United States: The Liability And Insurance Ramifications Of The Increased Usage Of Autonomous Motor Vehicles

The autonomous motor vehicle industry is growing exponentially. Various automobile manufacturers, including Audi, Ford, Volkswagen, GM, BMW, Toyota, Tesla, and Nissan, have announced that they plan to sell fully autonomous motor vehicles by 2021. Other manufacturers will surely follow suit. While these technological advancements will offer numerous benefits, including enhanced safety and mobility, they will also expose manufacturers, distributors, and insurers to new and potentially greater product liability risks. It is likely that these advancements will reshape motor vehicle liability jurisprudence and the insurance industry. This article discusses how these technological advancements will affect the motor vehicle and insurance industries and the potential legal exposures they create.

Motor vehicles have become safer since their invention in the early 20th century. Many of these innovations led to increasing levels of motor vehicle usage. Even with the incorporation of seat belts, airbags, mirrors, indicator lights, all-wheel drive, anti-lock brakes, children's car seats, Bluetooth, power steering, and other features that now are taken for granted, there are still a large number of motor vehicle accidents every year. The World Health Organization estimates that there were approximately 1.25 million worldwide traffic fatalities in 2013. See Here's When Having a Self-Driving Car Will Be a Normal Thing, Gene Munster, Fortune (September 13, 2017) (http://fortune.com/2017/09/13/gm-cruise-self-drivingdriverless- autonomous-cars/ ). In 2016, motor vehicle accidents were responsible for the deaths of 37,461 people in the United States, an increase from 35,485 deaths in 2015. See NHTSA, Automated Vehicles for Safety – https://www.nhtsa.gov/technology-innovation/automated-vehicles-safety  . Fatalities increased from 2015 to 2016 in almost all segments of the population – passenger vehicle occupants, occupants of large trucks, pedestrians, pedalcyclists, motorcyclists, alcohol-impaired driving, male/female, and daytime/nighttime. See USDOT Releases 2016 Fatal Traffic Crash Date, (October 6, 2017) (https://www.nhtsa.gov/press-releases/usdot-releases-2016-fataltraffic-crash-data ). There were increases in deaths in a variety of scenarios involving "human choices," e.g. occupants not wearing seat belts, speeding, and alcohol-impaired drivers. This is not surprising because the overwhelming majority of motor vehicle accidents are caused by human error, including drunken driving, poor judgment, poor driving skills, poor reflexes, inattentiveness, poor vision, and/or criminal negligence. See Self-Driving Cars and Insurance, Insurance Information Institute (July 2016) (http:// www.iii.org/issue-update/self-driving-cars-and-insurance ); see also NHTSA, Automated Vehicles for Safety – ( https://www.nhtsa.gov/technology-innovation/automated-vehicles-safety ). A study by the Insurance Institute for Highway Safety ("IIHS") concluded that improvements in design and safety technology have led to a lower fatality rate in accidents involving late-model cars. See Self-Driving Cars and Insurance, Insurance Information Institute, July 2016 (http://www.iii.org/issue-update/self-drivingcars-and-insurance ). The likelihood of a driver dying in a crash of a late-model vehicle decreased by more than a third over three years, and nine car models had zero fatalities per million registered vehicles.

Autonomous driving will not only likely lead to significantly safer driving, but also provide greater mobility for people who are currently unable to drive, e.g., the handicapped and elderly. Many people do not realise the extent to which automation has already improved driver safety. One example is electronic stability control systems, which help drivers maintain control while driving on slippery surfaces.

