Navigating the New EU Product Liability Directive: Key Changes and Impacts

In October 2024, member states voted on and then signed the final wording of the new Product Liability Directive (2022/0302) to replace the Product Liability Directive (85/374/EEC). The Directive was published in the Official Journal of the European Union on 18 November 2024 and its provisions will come into force in all member states by 9 December 2026.

The new directive will completely alter the legal landscape for product liability claims in the EU and its ramifications will be extensive for manufacturers and developers most notably by creating a consumer-friendly regime and extending the definition of product to include digital manufacturing files and software. 

Peter Barnes and Charlotte Kelly of Clyde & Co discuss the ramifications of the PLD and how businesses and insurers alike must start preparing for these changes in this article. 

All language versions of the PLD are available here - Directive - 2024/2853 - EN - EUR-Lex 

General information on the PLD and its impact on insurers and their product liability policies 

The Product Liability Directive has been in force across the EU and the UK since the 1980s and is a well-established and settled piece of legislation that has been the subject of frequent litigation throughout the years. However, after undertaking a public consultation and an impact assessment, the European Commission published a proposal on 28 September 2022) to alter the Directive significantly. 

This proposal reflected upon the ever-changing development of digital technologies, the way in which businesses were operating and reaching consumers and the impact that those developing digital technologies had on consumers.  

Following a lengthy period of discussion and amendments, on 10 October 2024, the EU Council adopted the new PLD and it represents a comprehensive shake up of the long-established positions between claimants and defendants. It is described as ensuring:  

“…that if a person suffers damage caused by a product, they can claim compensation from the manufacturer or another person that placed the product on the Single Market….This update of the current set of rules adapts them to digital products, like software and artificial intelligence systems. It does so by taking account of software updates and machine learning. Since products are increasingly complex, the agreement allows victims' burden of proof to be made lighter when they face excessive difficulties. Furthermore, considering that more and more products are manufactured outside the Union, the agreement ensures that victims always have an economic operator in the EU from whom to claim compensation. This strengthens the level-playing field between EU and non-EU manufacturers…” [European Commission News Article 14 December 2023] 

Whilst the initial aims of the new PLD in consultation were to achieve a fair apportionment of risk between consumers, manufacturers and their insurers, with consumer protection being one but not the only aim of the changes, in practice, the new PLD is significantly more claimant friendly than the old Directive. This is reflected by Article 1 of the Directive: 

“…The objective of this Directive is to contribute to the proper functioning of the internal market while ensuring a high level  of protection of consumers and other natural persons…” 

This article looks at the features of the new PLD, and its potential impact on both business and insurers alike and the defensibility of claims due to: 

• the increased scope of defendants and claimants; 
• the decision to include “software” within the definition of a product – something that traditionally was excluded as non-tangible; 
• the increased scope of damages that are now recoverable; and 
• the presumptions of defect within the Directive.

Key areas of the new PLD 

Scope of claimant 

The PLD now gives natural persons (i.e. not just consumers but individuals), the right to claim compensation on a strict liability basis, making it easier for claimants to bring claims on a collective basis and bodies representing collective claimants to bring claims related to allegedly defective products. 

This creates a risk that the tools of disclosure and rebuttable presumptions, which are intended to help individual consumers who struggle to prove a claim on their own, may be used strategically by well-funded claimant lawyers pursuing claims on a collective basis. 

Scope of potential defendant 

The old PLD designated the ‘Producer’ of a product, primarily defined as the manufacturer but also including the supplier, as the main entity liable. An importer was considered a producer when importing a product for sale into the community. 

The PLD has removed the definition of Producer in favour of economic operators all of whom could be liable for damage. These include: 

• The “manufacturer” defined as “…any natural or legal person who (a) develops, manufactures or produces a product; or b) has a product designed or manufactured, or who, by putting its name, trademark or other distinguishing features on that product, presents itself as its manufacturer; or c) develops, manufactures or produces a product for its own use…”  
• The manufacturer of a defective component where that component was integrated into, or inter-connected with, a product within the manufacturer’s control and caused that product to be defective. 
• Any natural or legal person that substantially modifies a product outside the manufacturer’s control. 
• Any provider of an online platform that allows consumers to conclude distance contracts with traders and that is not an economic operator. 

The proposals within the new PLD also provide for EU consumers injured by a product imported from outside the EU and confirms that such claimants can claim against a greater scope of defendants, therefore increasing the potential risk significantly for insurers. Those potential defendants include: 

1. The importer, or; 
2.  The manufacturer's authorised representative in the EU, or; 
3.  The distributor, or; 
4. Any person who substantially alters the product and puts it onto the market (albeit no detail has been provided as to what constitutes a substantial alteration of the product save for that this will impact limitation), or; 
5. The online platform on which they bought the product in certain cases.  

