Product safety and liability regulations imminent

The last few years have been relatively kind to those that offer product liability insurance. The courts have been robust in their treatment of major pharmaceutical claims such as the oral contraceptive pill group action, and potential claimants and their lawyers have thought long and hard before trying to pursue major products-related claims.

Now is not, however, the time for complacency. The General Product Safety Directive, a central element of European consumer protection policy, was due to be implemented across the EU by 15 January 2004. The Department of Trade and Industry is preparing the implementation of regulations, which will be circulated for general comment during late summer 2004.

At its most basic level, the directive 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 £5000 and/or a prison sentence of up to three months.

For brokers, the full implications will not be clear until the regulations are published. However, it seems likely there will be increasing demand from manufacturers for product recall insurance, something not generally covered in standard product liability policies. Such demand may be for appropriate policy extensions or stand-alone products.

Claims for recovery of recall costs from parties down the distribution chain may well be a feature of such claims and quantum will, consequently, swell.

Brokers should encourage their clients to risk-manage their product (and recall) exposures. Manufacturers and distributors of products, for their part, will be dismayed by the extra financial costs of compliance and fearful for the loss of control in favour of the national authority, which the regulations will undoubtedly mean in the case of a major product-related issue.