Autonomous motor vehicles will surely be opposed by lobbying groups, such as those supporting the fossil fuel industry, truck drivers, taxi drivers, parking lot owners, car dealerships, and potentially the insurance industry if it does not adapt to technological advancements. However, it is hoped that vastly increased safety, increased mobility for those otherwise impaired, and the environmental benefits will lead to an increase in the use of autonomous motor vehicles. Indeed, forecasts predict that there will be 10 million automated vehicles on public roadways by 2020. See 10 Million Self-Driving Cars Will be on the Road by 2020, John Greenough, Business Insider (July 29, 2015) (http://www.businessinsider.com/report-10-million-self-drivingcars- will-be-on-the-road-by-2020-2015-5-6 ). Fortune estimates that autonomous motor vehicles will be on roads in a "noticeable way" by 2020 and that by 2040, 95% of new motor vehicles sold will be fully autonomous. See Here's When Having a Self-Driving Car Will Be A Normal Thing, Fortune (September 13, 2017) (http://fortune. com/2017/09/13/gm-cruise-self-driving-driverless-autonomouscars/).

Accidents Involving Autonomous Motor Vehicles

While autonomous motor vehicles will lead to fewer accidents and fatalities, it is not surprising that some media outlets have sensationalised incidents involving autonomous motor vehicles. It is also not surprising that some media outlets have blamed incorrectly the autonomous motor vehicles. For example, this article (https://www.popularmechanics.com/technology/infrastructure/a28984/truck-hits-driverless-shuttle-on-first-day-at-work/ ) on the Popular Mechanics website (a company that will likely suffer as a result in an increase in the usage of autonomous motor vehicles), has a misleading headline of "Driverless Shuttle Has Accident on First Day of Work" with a sub-headline of "A rough start for self-driver".

See Driverless Shuttle Has Accident on First Day of Work, David Grossman, Popular Mechanics, (November 9, 2017) ( https://www.popularmechanics.com/technology/infrastructure/a28984/truckhits- driverless-shuttle-on-first-day-at-work/ ). Only at the end of the article is it noted that the human driver of the other vehicle in the accident was at fault for the accident.

Autonomous motor vehicle manufacturers will have to overcome the public relations issues related to incidents like these, even though they will likely occur with far less frequency than in vehicles driven by humans. Autonomous motor vehicles may have to convince humans that "the perfect should not be the enemy of the good" and that while there may be a learning curve with autonomous motor vehicles, they ultimately will be safer than motor vehicles driven by humans. Supporters of autonomous motor vehicles will have to convince the public, and thereby legislators, that autonomous motor vehicles are significantly safer, more cost efficient, and environmentally beneficial than motor vehicles driven by humans, and that these benefits outweigh what should be isolated incidents.

Legislative Issues

Federal and State Framework

A relatively sizable obstacle to the increased use of autonomous vehicles is the United States' unique legal and legislative framework. The U.S. system is comprised of 50 states, each with individual laws, and governed in certain circumstances by federal law. States' laws are often inconsistent with each other and/or contradictory. The National Highway Traffic Safety Administration ("NHTSA") realised that it is problematic for international vehicle manufacturers to be governed by disparate regulations and published a set of guidelines in 2016, and a revised set in 2017, which will hopefully bring more uniformity to the manufacture of autonomous vehicles.

Traditionally, the federal government's role in motor vehicle policy has been to dictate safety standards and deal with product recalls. States have provided drivers with licences and regulated behaviour, including enforcing speed limits. These roles may change in the future as autonomous motor vehicles become more prevalent. While the current administration is electing to take a passive role due to the complex technological and geographic issues, it is likely that the federal government's role will expand to provide a more comprehensive and uniform approach to autonomous motor vehicle policy.