It is important, therefore, that both insurers and their insureds are aware of their potential liability under the new directive at an early stage and act accordingly to mitigate that risk. 

Definition of Product 

The PLD specifically addresses software and brings it within the definition of Product for the purposes of applying no fault liability under the directive. Similarly, related services such as software updates and upgrades will also be considered within the product manufacturer’s control where they are integrated, inter-connected or supplied by the manufacturer itself or where the manufacturer authorises or consents to their supply by a third party.  

An example provided in the Directive is “…where the manufacturer of a smart home appliance consents to the provision by a third party of software updates for its appliance or where a manufacturer presents a related service or component as part of the product even though it is supplied by a third party…” 

Once the product has been placed on the market, the PLD confirms that it should be considered to be within the manufacturer’s control in so far as that manufacturer retains the technical ability to supply software updates or upgrades either itself or via a third party. 

Free and open-source software (where the source code is openly shared and users can freely access, use, modify and redistribute the software or modified versions of it, can contribute to research and innovation on the market) is not included within this definition, as such products are not, by definition, placed on the market or provided in exchange for a price.  

However, if a manufacturer of a product subsequently integrates that free/open-source software into a product it is manufacturing, and then places its end product on the market, that manufacturer could be held liable for damage caused by the defectiveness of that software despite the fact that they did not create it. In turn the creator of the software could not be held liable as they did not place the software on the market (i.e. sell it).  

The extent to which software is brought into the scope of the new directive will be a (potentially significant point of interest for insurers who will want to consider the possible impact on any international product liability cover they write.   

Certainly, the potential legal responsibility faced by defendants in respect of liability for software updates will be brought into existence by the new PLD, whereas such claims would have been rejected under the old PLD - on the basis that the defect which caused the damage did not exist at the time  the product was put into circulation. 

The definition of Damage  

Under the old PLD: Article 9 'damage' means: (a) damage caused by death or by personal injuries; (b) damage to, or destruction of, any item of property other than the defective product itself, with a lower threshold of 500 EUR, provided that the item of property: (i) is of a type ordinarily intended for private use or consumption, and (ii) was used by the injured person mainly for his own private use or consumption. 

This has been extended under the new PLD to include medically recognised damage to psychological health and loss or corruption of data (including the cost of recovering or restoring that data) so long as that data is not used for professional purposes.  

The PLD confirms that this is distinct from compensation for infringement for data leaks and breaches of data protection rules.  

Finally, the old 500 EUR threshold has also been removed. 

Assessment of a Defect 

Although the definition of what constitutes a defect is largely unchanged, the new references as to how defectiveness is to be assessed, and causation is significant. This has led to a general agreement amongst academics and practitioners that the new directive lowers the test for ‘defectiveness’. This in turn has led to concern amongst ‘defendant’ organisations that the new PLD is too claimant friendly.  

Article 6 of the old PLD provided for the assessment of a defect and stated “…A product is defective when it does not provide the safety which a person is entitled to expect, taking all circumstances into account….” 

Article 7 of the new PLD states “…A product shall be considered defective when it does not provide the safety that a person is entitled to expect or that is required under Union or national law…” This means that a breach of a safety requirement will constitute in itself, a defect. However, there is no precision to that change. We do not know, for example, if what is required needs to be a mandatory requirement under Union or national law or any requirement. 

The new PLD provides significantly more circumstances to consider when assessing the defectiveness of a product, reflecting the use of products in a digital age. These include: 

• Reasonably foreseeable use and misuse of a product 
• The effects on the  products of any ability to continue to learn or acquire new features over time 
• Relevant product safety requirements e.g. cybersecurity  
• Any recall or any other relevant intervention by a competent authority or economic operator 

Furthermore, the PLD now extends the relevant point in time for determining the product defect. Under the old PLD the moment when the product was placed on the market was decisive. Under the new regime, which will be relevant in the case of software updates or machine learning, when the product was put into service or, if the manufacturer retains control over the product and the time when the product left the manufacturer's control, will also be relevant. 

Presumption of a Defect 

More significantly, Article 10 of the new PLD sets out a number of situations where a product is presumed to be defective or where it is presumed that a causal link exists between a defect and damage.  

