Manufacturing Beyond Canada: What Exporters Should Know About Risk and Coverage.

Manufacturing Beyond Canada: What Exporters Should Know About Risk and Coverage

Manufacturing your own product and selling it into the United States can open valuable new markets. But it also places a Canadian business in front of one of the world’s most active product-liability environments.

The United States has a more litigious product-liability culture than Canada. Canadian product-liability claims generally require proof of negligence, and damage awards tend to be smaller than those seen in U.S. courts. For a Canadian manufacturer shipping product south, that difference matters: a defect, inadequate warning, packaging issue, or misuse-related injury can lead to a claim with higher defence costs and potentially larger exposure than a similar Canadian claim.

But the risk does not stop with businesses that manufacture their own products.

Importers Can Become the Target

Many Canadian businesses import finished goods or components from overseas manufacturers. On paper, the manufacturer made the product. In practice, the importer may be the party most accessible to a claimant in Canada.

If an injured customer, distributor, or end user suffers a loss, they may find it difficult or impractical to pursue a manufacturer located in another country. The manufacturer may have no Canadian assets, limited Canadian operations, unclear corporate records, or a legal system where enforcing a Canadian or U.S. judgment is complicated. In that situation, the claimant’s practical course of action may be to pursue the Canadian importer, distributor, private-label seller, or retailer instead.

That is not just a theoretical concern. Under Canada’s Consumer Product Safety Act, both manufacturers and importers are prohibited from manufacturing, importing, advertising, or selling consumer products that pose a danger to human health or safety. Where the manufacturer is outside Canada, the importer has specific reporting responsibilities when it becomes aware of a product-related incident.laws.justice.

Importers may also be responsible for ensuring products meet applicable Canadian requirements, maintaining traceability records, assisting Health Canada, and carrying out recalls when required. In other words, Canadian law can place meaningful compliance and recall obligations directly on the importer, not simply on the overseas factory.

“We Didn’t Make It” Is Not Always a Complete Defence

An importer may believe that its role is limited to buying product, bringing it into Canada, and reselling it. But Canadian courts have recognized that responsibility can extend across the distribution chain, including manufacturers, importers, wholesalers, distributors, and retailers.

An importer may face allegations involving:

• A design or manufacturing defect in the product.

• Missing, unclear, or inadequate warnings and instructions.

• Canadian labelling, safety, or regulatory non-compliance.

• Failure to investigate or report a known safety issue.

• Failure to initiate or properly manage a recall.

• Selling a product under the importer’s own brand or private label.

• Contractual promises made to customers, distributors, or retailers.

Even if the importer ultimately proves the overseas manufacturer was responsible, defending that claim can still be expensive. Legal fees, expert reports, product testing, recall costs, customer claims, and business interruption can add up long before the case is resolved.

Shipping Into the U.S. Raises the Stakes

For Canadian manufacturers exporting to the United States, the exposure can be even more significant. A product sold in the U.S. may be subject to U.S. consumer-protection rules, state-level requirements, contractual obligations, and a legal environment where product-liability claims are more common and damages can be substantially higher.

A Canadian company may assume that because it is based in Ontario, it is insulated from U.S. litigation. That is not necessarily the case. If the company actively sells, markets, distributes, or fulfils orders into the U.S., it may have enough connection to the U.S. market to face claims there.

This is especially important for businesses that:

• Sell directly to U.S. consumers online.

• Use Amazon, Shopify, or other e-commerce platforms with U.S. fulfilment.

• Sell through U.S. distributors, dealers, or retailers.

• Private-label products for American customers.

• Manufacture products with safety-sensitive components, electrical parts, batteries, mechanical parts, or child-related applications.

• Ship products that require warnings, certifications, installation instructions, or ongoing maintenance.

Practical Steps to Reduce the Exposure

The goal is not to avoid importing or exporting. It is to do it with a clear understanding of where the risk sits.

1. Review supplier agreements carefully.
Do not rely on a handshake or a basic purchase order. Address product quality, compliance, indemnification, insurance requirements, recall cooperation, and which country’s law governs disputes.

2. Confirm product compliance before it ships.
Ask for documentation supporting safety testing, certifications, labelling, and compliance with Canadian requirements. Keep those records accessible.

3. Be cautious with private labelling.
Putting your company’s name on an imported product can increase the perception that you are the responsible manufacturer or seller.

4. Document inspections and quality control.
Keep records of supplier approvals, inspections, batch numbers, test results, complaints, and corrective actions. Good documentation can be critical in a product-liability or recall situation.

5. Have a recall plan before you need one.
Know how you would identify affected inventory, notify customers, remove product from the market, and communicate with regulators. Importers may be required to carry out recalls when ordered by Health Canada.

6. Review insurance before expanding.
Comemercial general liability, product liability, product recall expense, cargo, and U.S.-specific coverage should all be reviewed. A policy that works well for a business selling only in Ontario may not respond as expected once products are sold or shipped into the United States.

The Bottom Line

If you manufacture a product and ship it to the U.S., you need to understand the elevated litigation environment you are entering. If you import a product from overseas, you need to understand that being the importer can make you the most practical target when something goes wrong.

The overseas manufacturer may have made the product. But the Canadian importer may be the one with local assets, Canadian customers, a Canadian business presence, and an insurance policy worth pursuing.

Before your next shipment leaves the factory or arrives at your warehouse. Ask whether your contracts, compliance records, and insurance program truly reflect where your product risk begins and ends. Most importantly, make sure you work with a broker for your insurance. They will guide you through the process, but to have the coverage done right, expect that the process will take time to cover the exposure or risk you are setting forth into.

Disclaimer: This article is for general information purposes only and does not constitute legal, financial, or insurance advice. Insurance rules and coverage details can change, and individual circumstances vary significantly. For specific guidance about your policy, coverage options, or how these changes affect your situation, please contact a licensed insurance broker, agent, or insurer directly. You may also want to review the policy wording or consult with a legal professional for personalized advice.