Some state governments have enacted permissive regulations for autonomous motor vehicles to encourage technology and motor vehicle companies to create testing programs within their states. Since 2012, at least 41 states and Washington, D.C. have considered legislation related to autonomous motor vehicles. Twenty-two states – Alabama, Arkansas, California, Colorado, Connecticut, Florida, Georgia, Illinois, Indiana, Louisiana, Michigan, Nevada, New York, North Carolina, North Dakota, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Vermont and Virginia – and Washington, D.C. have enacted legislation related to autonomous motor vehicles. See Autonomous Vehicles – Self-Driving Vehicles Enacted Legislation, National Conference of State Legislatures (March 26, 2018) (http://www.ncsl.org/research/transportation/autonomous-vehicles-self-driving-vehicles-enacted-legislation.aspx  ). Moreover, governors in Arizona, Delaware, Hawaii, Idaho, Maine, Massachusetts, Ohio, Washington, and Wisconsin have issued executive orders related to autonomous motor vehicles. These laws vary in scope from comparatively wide-open schemes in Arizona to stricter laws in Nevada, a state that requires two operators in an autonomous vehicle during a test on public roads. Autonomous motor vehicles in New York even require that autonomous motor vehicles follow an approved route with a police escort. An autonomous motor vehicle being tested in New York must also be accompanied by a pilot vehicle driving directly ahead of it.

NHTSA – Automated Driving Systems – A Vision for Safety 2.0 – September 2017

In September 2017, the National Highway Traffic Safety Administration ("NHTSA") released a new version of its guidance for autonomous motor vehicles in the United States. See Automated Driving Systems – A Vision for Safety 2.0, U.S. Department of Transporation and NHTSA (September 2017) (https://www.nhtsa.gov/sites/nhtsa.dot.gov/files/documents/13069a-ads2.0_090617_v9a_tag.pdf). It is not vastly different from the previous administration's guidelines, but it is noticeably shorter than the previous administration's version and emphasises repeatedly that it is only "voluntary guidance". Elaine Chao, the Secretary of the Department of Transportation ("DOT"), noted five times in her one page executive summary that this was only "voluntary guidance". A Vision for Safety 2.0 calls for industry, state and local governments, safety and mobility advocates, and the public to assist with the deployment of autonomous motor vehicles and technologies. The DOT notes that the new policy builds on the previous policy and incorporates feedback received through public comments and congressional hearings. The DOT states that the new policy "paves the way for the safe deployment of advanced driver assistance technologies by providing voluntary guidance that encourages best practices and prioritises safety". See U.S. DOT releases new Automated Driving Systems guidance, United States Department of Transportation – NHTSA, (September 12, 2017) (https://www.nhtsa.gov/press-releases/us-dot-releases-new-automated-drivingsystems-guidance ).

The new Voluntary Guidance's key points are as follows:

  • focuses on SAE International levels of automation 3–5 – automated driving systems – conditional, high, and full automation;
  • clarifies the guidance process and that entities do not need to wait to test or deploy their automated driving systems;
  • revises allegedly "unnecessary" design elements from the safety self-assessment;
  • aligns federal guidance with the latest developments and industry terminology; and
  • clarifies federal and state roles going forward.

A Vision for Safety 2.0 slightly altered the definitions for levels of autonomous driving. Those levels are as follows:

Level 0 – No Automation – Zero autonomy; the driver performs all driving tasks.

Level 1 – Driver Assistance – Vehicle is controlled by the driver, but some driving assist features may be included in the vehicle design.

Level 2 – Partial Automation – Vehicle has combined automated functions, like acceleration and steering, but the driver must remain engaged with the driving task and monitor the environment at all times.

Level 3 – Conditional Automation – Driver is a necessity, but is not required to monitor the environment. The driver must be ready to take control of the vehicle at all times with notice.

Level 4 – High Automation – The vehicle is capable of performing all driving functions under certain conditions. The driver has the option to control the vehicle.

Level 5 – Full Automation – The vehicle is capable of performing all driving functions under all conditions. The driver may have the option to control the vehicle.

A Vision for Safety 2.0 recommends that the Federal and State regulatory responsibilities are as follows:

NHTSA's Responsibilities

  • setting Federal Motor Vehicle Safety Standards ("FMVSS") for new motor vehicles and motor vehicle equipment (with which manufacturers must certify compliance before they sell their vehicles);
  • enforcing compliance with FMVSS;
  • investigating and managing the recall and remedy of noncompliance and safety-related motor vehicle defects nationwide; and
  • communicating with and educating the public about motor vehicle safety issues.

