Have you got the Internet of Things covered?

It’s no secret that technology is moving at a faster pace than ever before but are insurers able to keep pace with the emerging risks associated with the adoption of new technologies?

Households, vehicles and smart phones rely on new technology obtained from manufacturers abroad via lengthening supply chains and new legislation opens up potential liabilities for all involved. One must question whether traditional policies and exclusions are fit for purpose.

The Consumer Rights Act 2015 introduces protection for consumers in respect of the supply of digital content (as distinct from tangible goods). There is now scope (potentially) for civil claims in respect of damage caused by such digital content. Insurers, brokers and their customers may wish to scrutinise their product liability policies in order to determine whether or not they currently provide cover in respect of the supply of digital content and, indeed, whether or not they want to provide such cover.

Historically ‘goods’ have been defined by the courts as tangible, physical objects and so a product that is supplied in a purely digital format (e.g., downloaded) has previously not enjoyed the same level of protection  (e.g. under the Sale of Goods Act 1979 or the Consumer Protection Act 1987).

However, the Consumer Rights Act 2015, which came into force on 1 October this year, introduces protection for consumers in respect of the supply of digital content (as distinct from goods or services).  The definition of digital content encompasses a range of products (such as mobile phone apps) provided the content has been paid for or supplied with something that the consumer paid for.

Under the Act, it is a necessity for the supply of digital content to be of satisfactory quality, fit for a particular purpose and as described. This mirrors the protection previously only afforded to tangible, physical products.

If the digital content is not of satisfactory quality then the Act provides that the consumer has the right to repair or replacement or, failing that, a price reduction.  Interestingly, the Act also allows the consumer to pursue any other remedy for breach of contract including claiming damages.

Insurers, brokers and their customers may therefore want to consider what scope there is for digital content to cause damage (either property damage or personal injury) and whether this would be covered under the terms of their existing product liability policies – particularly in this new era of connectivity, when the benefits and risks of the ‘Internet of Things’ (the interconnection of multiple devices) is only just becoming apparent.

It is difficult to fully know and understand the risks at this stage; but, for example, the providers of mHealth technologies have already seen the recall of apps that have been calibrated incorrectly and have therefore failed to correctly monitor medical conditions.  One can imagine a scenario in which a person relies on incorrect health data (provided perhaps by a healthcare app on their smartphone) to their detriment.

Indeed, the Act itself envisages digital content causing damage to the device upon which it is installed or to other digital content and specifically provides for this.  The value of such damage could be quite significant if, for example, the damage is to a large scale server in a large corporation or in an industrial setting.

With regard to cover, there are almost as many definitions of the phrase ‘product supplied’ as there are policies, so it is difficult to say conclusively whether current product liability policies will cover the risk of digital content causing damage.  It is not uncommon for such policies to refer to ‘goods’ or ‘things’ and such policies might be deemed to exclude digital content; whereas wording that is not as restrictive might be deemed to include digital content.  There may of course also be specific exclusions relating to digital content.

Insurers, brokers and their customers may think it prudent to scrutinise their policies accordingly in order to consider whether or not they are already providing cover for digital content and, indeed, whether or not they want to provide such cover.


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Written by Daniel West, associate in the product liability team

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