Product liability

In this chapter of our Annual Insurance Review 2023, we look at the main developments in 2022 and expected issues in 2023 for product liability.

Key developments in 2022

On 31 March 2022 the British Standards Institution ("BSI"), with the support of the OPSS, published PAS 7050:2022 and 7100:2022. This guidance applies to all new and second-hand non-food consumer products. The aim of PAS 7050 is to ensure businesses bring products to the market safely with the primary recommendation being that all businesses should have a Product Safety Management Plan ('PSMP') in place. This should, amongst other things, set out measures to ensure product safety through an entire life cycle, set out a Product Safety Incident Plan ('PSIP') and consider who is responsible for ensuring continued product safety across the entirety of the supply chain.

PAS 7100 supersedes its predecessor, PAS 7100:2018 and is to be read in conjunction with PAS 7050. PAS 7100 includes guidance on how businesses should incorporate a PSIP into their PSMP with an importance placed on monitoring safety and traceability. This is to ensure that businesses can efficiently take corrective action when an issue with product safety arises. If this guidance is followed it should help identify any issues with product safety before they reach the market or make any corrective action efficient which could reduce any claims resulting from defective products.

In relation to defects, the Supreme Court also handed down their judgment in Hastings v Finsbury Orthopaedics [2022] UKSC 19 and reinforced the approaches of the High Court in Wilkes v DePuy [2016] EWHC 3096 and Gee v Depuy [2018] EWHC 1208 to interpreting a defect. 

"The test of whether a product is defective is whether the safety of the product is not such as persons generally are entitled to expect. The test is not what is expected but one of entitled expectation. The test is an objective one. The standard of safety is measured by what the public at large is entitled to expect."

This decision in Hastings provides clarity as to the relevant test to be used when interpreting a defect and it will assist manufacturers and insurers consider any complex cases in the product liability sphere.

What to look out for in 2023

Last year's Annual Insurance Review set out the expectation that manufacturers would invest in artificial intelligence (AI) products that depend on machine learning. Technology continues to develop at a rapid pace with products becoming more complex and reliant on AI to function.

The European Commission has recently published a new "Directive on adapting non-contractual civil liability rules to AI." The proposals would increase litigation risk for companies that design and/or deploy AI within their products. 

A study published by the OPSS in May 2022 highlighted the challenges and risks of incorporating AI systems into manufactured consumer products. These included issues with transparency, threats to physical safety or cyber security and data privacy. Given the grey areas within the current legislative framework it will be interesting to see whether the EU's proposals are considered in the UK with a view to adapting the strict liability imposed on manufacturers under the Consumer Protection Act, especially where AI is involved.

The European Commission has also published its proposals for a new Product Liability Directive ("PLD") to modernise the existing product liability regime ensuring it is fit for purpose in the 21st century. The Consumer Protection Act, 1987 implemented the existing PLD. The proposals, if introduced, are likely to have a significant impact on product manufacturers and have the potential to lead to an increase in product liability litigation due to the broader scope and wider definitions of products which would include software, digital services and AI systems.

Previously product liability claims have been limited to personal injury and property damage but the scope of the PLD would also allow for strict product liability claims to be made for defective products that cause "loss or corruption of data". Manufacturers will also be liable for defects caused as a result of changes they make to products they have already placed on the market, i.e. software updates or machine learning.

An explanatory memorandum was published in October 2022 acknowledged the EU proposals in respect of the PLD and confirmed that there has been no consultation on the proposed changes in the UK and that any decisions made would benefit the UK interest.  It will be interesting to see if PLD is adopted into UK law, in whole or part to avoid any significant divergence with the EU on issues related to product liability, especially given the importance of importing and exporting of goods between the UK and EU.

Authored by Andrew Martin.

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