States' Responsibilities

  • licensing human drivers and registering motor vehicles in their jurisdictions;
  • enacting and enforcing traffic laws and regulations;
  • conducting safety inspections, where states choose to do so; And
  • regulating motor vehicle insurance and liability.

Congressional Legislation Regarding Autonomous Motor Vehicles

While the United States House of Representatives passed a bill regarding autonomous motor vehicles, the bill has stalled in the United States Senate after several Senators cited safety concerns. It is noteworthy that those safety concerns do not just relate explicitly to accidents, but also to cyber safety and consumer privacy issues associated with autonomous motor vehicles. There is an inherent conflict between the positions of some Senators and Derek Kan, the Undersecretary of Transportation for Policy, who has explicitly stated that the DOT is not going to select what technology will be used in autonomous motor vehicles.

However, no federal laws have been enacted. The DOT recently convened a "listening summit" on autonomous motor vehicles at which companies from the private sector, federal regulators, and state regulators discussed issues regarding autonomous motor vehicles and related policies. See U.S. DOT Public Listening Summit on Automated Vehicle Policy (March 1, 2018) (https:// www.transportation.gov/AV/avsummit ). The main takeaway from the listening summit was that regulators will not impose many rules, if any, and will let technology progress. The DOT noted that compliance with its guidance would be voluntary and that if anything was perceived as a mandate and/or a requirement, it would impede innovation. Elaine Chao, the Secretary of Transportation, stated that the Department is not in the business of "picking winners and losers".

Product Liability Considerations

High-profile incidents of autonomous motor vehicle accidents, and the public's natural resistance to change, will likely affect product liability considerations and legislative issues.

In a technologically advanced setting, apportioning liability will not be as straightforward as it used to be. There will certainly be novel and challenging legal issues. The exposure will likely evolve over time as autonomous motor vehicles are adopted by the public. Generally, it is likely that as control of vehicles shifts from manual operator-controlled to autonomous computer-controlled, liability will shift from the operator of the motor vehicle to the manufacturer of the motor vehicle and/or the manufacturer of the technological component that failed, thereby causing the accident. Several manufacturers, e.g. Volvo, Mercedes, and Google, have announced that that they will assume liability for autonomous motor vehicle accidents.

Motor vehicle manufacturers have long been subject to product liability lawsuits. However, the number and types of product liability lawsuits will likely increase because of autonomous vehicles. Autonomous vehicle manufacturers, and manufacturers in general, will likely face product liability claims based on various theories of liability, including inter alia, strict liability, negligence, and breach of warranty. Manufacturers of autonomous vehicles will not be the only entities to encounter increased exposure to product liability lawsuits. Manufacturers of the various component parts, e.g. software and hardware manufacturers, will also be exposed to greater product liability risk. Assessing liability with autonomous motor vehicles will be complicated by the possible combinations of driving modes, ranging from no autonomy to full autonomy.

Potential factors include the comparative negligence of a human operator's actions, the functionality of software and sensors manufactured by potentially dozens of legally separate entities, the designs of the autonomous driving systems, and the training and/ or warnings associated with operating an autonomous vehicle, including vehicle and system maintenance, among others.

Assigning liability will be more complicated when motor vehicles are operating in Levels 1 through 3, when the operator is more likely to be operating the vehicle. That calculation will likely resemble traditional motor vehicle liability calculations. When motor vehicles are operating in Levels 4 and 5, when a computer is likely operating the vehicle, the liability calculation will more closely resemble a traditional product liability analysis because it will involve the failure of an automated product. However, even at Levels 4 and 5, there will still be the possibility for human negligence if the owner/operator has not properly updated the motor vehicle, or if the owner/operator has modified the autonomous motor vehicle operating system.

