New product defect regulations signal heightened liability risk.

What happens in the EU stays in the EU these days, doesn’t it? When it comes to the new EU General Product Liability Directive, that is far from the case. The General Product Liability Directive came into force on December 9, 2024, and all EU Member States should implement it by December 9, 2026.

Manufacturers, software developers, product distributors, and even online retailers must understand the ramifications of this new product safety regulation, which can directly impact their operations. UK exporters to the EU will need to demonstrate compliance, appreciating that the directive applies to both new and modified products, including refurbished goods. This is a significant expansion of the former 1985 directive, in itself groundbreaking when introduced.

The new directive expands the interpretation of a ‘product’ to encompass software and software updates, AI components, and related digital services. A product is also deemed to include integrated and interconnected cloud-based services that might operate or update it, whether that is a manufacturing file, a Sat Nav update, or a digital service supporting a health monitor. This allows the new directive to control product safety within the increasingly digital and AI-driven world.

Consumer rights’ enhancements

The EU directive also addresses issues consumers have faced when seeking product liability redress due to the complexity of modern supply chains. It grants considerably enhanced rights to consumers, who had already enjoyed the no-fault approach of the previous directive when seeking compensation.

The burden of proof now firmly rests with manufacturers, not the consumer. Manufacturers need to disprove the claim, and claimants merely have to provide “facts and evidence to support the plausibility of the claim for compensation”.

A product will be deemed defective if it does not provide the safety that the average person expects. A product will similarly be considered automatically defective if it fails to meet the safety requirements of national regulators.

Absolute proof that a defect caused injury or loss is not required. If there is a likelihood that a defect led to the claim, the consumer is likely to win. Furthermore, the product will be deemed defective if it compromises safety through a cybersecurity vulnerability. That does not have to be the case from the outset, but it could emerge during the product’s lifetime.

Any person can bring a claim, whether they own the product or are simply impacted by it. A claim could be lodged for death, personal injury, or property damage, but also for personal data destruction or corruption. Most importantly, the new directive also allows claims for medically recognised psychological injury.

Claimants have three years to lodge a claim, and liability exists on the manufacturer or supplier’s side for 10 years after the product reached the market. In some cases, that can be extended to 25 years. Whereas previously, there was a minimum threshold to be met for a claim, that has been removed. More trivial claims could now be pursued.

Assessing liability

An EU manufacturer will be adjudged to have primary liability, but if there is no EU manufacturer involved, another party in the supply chain can be declared liable. If a distributor does not provide manufacturer details within a month, compensation can be claimed from them. There remains no maximum limit on liability claims.

Defending a claim will require the defendant to categorically prove the product was not defective. Here, manufacturers must demonstrate robust regulatory compliance with both EU and UK safety standards and have immediate access to quality control and testing reports. Clear product instructions should be provided to try to prevent consumer misuse.

Manufacturers should carry out a thorough supply chain audit, focusing on safety compliance. Transparency is vital, and all records, including AI decision-making, need to be kept. Contracts with third-party components’ manufacturers should be reviewed to tighten up on respective liabilities. It is likely that product recalls will influence the claims assessment process, so instigating watertight procedures to reduce these matters.

Insurers are likely to ask questions about measures taken, with the risk to some businesses raised and the ease of consumers engaging in litigation considerably higher.

UK law

This regulation, although currently an EU directive, could be mirrored in the UK within a relatively short time frame. The King’s Speech of July 17, 2024, highlighted the Product Safety and Metrology Bill, and product liability regulation, along the lines of the EU directive, could accompany this. The time to start planning for this is now.

Should you need help with your risk management or need to establish whether your insurer will alter their view of your risk in light of the new directive, please contact L Wood Insurance Brokers on 01274 515747.