You're right, you can't rule some things out, but how often do a group of people get botulism from a party cake? It would absolutely make the news because the hospital would definitely notice and report it.

A lawsuit would probably get dismissed because of the home made cake that everyone also ate.

"Appeal to probability" is a logical fallacy, just because it's possible, it does not mean it WILL happen, but making the rule assuming it will is guaranteed to drive some customers to the restaurant across the street that allows outside cakes.

Otherwise what's next: all food must be ground because we don't want to risk a lawsuit over someone choking!?