Risk managers need to keep close eye on PLD liability implications

US-based law firm Faegre Drinker has warned risk managers that planned updates to the Product Liability Directive (PLD), which have recently been agreed in Brussels, broaden liability for companies that manufacture and sell products within and into the EU, and are likely to usher in new exposures in "unexpected ways”. The political agreement on the proposals made by the European Council and Parliament will pave the way for adoption of the directive in 2024. Based on the policy rationale of updating EU product liability law for the digital era and modern economy, the proposal expands the definition of a “product” to encompass software, digital manufacturing files and digital services, among other things. The Faegre Drinker team pointed out that the proposal also includes a new burden-of-proof framework, which would shift the burden to defendants by imposing, under certain conditions, a presumption of defectiveness and causation. “Due to the broadened scope of liability and increased risk posed by these changes, companies manufacturing and selling products in the EU (including companies that produce software and other digital products and services) should keep a close eye on the continued legislative process because they may face liability risk in new and unexpected ways,” said the law firm. Faegre Drinker explained that the driving force behind the new directive is bringing product liability law into the digital era by “expanding the definition of a “product”. “In addition to this significantly expanded definition of a ‘product’, the directive includes various other changes. Of particular significance, the proposal includes a new burden-of-proof framework, which would shift the burden to defendants through a presumption of defectiveness and causation under certain conditions,” explained the law firm. A product would be deemed presumptively defective if: The manufacturer fails to comply with the obligation to disclose information; The product does not comply with mandatory safety requirements; Damage is caused by an obvious product malfunction. Causation would be presumed if: The damage is typically consistent with the defect in question; Technical or scientific complexity causes excessive difficulty in proving liability. Faegre Drinker added that the new directive also seeks to expand the scope of liability to defects that come into being after a product is already on the market. “Thus, liability could arise for alleged defects pertaining to: (i) software updates under the manufacturer’s control, (ii) failures to address cybersecurity vulnerabilities, and (iii) artificial intelligence including machine learning. Moreover, the new directive would extend the liability period for latent injuries from ten to 15 years and would impose a new definition of damages, which includes psychological harm as well as the loss or corruption of data,” it said. The law firm said that the recent agreement suggests there is enough political support for the new PLD to pass through the remaining legislative hoops and be enacted in the near term. If formally adopted, all EU countries will be mandated to transpose the new directive into national law within 24 months. Risk and insurance managers in the EU and those outside operating within Europe need to keep a close eye on the liability implications, said Faegre Drinker. “By its terms, the new Product Liability Directive is likely to increase litigation risk for manufacturers and companies in Europe in several significant ways, from widening the definition of what constitutes a ‘product’ for potential liability, to making it more difficult to defend claims through burden-shifting and the relaxed causation standard, to potentially increased and expanded damages. For all these reasons, companies manufacturing and selling products (including software and other digital products that fall under the new proposed definition) should keep a close eye on the continued legislative process,” warned the law firm.

Risk managers need to keep close eye on PLD liability implications

New product liability rules set to bring major cyber exposures

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