European companies believe a revised EU Product Liability Directive (PLD) which reverses the burden of proof on manufacturers of physical and digital goods forcing them to show their product was not liable for an alleged injury, will leave them exposed to significant costs.

The EU believes the new rules help to put people claiming compensation on an equal footing with manufacturers, by requiring manufacturers to disclose information and by alleviating the burden of proof in complex cases.

The revised product liability rules will apply to all products, from garden chairs to cancer medicines, from agricultural products to advanced machinery but also to software updates. The new PLD makes explicit that injured people can claim compensation if software or AI systems cause damage.

An assessment of the impact of the revised PLD estimated annual payouts from the reformed system suggests it could reach €217m (£186m) with insurance costs for companies rising by around 10 per cent.

In 2022 the European Commission estimated there were between 209 and 452 actions annually under the PLD settled in court and six to seven times more out of court. The complainant success rate for both was about 60 per cent.

The EU is adamant the proposal creates the legal clarity that industry needs in order to embrace circular business models.

The rules of the PLD -including the possible presumptions- would apply to remanufacturers and other businesses that substantially modify products in case these products cause damage to a person, unless they show that the defect relates to an unmodified part of the product.

People will be able to bring a claim for damages against the manufacturer if the defective product has caused death, personal injury, including medically recognised psychological harm, damage to property or data loss.

Companies will be obliged to compensate people injured by defective products. In addition, the new PLD will now require companies to disclose evidence that a claimant would need to prove their case in court.

The new EU Product Liability Directive includes:

· a significant extension of the scope of covered economic actors, products and damages;

· new presumptions for the defect and/or causality;

· disclosure rights;

· changes to the liability exemptions; and

· longer expiry periods in case of latent damages.

Following formal adoption by the EU Parliament and the Council and transposition into national law, the new national rules are expected to enter into force in mid-2026. The period until the rules apply should be used by companies to adapt their processes to the new rules, monitor the transposition in the Member States in which they are active, and implement appropriate risk prevention mechanisms.

Companies fear changes over product liabilities will lead to a more litigious environment and lawsuits to gain trade secrets. Kaarli Eichhorn, partner at Jones Day, told the FT that “the newly adopted rules on product liability have caused great concerns among the wider business community, including American investors who are familiar with the toxic litigious environment in the US.

“European consumer access to redress in cases where genuine harm has been caused by a product is essential. However, the new rules are likely to principally benefit profit-seeking plaintiff law firms and litigation-funding companies.”

It is already evident the new PLD will necessitate far-reaching changes to national product liability law . The Directive gives the Member States little room for manoeuvre and they are generally not allowed to maintain or introduce, in their national law, provisions diverging from those laid down in the PLD.

The PLD introduces the concept of no fault-based liability of producers for damage caused by defective products. The new rules will apply to products placed on the market 24 months after the directive comes into force.

No fault-based liability means that the liability does not depend on fault or negligence of the manufacturer. 

To be compensated under the PLD no-fault liability regime, the burden of proof for the injured person consists in showing only that

· the product was defective.

· he/she suffered a damage.

· there is a casual link between the damage and the product’s defectiveness.

Among its main provisions, the proposal revising the existing PLD:

· clarifies that software must be considered a product in the scope of the directive;

· considers as product defectiveness the lack of software updates under the manufacturer’s control as well as the failure to address cybersecurity vulnerabilities;

· introduces liability for defective products when refurbished and placed back on the market as well as when manufactured outside the European Union;

· alleviates the burden of proof for victims under certain circumstances; and

· extends the nature of damage to medically recognized harm to psychological health and loss or corruption of data.

A €500 (£429) minimum threshold for claiming compensation for material damage has also been abolished. The EU also made class-action lawsuits easier with a Representative Action Directive that came into force last year.

W Denis arrange specialist liability insurance for businesses of all sizes. To discuss further please contact W Denis:

Eastern Europe

Vida.Jarasiunaite@wdenis.eu

Southern Europe

Christos.Hadjisotiris@wdenis.com

Western Europe &/or elsewhere worldwide

Mark.Dutton@wdenis.com