insurance broker to create Amazon Insurance Accelerator,” which will let “sellers buy insurance at competitive rates from trusted providers.” Sellers who buy insurance, whether through Amazon or elsewhere, won’t have to reimburse the company for small claims paid to consumers. For claims under $1,000, “Amazon will bear these costs and not seek reimbursement from sellers who abide by our policies and hold valid insurance,” the company said.

Here’s how Amazon describes the new claims process:

Beginning September 1, for products sold through, Amazon will facilitate resolution of property damage and personal injury claims between the customer, the seller, and their insurance provider. Customers can contact Amazon Customer Service, and we will notify the seller and help them address the claim. If a seller does not respond to a claim, Amazon will step in to directly address the immediate customer concern, bear the cost ourselves, and separately pursue the seller. If a seller rejects a claim we believe is valid, Amazon may also step in to address the customer concern; in these cases, sellers will continue to have the opportunity to defend their product against the claim.

For each case, Amazon said it “will combine our advanced fraud and abuse detection systems with external, independent insurance fraud experts to analyze the claim. We will present valid claims to sellers and deny unsubstantiated, frivolous, or abusive claims. By doing this work on behalf of sellers, we save them from having to investigate these claims on their own.”

Suing Amazon hard but not impossible

Customers who file claims can still sue Amazon if the company rejects the claim. “If we reject a claim for any reason, neither you nor Amazon waives any rights or defenses relating to any claims you might have,” Amazon says in the terms and conditions updated today.

But if Amazon makes an offer and you accept, you have to agree not to sue the company. “You are under no obligation to accept our offer to resolve your claim, but if you do accept it you agree that the claim is settled and finally resolved as to Amazon and the seller who sold you the product,” Amazon says. “To the extent allowable by law, you will also assign your claim to us so that we can pursue recovery from other sources in our discretion.”

When the CPSC took action last month, it said that its evidence includes “lawsuits concerning incidents or injuries involving various consumer products.”

Customers may find it hard to sue Amazon over injuries resulting from third-party products, the McNicholas & McNicholas law firm says. For third-party items that are stored, packed, and shipped by Amazon, there is “a more direct link in the stream of commerce placing items into the hands of customers.” But beating Amazon in court is still difficult.

“Because Amazon doesn’t purchase products from third-party sellers to resell under the Amazon label, third-party transactions tend to muddle the definition of ‘seller’ for product liability purposes,” the law firm says. “In extremely simplified terms, Amazon is almost reduced to nothing more than a delivery service in those cases, so complaints filed against them would likely only relate to delivery issues. That is a far cry from taking blame for an exploding vape pen causing burn injuries or a faulty ladder leading to a wrongful death.”

“Until this area of law changes to hold Amazon accountable for placing defective products into the stream of commerce, winning product liability lawsuits in their true status as the retailer will be more difficult, but not impossible,” McNicholas & McNicholas wrote, pointing to an August 2020 order by a California state appellate court. The ruling said that Amazon can be held liable for an exploding laptop battery that was offered by a third-party seller called Lenoge but stored and shipped by Amazon.

Third-party sellers may simply disappear

In that California case and others involving third-party sellers, Amazon was the only entity that customers could sue with any expectation of success.

“The Amazon website, and especially the FBA program, enables manufacturers and sellers who have little presence in the United States to sell products to customers here… The dilemma for an injured plaintiff is illustrated by this litigation, where two defendants have been served and failed to appear, and a third defendant can only be served in China. Other plaintiffs have encountered similar obstacles,” the court order said.

The exploding-battery case led Amazon to permanently block Lenoge’s account, block sales of the product, and warn customers to stop using the battery because of the fire hazard. Amazon’s extensive control over sales means the company doesn’t automatically escape liability for third-party products, the court ruling said:

Amazon is a direct link in the chain of distribution, acting as a powerful intermediary between the third-party seller and the consumer. Amazon is the only member of the enterprise reasonably available to an injured consumer in some cases, it plays a substantial part in ensuring the products listed on its website are safe, it can and does exert pressure on upstream distributors (like Lenoge) to enhance safety, and it has the ability to adjust the cost of liability between itself and its third-party sellers. Under established principles of strict liability, Amazon should be held liable if a product sold through its website turns out to be defective.

Liability can vary by state. In a Texas case decided in June 2021, which involved a third-party product sold through the Fulfilled by Amazon program, the state Supreme Court found that Amazon was not liable because it did not qualify as a “seller” under Texas law. The harmed consumer sued both Amazon and the seller, who was from China, but the seller “did not answer or make an appearance.” Despite that, “[b]ecause the product in this case was sold on Amazon’s website by a third party and Amazon did not hold or relinquish title, Amazon is not a seller even though it controlled the process of the transaction and the delivery of the product,” the ruling said.

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