Product Safety, Liability and Recall

NHS waiting lists have passed seven million and the Care Quality Commission’s annual report has warned that the health and care system is gridlocked and unable to operate, with staff struggling to provide good, safe care as a result. Recruiting more staff alone won’t be enough to solve the crisis. Hopes are pinned on the MedTech sector to provide solutions to improve patient outcomes and facilitate the transformation to more sustainable models of health and care. Software as a medical device (known as SaMD) and AI have grown in market share and complexity, with products that could not have been imagined when existing regulations around medical devices were developed. The Medicines and Health products Regulatory Agency has published a roadmap setting out how it will create a regulatory regime that protects patients while at the same time providing certainty to industry.

The life sciences industry was integral to the response to the COVID-19 pandemic and the government now hopes the sector can address some of the UK’s most significant healthcare challenges, including cancer, dementia and mental health. Following the UK’s exit from the EU, the government has been seeking to create an updated regulatory regime for medical devices, focusing on improved patient safety, international best practice and facilitating innovation. While the intended approach of the Medicines and Health products Regulatory Agency (MHRA) was set out in its response to the government consultation on medical devices, no draft statutory text has yet been published. The MHRA has confirmed it will extend the standstill period during which EU CE marked devices are accepted in the UK to July 2024. The original July 2023 target was viewed as impossible to meet and risked threatening the supply of vital products. Companies will still want to see the draft legislation as soon as possible.

We expect a new general safety requirement for all construction products imminently. This will be overseen and enforced by a new National Regulator for Construction Products, operating within the Office for Product Safety and Standards, working alongside Trading Standards and the new Building Safety Regulator (operating within the Health and Safety Executive). This will bring construction products into a similar regime to that used for consumer products. Draft regulations were published and withdrawn. We can expect to see an increased take-up of product recall (or dismantling and reinstallation) insurance as safety issues not involving actual injury or damage will not be covered under a standard PL policy.

As matters currently stand, before the end of 2023 all Retained EU Law in the UK (REUL) will be reviewed and a sunset date published by which time laws will be repealed, allowed to expire or assimilated into domestic law. The draft legislation allows for the sunset date to be extended to the end of 2026 and many anticipate that the new government will adopt that, if the legislation is passed. The list of REUL includes the General Product Safety Regulations 2005, which regulate consumer product safety and enforcement in the UK. While it may seem unthinkable that the UK will be left with no product safety regime, with the EU tightening its regime, any products exported to the EU will have to comply with EU product safety requirements and so we do not expect any change to the need to manufacture a safe product.

With manufacturers and retailers under ever-increasing pressure to emphasise their environmental credentials, insurers will need to be mindful of potential risks arising from those efforts. Producers and manufacturers who want to persuade consumers to purchase their products (rather than those of a competitor) by stating they have been responsibly sourced, manufactured and packaged, risk liabilities relating to unfair trade practices or breaches of competition law and consumer protection laws. There have already been class actions in the US in respect of sustainability claims on labels, in-store signage and marketing online. In Australia, there has been a clampdown on false advertising with activewear brand Lorna Jane fined $5mn for claims that its products protected against COVID-19. We expect that similar misleading, false or exaggerated information on environmental credentials could lead to insurers seeing an increase in claims under commercial general liability policies and advertising liability extensions as ESG concerns spill into the product liability arena.

The UK will need to develop a strategy for development of its domestic semiconductor and other technological industries. Insurers will be mindful that any such moves, encouraging resilience in a time of geopolitical uncertainty, will generate the writing of new business. This in turn will lead to possible liability and recall exposures in the future. Reliance on countries like Taiwan for supplies of crucial components such as batteries and semiconductors is no longer in the wider strategic interest. The EU, via the proposed European Chips Act package, has made moves to strengthen Europe’s semiconductor industry and technological capabilities. The UK, like the EU, has huge commitment to economic growth through electric vehicle production but the manufacturing infrastructure for their components will need to be supported domestically. For insurers, the spectrum of insurance required to support this infrastructure represents opportunity but generates consequent risk.

Supply chain impacts of the conflict between Russia and Ukraine may give rise to some unexpected consequences in addition to the predicted increase in claims arising from unfulfilled contracts and contingent business interruption. One such consequence may include an increase in claims for personal injury arising from allergic reactions to undeclared ingredients and adulteration of food products. During the early stages of the conflict, shortages of key products (such as sunflower oil) resulted in substitution with alternatives (such as rapeseed oil). These changes were noted by regulators, along with the temporary relaxation of mandatory re-labelling requirements given the low allergen risk involved in the change. However, as the conflict appears likely to be prolonged, longer term supply chain issues may arise. This is particularly acute given the importance of food stuffs, such as wheat, corn, pulses and fish, which are exported worldwide from Ukraine and Russia. Shortages of these items, compounded by the economic crisis, may lead to increased food substitution and a new wave of allergen injury claims based on ingredient mislabelling.

In the US, there has been a recent shift by both regulators and plaintiff representatives in their focus on PFAS “forever chemicals”, with efforts now identifying PFAS-contaminated domestic products such as clothing, food containers, sunscreens and water-resistant footwear sprays. In the UK and Europe, however, claims involving PFAS remain directed at contamination in soil, rivers and drinking water. The recent decision against 3M in Belgium is a prime example of this. Nonetheless, we expect to see interest in large scale product liability claims relating to injuries allegedly caused by PFAS, facilitated by the new EU directive on representative actions, litigation funding, and the potential broader adoption of US-style opt-out procedures.

Manufacturers, importers and others in the supply chain were rushing to ensure that any goods first placed on the market in Great Britain after 11pm on 31 December 2022 were UKCA marked. Barely six weeks before the deadline, a U-turn. CE marking can continue to be used for goods placed on the market up until 31 December 2024. The UKCA mark can be used and certifies that the product conforms with applicable UK standards. Products which were placed on the market before 11pm on 31 December 2024 can continue to be sold with the CE mark after that date. Insurers need to be aware that even seemingly technical breaches can drive product liability claims if a non-compliant product has caused injury or damage.