Is there a potential risk for insurers as a result of the Consumer Rights Act 2015 (CRA) bringing digital content into the mainstream of product liability? Alternatively, does it create an opportunity for insurers to develop a new insurance product?
The CRA, effective from 1 October this year, newly establishes the legal status of digital content and introduces a new category of sales contract, namely contracts between a trader and consumer in relation to ‘digital content’ which may include software and mobile phone apps. The Act provides implied terms to such contracts that the digital content must be of satisfactory quality, fit for a particular purpose and as described. Hence a consumer may pursue remedies where there have been breaches of the implied terms including, potentially, damages for personal injury or property damage, where the digital content is not of satisfactory quality and has caused loss.
This has potentially significant consequences now the era of connectivity is upon us and the benefits and risks of the Internet of Things (IoT) are quickly becoming apparent. The IoT is the interconnection of multiple devices through the use of radio frequency technology, which enables the exchange of data across multiple industry sectors.
It’s estimated that by 2020 there will be 26 billion connected devices including wearable/implantable devices, mobile devices, and a range of domestic appliances from smart TVs, fridges and radiator thermostats to coffee makers and security systems. The home will soon be a connected living space of smart sensors monitoring services and security and alerting customers – and perhaps emergency services and insurers – to any risk of fire, flood, or service failure.
Meanwhile, your car is becoming a computer with wheels and an engine, connecting key fobs or keyless access, Bluetooth, wifi and mobile internet connections. A recent Department of Transport review of automated vehicle technology expressed confidence in the insurance market to deliver innovative products which would be sufficiently flexible to adapt to the challenges of new technology. It helpfully speculated liability could rest with manufacturers, operators, suppliers/importers, service or data providers and even drivers.
In healthcare, increasing talk of the ‘internet of living things’ focuses on delivering health data from wearable or implantable devices monitoring a range of metrics which may be processed through mobile device apps – known as mHealth – and transmitted to healthcare professionals. Today’s healthcare professionals expect delivery of health services to rely upon digital technology, while regulators attempt to match the pace of innovation.
The providers of mHealth technology have already seen the recall of apps that have been calibrated incorrectly and failed to correctly monitor medical conditions. Healthcare professionals may be exposed in the management and analysis of digital data received from patients. While patients may benefit from reduced healthcare premiums in exchange for supplying their personal data, inevitable concerns are raised as to cyber security.
Imagine a scenario where a policyholder supplies a software update to a consumer, either in relation to a mobile phone app or the updating of software in a smart domestic device. The CRA says digital content is subject to implied terms of satisfactory quality. If the software has been incorrectly calibrated or quickly degrades, leading to a glitch in domestic IT and loss of data or failure to communicate health metrics from a mHealth app, where may liability rest?
Considering potential coverage issues, does the policy definition include such digital content? Is any potential claim excluded? Such claims may raise many issues but may also present an opportunity for insurers to consider new types of insurance product to fill gaps in cover. Watch this space.
Written by Jim Sherwood, partner at BLM