Product liability 2.0: What insurers should know about the new EU directive

Munich Re's Ina Ebert on the effects of the revised EU Product Liability Directive, its new features most relevant for insurers and its consequences for them.

For some time, a broad agreement concluded that the old EU Product Liability Directive (PLD), dating back to 1985, was no longer fit for purpose. New technologies and business models, as well as the growing importance of consumer purchases on the internet from traders outside the EU, raised many questions about the applicability of the PLD. This led to substantial legal uncertainty.

Also, the increased complexity of products in the digital age, especially the “black box” aspect of AI-related products, seemed to lower the level of consumer protection provided by the PLD to a degree no longer deemed acceptable.

EU regulation on product liability revisited

In September 2022, the European Commission therefore published a proposal for a revised PLD. This was meant to bring the PLD “up to speed with the digital age, circular economy business models and global value chains”. To achieve this, the proposal suggested to considerably broaden the scope of liability. This included not just the range of products covered by the PLD but also the scope of potentially liable entities and damage considered compensable. In addition, it introduced new discovery requirements, did away with all liability thresholds and significantly extended the expiry period for latency claims.

The revised PLD (EU Directive 2024/2853) came into force on 9 December 2024. It is applicable to all products placed on the EU market or put into service after 9 December 2026. Until then, all EU member states have to adjust their national regulation to comply with the new PLD.

What is new – the six new features most relevant for insurers

1. The definition of “product” now explicitly includes AI and other software, digital manufacturing files and related services, i.e. services integrated into or inter-connected to a product and crucial for its functionality.

2. The scope of potential defendants has been considerably extended. In addition to manufacturers and component manufacturers, a number of other economic operators can now be held liable for defective products, following a tiered approach:
If the manufacturer is established outside the EU, claims can be brought against the importer and the authorised representative.
If those do not exist or are established outside the EU, fulfilment service providers (anyone offering at least two services such as warehousing, packaging or dispatching) could become the target of claims.
If none of the above can be identified within the EU, the distributor or online platform provider can be held liable.
Finally, the new PLD clarifies that someone who substantially updates a product outside the original manufacturer´s control is considered a manufacturer.

3. Apart from death, personal injury and property damage, the range of compensable damage now includes the destruction or corruption of data that is not used for professional purposes. The new PLD also clarifies that medically recognised damage to psychological health is considered as personal injury.

4. The minimum threshold of €500 for compensable property damage has been eliminated. Also, there is no longer an option for national law to provide a maximum liability threshold for death or personal injury caused by identical items with the same defect (the liability cap for such losses e.g. in Germany so far is €85mn).

5. The new PLD shifts the burden of proof in favour of claimants by introducing rebuttable presumptions regarding the defectiveness of a product and/or causation between the defectiveness and the damage occurred. The presumption of defectiveness is based on non-compliance with either newly introduced disclosure duties, mandatory product safety requirements or an obvious malfunction. Causation is presumed, if the damage is of a kind typically consistent with the established defect. National courts are encouraged to apply these presumptions even in absence of these requirements, if the claimant faces “excessive difficulties”, e.g. due to technical or scientific complexity, while showing that the defectiveness of the product and/or causation is “likely”. This raises many open questions, especially since the new PLD does not provide any guidance on how the defendant could rebut any such presumption.

6. The limitation period of three years after the injured person became aware or should have been aware of the damage, defectiveness and identity of the liable person remains in place. However, the expiry period for all claims, regardless of knowledge, was substantially extended from 10 to 25 years for latency personal injury claims.

Consequences for insurers

Insurers should be aware that the various amendments to the PLD generally make it a lot easier for claimants to succeed with their product liability claims. This is especially true for latency personal injury claims that formerly often used to fail due to the shorter expiry period. This could become highly relevant, e.g. in the PFAS context.

For less severe claims, the combination of the eliminated minimum threshold and the introduction of new collective redress mechanisms throughout the EU over the last years might add up to a significant increase in the frequency of claims. This might also include claims for the now compensable destruction or corruption of data. For severe personal injury claims, on the other hand, the elimination of maximum liability thresholds increases the accumulation risk.

The new provisions regarding discovery and transparency duties, as well as rebuttable presumptions, result in a considerable level of legal uncertainty. It will take many years before the European Court of Justice will be able to resolve this. Until then, transaction costs are likely to rise. This impact would be increased, if similar presumptions will be introduced to tort law in regard to AI-based applications, as is currently discussed in the context of the proposed Artificial Intelligence Liability Directive.

However, apart from these new challenges, the new PLD might also open up a few new business opportunities: The extended scope of potentially liable entities could bring along new demand for product liability coverage. And since insurers are well experienced in evaluating risks, the need to rebut presumptions might open the door to insurance services beyond traditional liability insurance, for example certification procedures.

Ina Ebert, leading liability and insurance law expert at Munich Re