The EU product safety law is an opportunity for the insurance industry, says Lord Hunt
The General Product Safety Directive will affect pricing and stimulate new product development.
The courts have been relatively kind to insurers and their manufacturing clients in recent years. Major product liability actions, especially those of a pharmaceutical nature, have gone the defendant's way, with claimants failing to show the required defectiveness of the products concerned nor the (equally important) causal link between the defect complained of and the injury suffered.
Despite such successes, however, those of us who are involved with those defending product liability claims - captives, insurers in the primary, following and reinsurance markets, brokers and even lawyers - must guard against over-confidence. This is a malleable field where public policy as much as black letter law is capable of changing the face of the litigation landscape in a relatively short time. We will continue to face challenges as pressure mounts on the present rules on causation and 'state-of-the-art' defences.
The next - and imminent - challenge facing the insurance industry and its clients is the introduction into UK law of the General Product Safety Directive. This law is part of European consumer protection policy which, at its most basic level. It imposes a new general duty on manufacturers and distributors to ensure the products they market are safe. Directors may face criminal and financial sanctions personally in the event of a breach of such duty, with fines of up to £5,000 and/or a prison sentence of up to three months.
The Directive is not yet part of UK law as the government missed the implementation deadline of 15 January 2004. Implementing regulations are expected to be circulated for comment late this summer. But the impact when the Directive does become law is likely to be significant, not just for the industry's clients but for pricing policies and new product development within the industry itself.
Some of the new burdens on business will include:
For the insurance industry the implications are yet fully to unfold. However, the new recall arrangements are an added concern and there will, undoubtedly, be an increased demand for product recall insurance - a product not widely available in the UK and customarily excluded from standard product liability policies.
The challenge for brokers and underwriters will be to develop such products at a price which does not further adversely affect the competitiveness of British manufacturers in an increasingly regulated marketplace.