The Government’s consultation about compulsory insurance arrangements associated with fully automated driving remains open until 9 September. It states that: “Our proposal is to extend compulsory motor insurance to cover product liability to give motorists cover when they have handed full control over to the vehicle (ie they are out-of-the-loop). And, that motorists (or their insurers) rely on courts to apply the existing rules of product liability – under the Consumer Protection Act, and negligence – under the common law, to determine who should be responsible.”
This blog looks at whether a ‘product liability’ insurance offering could meet the policy aims of ensuring (a) use of vehicles continues to be covered by insurance and (b) claims by injured road users continue to be adequately protected and handled quickly.
Take the case of an automated car malfunctioning and injuring both the occupant and a pedestrian. The car itself also sustains damage in the collision caused by the malfunction. As there is no human driver, it might well be over-extending ideas of the use (by an individual) of a vehicle and of negligence (by a natural or legal person) just to fit claims arising from this sort of incident within the present legal obligation to insure the “use [of] a motor vehicle on a road or other public place” under the Road Traffic Act 1988.
An attractive alternative might be to deal with the claims within ‘product liability insurance’ rather than motor insurance and that may be what the Government is suggesting when it talks in the consultation paper of “existing rules of product liability”. However, while this looks to be a good idea in theory, those “existing rules” in the product liability space could raise practical problems. For example:
- the injured party would have to pursue the manufacturer or importer
- the insurance is not compulsory
- there could be restrictions in the cover, such as limits of indemnity or other terms, which partially erode or completely defeat claims by the insured manufacturer and which could be relied upon against third party claims such as that of the injured pedestrian
- the Consumer Protection Act 1987 excludes damage to the product itself (here, the car) from the scope of product liability, so the damage to the ‘innocent’ occupant’s own car would not be covered, and
- the 1987 Act only allows claims within ten years of the product (the car) being brought to market
Overcoming these problems by changing the existing framework of product liability insurance to bring in automated driving looks like a very big change across a whole market and one which for the time being would touch extremely few risks and claims. Doing so might thus be regarded as disproportionate or, quoting Lord Hughes in a recent Supreme Court case: “It is simply too large a sledgehammer for the nut involved.”
If automated driving would so disrupt not only the current idea of “use” in motor insurance but also “existing rules” in the product liability market then what options remain for arranging insurance for this activity? Perhaps the answer might lie in some form of fronting-type arrangement?
The idea here would be that the motor insurer would continue to cover claims arising from conventional negligent driving. But a new element of compulsory insurance would be introduced so as legally to oblige the motor insurer also to deal – in the first instance – with harm caused by the car operating in fully autonomous mode.
This extension of the cover would be ‘fronting’ the claim, in the sense that the motor insurer would be picking up liabilities other than those due to the negligence of its policyholder. As the insurer would be ‘fronting’ for the manufacturer (as being responsible for the malfunction that gave rise to the claim), it would follow that the motor insurer would have to be given legal rights, quid pro quo, to recover contribution or indemnity from the manufacturer in those circumstances.
From a regulatory perspective, it seems that this new element of cover would have to be written as road traffic insurance in order to offer appropriate consumer protection. Doing this would mean that the problems posed by the non-compulsory nature of product liability insurance and by the possibility of relying on policy terms to defeat third party claims (as set out above) would simply be avoided. Nevertheless, it should be borne in mind that maximising consumer protection in this way would result in the motor insurer ‘fronting’ for the manufacturer in respect of unlimited liability for personal injuries.
This solution, if adopted, would see no change to road traffic claims continuing to be made against motor insurers and individual claimants would not have to pursue vehicle manufacturers. A novel element would be that the policyholder, if an injured occupant and hence wholly ‘innocent’ in the accident, would have to have exactly the same rights as any other road user to claim against the compulsory insurance; the twist being that it would be against the insurance that he or she had arranged him or herself.
Although there will be complexities and details that need at very least signposting in response to the Government’s consultation, we believe it could neatly avoid potentially serious disruption to motor and product liability insurance that would otherwise appear to flow from shoe-horning automated driving into either of those existing insurance models. It is therefore definitely worth further thought and development.
Alistair Kinley is BLM’s Director of Policy & Government Affairs.
Alistair is responsible for BLM’s engagement with government departments and regulators on policy and public affairs issues and consultations affecting the firm and its customers. He coordinated BLM’s market-facing activities in connection with the Insurance Act 2015 and the consultations which preceded its publication and introduction in Parliament.
He is a member of the Civil Justice Council (CJC), a regular speaker and experienced commentator on legal and procedural reforms and was a contributing editor to the Law Society’s Litigation Funding Handbook (September 2014).