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MONTE CARLO, Monaco-Europe's product liability market remains soft despite a 12-year-old directive increasing manufacturer liability, an insurer executive says.
However, he said, "significant legal and social changes" to come should make insurers realize that their exposures could increase drastically.
The European Union passed its Directive on Product Liability in July 1985, imposing a strict liability regime by making a manufacturer liable for damages caused by a defect in its product. But the move has done little to create uniformly applied legal standards in product liability cases among the 15 member states and has had little effect on the availability of product liability insurance or premium levels, according to Andre Hellebuyck, Brussels, Belgium-based vp of AIG Europe.
Speaking in Monte Carlo, Monaco, earlier this month at the Risk Management Forum, he said that despite the directive, commercial product liability rates in Europe remain "extremely soft" and that coverage keeps broadening.
Mr. Hellebuyck warned that insurers should be stepping back and becoming more selective because many of them face "incalculable exposures" that could cost them dearly if legal and social factors change.
Although all E.U. states except France have implemented the directive, he said, "It is unlikely that the case law in the different member states will ever be similar."
He said that even though the directive was passed more than 12 years ago, "so far, the experience with the directive is limited and likely to develop slowly. There is no evidence indicating that any general change in the policy of the legislation is currently called for."
Even an E.U.-commissioned report on progress with the directive presented in December 1995 showed that 10 years after it was adopted, only three court cases had been based on it: two in Germany and one in Italy. Since then, there have been only four additional cases.
The report also showed that the directive has had no significant effect on the insurance market and that there has been no general increase in claims. Availability of product liability insurance for manufacturers and their subcontractors also has remained unchanged and rates in the European commercial product liability market are currently "extremely soft."
Mr. Hellebuyck said the absence of legal cases can be attributed to altered business practices, partly as a result of the directive but partly for other reasons.
The main change to business practice has been to the legal drafting of commercial agreements allowing a producer or importer a right of recourse against his contractors.
Reasons for these changes other than the influence of the directive include the general improvement in safety standards, increased attention to quality and safety, and a changed approach toward risk management, largely as a result of increasing regulatory control under other government or E.U. measures.
Mr. Hellebuyck said a more meaningful understanding of the future development of product liability in Europe will be possible once certain "difficult" types of claims have been tested. These include cases related to pharmaceuticals, chemicals, aerospace and transport products.
In a warning to insurers, he said "significant legal and social changes are slowly coming about," and it is difficult to determine their likely impact. He said: "Today, many insurers face incalculable exposures, based on assumptions of legislative and social stability. The difficulty to evaluate the effect of a variety of legal and social factors, and to forecast the speed at which developments will take place, should prompt some insurers to become more selective and to get back to an 'exposure underwriting' mode."
Asked later by a conference delegate if he thought European product liability awards would ever reach U.S. levels, Mr. Hellebuyck said "I think we're probably getting there." He added later, "but I don't think we'll really ever see anything as bad as in the U.S."