Risk managers face expanded product liability, warns Spanish lawyer

A leading Spanish insurance litigation lawyer has warned corporations across Europe to brace for the arrival of the EU’s new product liability directive, which will essentially deliver a reversal of the burden of proof. Under the new rules, the product’s defect is presumed unless the defendant has provided sufficient evidence to prove its non-existence. Olivia Delagrange, partner at Simmons & Simmons in Madrid, has published a note on the forthcoming directive, which should be finalised by year-end. She concludes that risk managers need to prepare for major changes in civil liability across the EU. “We are faced with a draft directive which, if it is finally approved, will entail major changes in the area of civil liability for defective products and immense efforts by economic operators to refute the new presumptions or to challenge the existence of excessive difficulties in proving the defect of the product,” she said. The European Commission published the proposal for a directive on liability for defective products last September. The proposal to revise Directive 85/374/EEC was sparked by developments in new technologies, including artificial intelligence, new business models in the circular economy and new global supply chains, explained Delagrange. “In general terms, this proposal maintains the essence of the previous directive and the economic operator’s liability continues to be strict, derived from the causal link between the economic operator’s actions and the damage caused, regardless of intentional or negligent behaviour. However, some essential concepts relating to defective products are developed in a broader and more specific manner, and some new benefits in favour of the consumer are also introduced,” she explained. The first major change is related to the scope of application of the rule (the injured person). “As of this date, product liability is enforceable by all those who suffer damage, whether or not they are consumers, a term in which consumer law includes natural or legal persons acting outside a business or professional activity. However, the directive proposal only covers damage suffered by natural persons. In order to protect consumers, goods used exclusively for business purposes are excluded from the scope of the directive proposal,” explained the lawyer. “If the new directive is adopted in these terms, damages suffered by companies and other legal entities as a result of product defects will have to be compensated under another liability regime that may be applicable,” she added. The next big change is the product concept, said Delagrange. “In addition to movable items... digital manufacturing files, which contain the functional information necessary to produce a tangible item by allowing the automated control of machines or tools, and software, as intangible products that have emerged in the digital age, are added within the scope of the directive proposal,” she explained. The third major development is in the area of compensable damage. Loss or corruption of data that is not used exclusively for business purposes is added to the concept of compensable damage. “However, although it is not clear from its reading, the compensable damage is not the loss of the data itself (for which there are protection mechanisms under Regulation 2016/679, of 27 April 2016, on the protection of individuals with regard to the processing of personal data), but rather the material damage that the loss of data causes to the injured parties,” said the lawyer. Interestingly, the Simmons & Simmons partner said that, in respect of damage to or destruction of any property, the requirement for prior deduction of the ECU 500 excess provided for in Directive 85/374/EEC, which was intended to prevent mass litigation, is removed. It now makes no sense to try to dissuade consumers from claiming for damage caused by a defective product, she said. The directive also adds a whole new category of potentially liable parties, notably distributors in the supply chain. “In addition to the manufacturer, importer, supplier (in so far as the producer has not been identified) and intentional supplier, the directive proposal adds other parties who may be liable for damage caused by defective products, such as: the authorised representative of the importer; the fulfilment service provider, in such a way as to extend liability in the distribution chain beyond traditional mechanisms; and economic operators involved in the remanufacturing, reconditioning and repair of products, in so far as their intervention leads to a substantial modification therein,” pointed out Delagrange. Finally, the proposed directive introduces further new developments in favour of the consumer. It introduces a new system of disclosure of information at the defendant’s expense, whereby the judge can order the defendant to provide relevant evidence to enable the injured person to properly substantiate their claim for damages, so long as the injured person has presented facts and evidence sufficient to support the plausibility of the claim for compensation. “It is a procedural instrument, which may have its origins in the Common Law mechanism of discovery or disclosure, which is very novel in continental-inspired civil proceedings,” noted Delagrange. The final form of the proposed directive remains unclear as negotiations and discussions continue within the European Parliament. But it is clear that European risk and insurance managers need to keep a close eye on the progress of this directive and its potential to expand liability exposure in a number of ways.

Risk managers face expanded product liability, warns Spanish lawyer

Proposed directive reverses burden of proof

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