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Product liability will come increasingly under the spotlight

  • Market Insight 07 February 2023 07 February 2023
  • Insurance 2023 - the year ahead

The proposed updated EU Product Liability Directive and changes to construction legislation will have significant impact on manufacturers and building developers

The EU’s proposed new Product Liability Directive and Artificial Intelligence Liability Directive will, if introduced, have a significant impact on product manufacturers and likely will lead to increased product liability litigation. The directive will have broader scope and wider definitions of products to include software, digital services and AI systems.

The Directive will expand the pool of economic operators that can be held strictly liable for damage caused by a defective product and enable consumers to seek redress when products such as robots, drones or smart-home systems cause damage as a result of problems with software updates, digital services or AI needed to operate them, or for loss or corruption of data or cyber vulnerabilities. The proposed new directive would ease the burden of proof for claimants in more complex cases and, overall, the directive will likely be more claimant-friendly than existing rules.

These changes, combined with the electrification and automation of industries such as the automotive market and other complex manufacturing, have many implications for insurers and product manufacturers and product suppliers. The complexity of embedded software and components and how these interact with each other will lead to new exposures and apportionments of liability between producers and suppliers and will likely to lead to jurisdictional contractual arguments and increased costs in defending claims.

There is also an increased focus on product safety in the construction and engineering sectors as a result of the tragedy of Grenfell Tower and other disasters and increasing political pressure to introduce further legislation to ensure that construction products are safe.

The Building Safety Act 2022 significantly alters the liability landscape for product liability claims with its new freestanding cause of action for all persons with a legal or equitable interest in a building against construction product manufacturers.

While there is still much to be determined regarding the operation of the Building Safety Act, we expect that construction product liability claims will gain even more traction over the coming year with an associated increased interest in product recall insurance where losses occur without injury or damage thereby falling outside the terms of standard cover.

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Additional authors:

Charlotte Kelly

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