Product Liability Goes Global

By Ross, Kenneth | Risk Management, February 2006 | Go to article overview

Product Liability Goes Global

Ross, Kenneth, Risk Management

Product liability concepts, which were developed in the United States in the early 1960s, leapt across the ocean in 1985 when the European Union adopted the legal concept of strict liability. Despite this development in Europe, in the last 20 years, litigation has not occurred with much frequency.

However, more recently, the passage of product liability and product safety laws and regulations has expanded significantly, both in the European Union and all around the world. This has resulted in a dramatic increase in litigation and potential liability in foreign countries and could also increase product liability risks in the United States.

A U.S. manufacturer and product seller must consider product liability as a global risk. It is more likely that manufacturers will be sued anywhere they sell their products and possible that this litigation could adversely affect litigation in the United States. Similarly, it is possible that manufacturers could be subject to government regulatory actions or be required to undertake foreign recalls or other remedial programs.

Any company that sells in the United States and in global markets must consider these new risks when designing products, selling products, tracking post-sale field experience, and trying to comply with all applicable laws and regulations wherever their products are sold. Let's first look at the new laws and regulations.

European Union Product Liability Laws and Litigation

The Product Liability Directive, adopted in 1985 by the European Union Parliament, provides, that "[t]he producer shall be liable for damage caused by a defect in his product." Producers include manufacturers, component part suppliers, importers and anyone using a trade name or trademark. A product is defective when it "does not provide the safety which a person is entitled to expect."

Lovells, an international law firm based in England, undertook a survey between 2001 and 2003 of companies in Europe concerning their views on litigation and product safety. Seventy-seven percent of the respondents said that product liability litigation is increasing in the European Union with 22% of them saying that it has increased significantly. The main reasons for such increases are an increased awareness by consumers of their rights to file claims against manufacturers and increased coverage of such rights by the media.

Despite the increased numbers of cases, however, litigation will never be as big of a financial risk in the European Union as it has been in the United States. While contingent fees are beginning to be accepted in some countries, there are still very few or no jury trials or punitive damage awards, no high compensatory damage awards, no U.S.-style discovery rules, and no U.S.-style class actions.

What has occurred in the European Union, however, is that there is enhanced publicity involving product liability and negligence actions and, in some cases, criminal prosecutions of executives involved in alleged wrongdoing. The result is that actual risks to the reputation of the company and its executives can be more significant than any individual product liability case. And this risk is further enhanced if evidence of the criminal prosecution or wrongdoing is discovered by the plaintiffs lawyer in a U.S. product liability case who may try to get that evidence in front of the jury.

European Union Product Safety Regulatory Law

The area of greatest growth in the European Union is the adoption of product safety laws that increase the responsibility of the manufacturer to monitor the safety of products in use and to report to government entities if there are safety issues involving such products.

The 2004 General Product Safety Directive (GPSD) that is now being implemented in all EU countries increases responsibilities for manufacturers and distributors. Distributors will have to monitor the safety of products placed on the market, especially by passing on information on product risks, keeping and providing documentation necessary for tracing the origin of products, and cooperating in actions taken by manufacturers and government agencies to avoid the risks. …

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