What New Product Liability Regulations Could Mean for Companies in the UK and Europe

New product liability regulations are coming to Europe. The European Union has reached an agreement on a revision to its old product liability directive, and the updated directive will mean significant changes to modernise product liability. Meanwhile, the UK recently published new proposals for changes to its product safety regime. With new product liability rules on the horizon, businesses may need to reassess their exposures and insurance coverage.

The EU’s New Product Liability Agreement

In December 2023, the Council of the European Union announced an agreement between the Council and the European Parliament to establish new liability rules. The text still needs to go through the approval and formal adoption process.

The proposed directive includes several significant changes, including the following:

• Product liability laws will extend to digital products. One of the most critical revisions involves a new definition of what constitutes a product. Many modern products only exist in digital form. Under the new directive, products will include digital manufacturing files and software. However, products will not include free and open-source software developed or supplied outside of commercial activity. Under the directive, damage or irreversible corruption of data is a type of damage that can lead to compensation.
• Companies that modify products will face liability. The new directive addresses product liability complications created by the circular economy, in which products are often reused after repairs or other modifications. Under the new directive, individuals or companies that make substantial modifications to products shall be held liable as the manufacturer.
• Individuals who suffer damage will be entitled to compensation. The new directive states that any natural person who suffers damage caused by a defective product will have a right to compensation. Damage includes death, personal injury, damage to psychological health, damage or destruction of property, and damage or irreversible corruption of data.
• Importers will be liable for defective products. The Council states that consumers in the EU are buying products from manufacturers located outside the EU more frequently and deserve the same level of protection. To achieve this, the directive calls for holding importers or authorised representatives of manufacturers of defective products or components liable. If it is not possible to hold an importer or authorised representative liable, the fulfilment service provider may face liability.
• Claimants may only need to prove the likelihood of a defect or causal link. The Council states that injured consumers may face excessive difficulties proving that a product is defective or that the defective product is the cause of damage. In such cases, the court may decide that the claimant only needs to prove the likelihood of the claim.

The UK’s Product Safety Proposals

In October 2023, the UK Department for Business & Trade published its UK Product Safety Review. Back in 2021, the UK issued a Product Safety Review Call for Evidence. The recent publication indicates that respondents identified challenges and opportunities in product safety regulations connected to changing business models, new technologies, and shifts in how products are made, supplied, and used.

According to Cooley, key changes in the proposals include mandatory incident reporting, voluntary e-labelling, an increase in the information provided in online listings for consumers, and direct penalty powers for enforcement authorities without prosecution. The proposals also call for a review of the UK product liability regime and a shift away from the existing product safety framework derived from EU rules in favor of a new cross-cutting and hazard-based approach. Additionally, the proposal calls for newly-defined roles and specific duties for online marketplaces.

New Liabilities and Insurance Needs

Under the proposed changes, businesses may face new liability exposures. While business leaders wait for the finalisation of new rules, brokers can seize the opportunity to review product liability insurance coverage with their clients.

• Do they have product liability coverage in place? Changes in regulations may create additional liability for software developers, online marketplaces, importers, and fulfilment service providers. Organizations that forwent coverage in the past may wish to secure coverage moving forward.
• What types of claims does the policy cover? In addition to claims of physical bodily injury and property damage, the EU directive may cover claims of psychological injury and data loss. Review the various types of injuries policies cover and identify exclusions or coverage gaps.
• How much coverage is available? Reassess both the per occurrence and aggregate limits in light of increased liability exposures.

Do you need assistance securing product liability coverage for your clients? Costero provides creative solutions for your clients’ coverage challenges. Contact us.