Article 10 says “…Member States shall ensure that a claimant is required to prove the defectiveness of the product, the damage suffered and the causal link between the defectiveness and the damage…” However, that causal link between the defectiveness of the product and the damage will be presumed where it has been established that the product is defective and the damage caused “is of a kind typically consistent with the defect in question…”  

The PLD also introduces a new presumption of a defect where any of the following conditions are met: 

1. Where the defendant has failed to disclose relevant evidence to a claimant who “is claiming compensation in proceedings before a national court for damage caused by a defective product and the claimant has presented facts and evidence sufficient to support the plausibility of the claim for compensation…” 
2. Where the claimant demonstrates that the product does not comply with mandatory safety requirements laid down in union law or national law that are intended to protect against the risk of the damage suffered by the injured person. 
3. Obvious malfunction of the product during reasonably foreseeable use or under ordinary circumstances. 

The new PLD goes on to say that a national court can presume both causation and defectiveness of a product where, despite the disclosure of evidence by the defendant, the claimant “faces excessive difficulties in particular due to technical or scientific complexity to be able to prove the defectiveness of the product or the causal link between its defectiveness and the damage or both…” All the claimant is required to do is demonstrate “that it is likely that the product is defective or that there is a causal link between the defect and the damage or both”. 

These amendments will have significant implications for product manufacturers with an increased burden on disclosure (especially in jurisdictions where disclosure obligations have been historically minimal), the presumption of a defect in certain situations and, most notably, the removal of the need to demonstrate a defect or causation where owing to the technical or scientific complexity of the claim, a court considers that a claimant faces excessive difficulties in demonstrating such defect/causation.  

This inclusion is intended to make it easier for claimants, including collective or group claimants to pursue civil remedies and product liability manufacturers and insurers do need to be aware of this and develop strategies to deal with such disclosure across member states, including how to protect confidential and privileged documents. 

Defences 

Whilst the defences applicable remain largely the same, importantly, the new PLD allows member states to omit the state of technical knowledge defence (Article 11 (e)) on implementation – see article 18. 

In those member states that do so, manufacturers may be held liable even if they can prove that the defectiveness could not be discovered due to the state of knowledge at the time. We will know more about any member state who may choose to omit the state of technical knowledge defence over the next 24 to 36 months. 

In addition, the defences under the new PLD will not apply where the claim relates to digital services integrated into a product, software (including upgrades or updates), a lack of software required to maintain safety, or a substantial modification of the product. This means that manufacturers or providers of AI systems will remain liable for defects arising after the system is placed on the market where that defect arises as a result of a) a software upgrade that it has retained responsibility for providing or b) an AI system’s ability to continuously learn.  

Limitation 

The 10-year longstop for claims under the current legislation will be extended in some cases to 25 years. This is likely to present unique challenges to producers/manufacturers both in dealing with disclosure and defending claims generally.  

Summary 

The new PLD is a claimant friendly legislation with, in effect, a reversal of the burden of proof. Claimants previously had to prove the defect in the product, the damage suffered, and the causal link between the two. Under the new PLD, in certain situations: (i) the defect of a product; and/or (ii) the causal link between the defect and damage may be presumed. The burden then shifts to the defendant to rebut any presumptions.  

It will be easier for individual claims claimants and bodies representing collective claimants to bring claims related to allegedly defective products with the removal of EUR 500 threshold. 

The tools of disclosure and rebuttable presumptions within the PLD (which are primarily designed to assist individual consumers who may find themselves in difficulties proving a claim alone), are likely to be used strategically by well-funded claimant lawyers pursuing claims on a collective basis. 

Claimants only need to provide “facts and evidence to support the plausibility of the claim for compensation” to obtain disclosure. Companies will need to develop strategies to deal with such disclosure across member states, including how to protect confidential and privileged documents globally, given the impact on discovery for global manufacturers in North America. 

Notwithstanding the points above, prospective claimants and those who represent them will no doubt argue that the PLD does not go far enough in redressing what some consider a significant imbalance in favour of defendants. Conversely, producers will likely consider that the directive goes too far and those who insure them will no doubt be reviewing how the imminent EU-wide changes are likely to affect the cover they provide. 

There are key areas in the PLD that will likely be subject to litigation – for example: 

• the question of defectiveness due to a product not providing “the safety that a person is entitled to expect or that is required under Union or national law” – is this mandatory law or recommendations for safety standards? 
• The clash between the Article 7 assessment of a defect being the “effect on the product of any ability to continue to learn or acquire new features after it is placed on the market or put into service” and the development defence (that the objective state of scientific and technical knowledge available when the product was placed on the market or put into service, or while it was under the manufacturer’s  control was not such that the defectiveness could be discovered). 
• The question of what a defendant needs to disclose to comply with its disclosure evidence – i.e. what is relevant evidence?