Defective products: impact and suggestions on liability (Green Paper)

1) OBJECTIVE

To find the optimum system for compensating the victims of damage caused by defective products and improving the quality of products, without dampening industry's capacity for innovation.

2) ACT

Commission Green Paper of 28 July 1999: Liability for defective products [COM(1999) 396 final - Not published in the Official Journal].

3) SUMMARY

Liability for defective products is regulated by Directive 85/374/EEC, as amended by Directive 1999/34/EC. The aims of this Green Paper are to assess the application of this Directive by industry and consumers and to make suggestions for a possible revision.

The Commission proposes taking the following elements into consideration in assessing the impact of Directive 85/374/EEC:

• the complaints index (number of cases, court orders, etc.);
• the availability of safe products on the market (a producer's decision not to market a particular product for fear of incurring liability, for example);
• production cost and sales price trends, to calculate the impact of the liability system on the price of products;
• differences between export markets within and outside the European Union;
• the impact of the Directive on industry's ability to innovate.

Application of Directive 85/374/EEC

Firstly, the Green Paper seeks to assess the impact of Directive 85/374/EEC with regard to the objectives set, by inviting those concerned to measure the impact on:

• Community trade and exports outside the EU, in particular with regard to competitiveness, as a result of civil liability conditions imposed on producers in the Member States or exports to markets where the legislation is even stricter;
• protecting the health and safety of citizens: have they been compensated according to the principles approximated by Directive 85/374/EEC, and, if so, how quickly? Should the balanced system which distributes risk between producers and consumers be maintained? How does compensation for victims on the basis of the Directive link up with social security mechanisms?
• industry, in terms of costs (insurance premiums, legal and professional fees, loss of value of implicated brands, etc.) and the insurance sector (level of premiums, amount of compensation paid out, etc.).

Proposals

Secondly, the Green Paper makes some suggestions for a possible amendment of Directive 85/374/EEC. First of all, it recalls the principle of balance on which the Directive is based - a compromise between the interests of victims, who want maximum protection at minimum price, and producers, who are in favour of liability ceilings and the shortest possible liability periods. The Commission is in favour of maintaining this balance.

Without questioning the principle by which the burden of proof lies with the victim, the Green Paper is concerned with the practical implications of this. In practice, to obtain compensation, the victim of damage caused by a defective product has to prove not only that the product was defective but also the causal link between this defect and the damage suffered. This can be a very complicated and costly procedure. The Green Paper presents several options to facilitate this burden of proof:

• the presumption that a causal link exists where the victim proves the damage and the defect;
• the establishment of a necessary degree of proof (e.g. probability greater than 60%);
• obliging the producer to supply useful documents to the victim;
• obliging the producer to pay the professional fees, to be reimbursed if the victim loses;
• in the case of products made by several manufacturers, so that it is difficult to identify which one is to blame for the fault, applying the American legal theory of "Market share liability", whereby all the victim has to do is to prove the link between the damage and the implicated product, without naming the manufacturer.

Directive 85/374/EEC provides for the option of freeing producers from liability if the state of scientific and technical knowledge at the time when they put the product into circulation was not such as to enable the existence of a defect to be discovered. Whilst several Member States have already ruled out this option unilaterally (the Directive leaves it to the discretion of the Member States), the Green Paper considers the possible impact of such a move:

• on industry, especially on its ability to innovate;
• on the insurance sector, especially with regard to covering this type of risk.

The Commission then questions the need to maintain the financial limits laid down by the Directive, in terms of the:

• lower threshold, which means that producers do not have to compensate victims for damage to items of property worth less than 500 euros; or
• the existence of a producer's civil liability ceiling for damage caused to natural persons in the case of repeated accidents.

Directive 85/374/EEC sets a limitation period of ten years for producer liability. Despite the foreseeable financial risk for companies and their insurance companies, this period could be extended to cover damage which appears after ten years.

With regard to producer liability insurance, the Green Paper mentions the following alternatives:

• forcing producers to take out a policy to cover the risks deriving from their production; or
• promoting voluntary agreements between industry and insurance companies.

With regard to transparency, in particular where the producer's liability is in dispute, the Green Paper refers to two types of initiative implemented in the United States:

• firstly, "jury verdict reporters" who find out about the number of cases, the level of compensation payouts, the incriminated products and responsible persons and disseminate their findings widely;
• secondly, the law obliging producers to make public any cases where a defective product has:- caused death or serious bodily injury;- been the subject of at least three cases brought before the courts;- where these cases have been won by the plaintiff or have been settled out of court.

Similar initiatives could be envisaged and included in the Community product liability regime.

The Green Paper then examines the conditions under which the supplier's liability can be questioned. For example, should the liability without fault regime instituted by Directive 85/374/EEC apply to every link in a product's supply chain where this activity affected the safety characteristics of a product put onto the market, for example during repackaging, transport or storage?

The definition of the scope of the Directive is also tackled. Should it be extended to include immovable property? Moreover, the current liability regime only covers death or physical injury and damage to goods for private use. Should non-material damage, psychological injury and damage to property used for professional purposes continue to be excluded?

The final proposal contained in the Green Paper concerns access to justice for victims of defective products, with a particular emphasis on injunctions and collective actions.

See also

Additional information is available on the website of the Directorate-General for Enterprise and Industry.

Last updated: 23.05.2005