The largest drug recall in history took place in September 2004, when Merck voluntarily withdrew its painkiller VIOXX, after it became aware that its users were at risk of heart attacks, strokes and adverse skin reactions. There were approximately 20 million users in the US alone. In November 2007, Merck agreed to pay $4.85bn (£2.4bn) to settle the bulk of lawsuits arising from injuries allegedly caused by VIOXX.

Against the background of this headline case and other significant product liability settlements, this article provides a brief overview of the General Product Safety Regulations 2005 (the GPSRs) and examines their impact (particularly on insurers) since their introduction in October 2005.

Scope of GPSRs

The GPSRs cover all new and (with some reservations) second-hand products used by consumers, whether intended for them or not. They also apply to all UK suppliers of products used by consumers, whether intended for them or not and whether the goods were intended for use in the UK or another member state.

“Products” are all goods that are or could be placed on the market, or supplied or made available during a hire period or in the course of providing a service to consumers for their private use. So, for example, products such as nursery goods, gym equipment and machinery are caught by the regulations. Products that pass from professional use through to consumer use (known as “migrating products”) are also covered. This would include, for instance, DIY power tools that were originally designed for professional use but which have subsequently made their way into the consumer market.

Safety requirement

The GPSRs require products to be “safe”. Under the regulations, a “safe product” is one that:

(1) under normal or reasonably foreseeable conditions of use, presents no risk or only the minimum risk compatible with the product’s use; and

(2) is consistent with a high level of protection for consumers. This is a stringent test and sets a very low hurdle for anyone thinking of pursuing a claim.

Duties

Under the GPSRs, producers and distributors have several obligations. These are designed to ensure the safety of their products and to improve the traceability of goods if things go wrong. As well as their primary duty to put only safe products on the market, producers are also required to provide relevant information and warnings to enable consumers to assess the inherent risks in a product throughout the normal (or foreseeable) period of its use.

Notification obligations

One of the most fundamental changes introduced by the GPSRs is the obligation on producers and distributors to notify the local authority immediately they become aware that they have put an unsafe product on the market.

This is the first time in the UK that such an obligation has been imposed on producers and distributors of consumer products.

Penalties

A producer or distributor convicted in the crown court of breaching either the general safety requirement or a safety notice faces a maximum penalty of £20,000 and/or imprisonment for up to 12 months. For other offences, the maximum penalty is a £5,000 fine and /or imprisonment for three months.

Impact of the GPSRs

The GPSRs have led to a huge rise in the number of product recalls being notified. In turn, there has been a notable increase in the need for recall insurance. The enforcement authorities now also have greater powers to control product safety. So producers, distributors and their insurers cannot afford to be complacent about product safety and need to have comprehensive risk management procedures in place.

Practical steps

It is essential for both producers and distributors to establish systems for assessing product risk effectively and to take appropriate steps to ensure that an unsafe product is discovered. In particular, they need to review internal management structures, market/product research procedures, sales and distribution agreements and quality control systems. Insurers should check that their insured producers and distributors have done this adequately.

Considerations for insurers

Given the increased number of product recalls and (in the aftermath of the VIOXX case) potentially very high-value claims, companies will want their product liability policies to address some of the likely costs. A speedy reevaluation of contract wording and premiums would therefore be prudent. For example, the risk attached to a products liability policy will necessarily depend upon how well-prepared the company is for a product recall and upon its ability to reduce the commercial impact of such a recall. If the company has a recovery plan and/or quality control system in place, it will find it easier to minimise the effect of a widescale product defect.