These liability calculations and apportionments will involve determining which of the many component part manufacturers, if any, played a role in an incident. As software algorithms become more vital to the success and failure of autonomous vehicles, motor vehicle manufacturers will necessarily have to be more focused on the integration of software and hardware. In product liability practice, it is well-established that liability can be apportioned up and/or down the supply chain to the cause of a particular failure. These risks are often addressed between component parts suppliers and manufacturers under the terms of supply agreements where a contractual duty to defend and indemnify against damages caused by a malfunctioning device is delineated. However, that same automation and interconnectivity could also allow a clearer picture to develop via the vehicles' internal software, so it should theoretically be easier to discover what contributed to the accident than in an accident wherein there could potentially only be testimony from the two drivers.

The increased connectivity via the Internet of Things also poses interesting post-sale considerations, and potential responsibilities, on manufacturers. A manufacturer's duties to warn at the time of sale are well established. However, if a manufacturer discovers new risks after a sale, the legal framework for a manufacturer's responsibilities is not nearly as well established. The Restatement (Third) of Torts, published in 1998, included a post-sale failure to warn duty. However, only some states have adopted that stricter standard. Due to the increased connectivity, manufacturers will likely be held to a higher standard regarding notice of certain failures and notifying consumers/users of those failures. Once manufacturers become aware of potentially risky software programs and/or product defect issues, they will need to act quickly to provide upgrades and/or recall the defective products. Product recalls are relatively common for certain types of products and are usually handled by various regulatory agencies. Due to the increased connectivity, and access to information regarding product and consumer information, manufacturers and retailers will have fewer defences for not recalling almost all products.

The potential for hacking an autonomous motor vehicle's operating system to gain information and/or cause injury will present manufacturers with significant data security exposures. While those threats exist today, the growing interconnectivity with other vehicles and the internet will only amplify those risks. Users' personal data could be accessed and stolen. If these issues are prevalent with a certain product, manufacturers, including those of the component parts and/or security systems contained therein, would likely be subject to product liability lawsuits and/or class action litigation. The investigations attendant to litigation will also require the use of novel and educated experts in those fields. Since this will be a new area of litigation, identifying the relevant experts will be a significant undertaking. It is likely that liability for accidents involving autonomous motor vehicles will be determined by courts on a case-by-case basis and will evolve over time, similar to traditional product liability jurisprudence.

Effect on Insurers

Almost all motor vehicle manufacturers have product liability insurance. Accordingly, insurers will have to consider all of the potential benefits and risks of automation when drafting policies and/or agreements with any potential insureds. Insurers will also need to hire claims representatives familiar with the technology incorporated in autonomous motor vehicles.

The framework for insurance will also evolve, especially with the increased use of autonomous motor vehicles. The paradigm will likely shift from a user error focused evaluation to a product liability focus. As products become increasingly automated, the burden might be on the manufacturer to prove it was not responsible for an incident. This will be a marked shift from the old paradigm in motor vehicle accident evaluations. There is a small possibility, if the integration of autonomous motor vehicles is not seamless, that the liability issues could threaten the financial viability of motor vehicle manufacturers. However, it is likely that such a scenario would be prevented via regulation and/or legislative action. In the short-to-medium-term, the cost of replacing components on autonomous motor vehicles will be significantly more expensive than on regular motor vehicles. However, as market competition and efficiency increase, the cost of manufacturing autonomous motor vehicles, and the components therein, will decrease, leading eventually to significant declines in insurance premiums. In the long-term, an increase in the amount of autonomous motor vehicles paired with the increasing popularity of shared rides, could impact the types of insurance available and insurers' financials. KPMG estimates that in 2013, personal automobile insurance accounted for 87% of automobile loss insurance, while commercial auto insurance accounted for 13% of automobile loss insurance. KPMG estimates that by 2040, personal automobile insurance losses will fall to 58%, while commercial automobile insurance losses will rise to 28% (due to an increase in ride-sharing) and product liability automobile losses will comprise 14% of automobile insurance losses. See Marketplace of Change Automobile Insurance in the Era of Autonomous Vehicles, KPMG, (May 2, 2016) (https://home.kpmg.com/content/dam/kpmg/pdf/2016/05/marketplace-change.pdf  ). Moreover, KPMG estimates that in 2013, there were approximately $145 billion in total automobile insurance loss costs. It estimates that in 2040, the total will drop to approximately $100 billion in total automobile insurance loss costs, including a 60% decrease in personal automobile losses. KPMG notes that lower losses lead to lower premiums and the insurance industry will be impacted substantially by the increase in autonomous motor vehicles if it does not adapt.

Insurers may feel that they have ample time to prepare for these changes because the Insurance Institute for Highway Safety estimates that mass-market adoption (95% of registered vehicles) of vehicle safety features takes 30 years. See Estimated Time of Arrival – New safety features take 3 decades to spread through entire fleet, Insurance Institute for Highway Safety Highway Loss Data Institute, (January 24, 2012) (http://www.iihs.org/iihs/sr/statusreport/article/47/1/1  ). However, insurers do not typically wait until new safety features are adopted fully to adjust insurance premiums. Front airbags were invented in 1984 – and made mandatory on all new passenger vehicles since 1998 – but only achieved full adoption in 2016. Significant insurance premiums for airbags were incorporated long before then.

One potential way for insurers to adapt is to introduce hybrid automobile insurance policies that contemplate all levels of autonomous motor vehicles. Insurers should also increase their product liability capabilities as liability will shift from a traditional negligence calculation when humans are operating motor vehicles to a product liability calculation when motor vehicles are operating autonomously.

Insurers will also want to require that motor vehicle manufacturers insert hold harmless, defence, indemnification, and additional insured language in all contracts with downstream vendors and subcontractors. They should also require motor vehicle manufacturers to have clearly defined maintenance procedures to be followed by the operators. Insurers will also want to align the interest of operators to ensure that operators have financial interests in avoiding losses. Owners of autonomous motor vehicles will still want insurance policies for their vehicles for incidents other than accidents, e.g. theft, vandalism, storm damage, flooding, mechanical/electrical breakdown, etc.

Insurers will also have to contemplate cyber liability insurance implications. Manufacturers will need coverage for risks associated with cyber-attacks, hacking, and breaches of data privacy. If motor vehicle insurers do not have a cyber-liability capability, they will be avoided by manufacturers as motor vehicles only become more technologically advanced, thereby exposing manufacturers to further cyber liability risks.

The biggest risk to motor vehicle insurers is if motor vehicle manufacturers, through advances in their own technology and access to potentially proprietary loss data, become insurers themselves. Manufacturers will gather data on motor vehicle speed, distance between vehicles, brake pressure, weather conditions, distractions, and other information gathered by proprietary software in the autonomous motor vehicles. The manufacturers will then be able to aggregate that data from all of their autonomous motor vehicles to better understand and price the risk associated with their autonomous motor vehicles. Tesla has already started this, in conjunction with Liberty Mutual Insurance Company. See Insure My Tesla (https:// www.tesla.com/support/insuremytesla%20 ). Tesla is not currently underwriting or retaining the risk, but it is gathering the data, learning the claims process, and likely preparing for the likelihood of maintaining a fully-captive insurance division. The insurance industry will have to adapt and provide added value to motor vehicle manufacturers to ensure that they are not severely impacted by advances in technology.

Conclusion

The use of autonomous motor vehicles continues to increase. While this increase provides new risks and product liability considerations, it will also lead to increases in safety. It is possible that federal and state legislatures will enact legislation protecting manufacturers from the attendant risks and legal exposure, but the federal government has explicitly stated that it is looking to the private sector to innovate and shape the market. The increase in autonomous motor vehicles will change profoundly the safety of driving and the attendant costs. Accordingly, manufacturers and insurers will have to evolve to meet the demands of a new motor vehicle and driving framework.

Previously published in Chapter 7 of the International Comparative Legal Guide to Product Liability 2018, published on June 6, 2018.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

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