Autonomous vehicles, drones offer new insurer risks and opportunitiesReprints
Drones and self-driving vehicles offer great opportunities for the insurance sector, but also new exposures that must be thoroughly vetted and addressed from an insurance and risk management perspective, according to legal experts.
Policymakers are actively considering the policy implications of autonomous transportation and drones, Joel Roberson, a Washington-based partner with Holland & Knight L.L.P. focusing on public policy and advocacy issues, said during a webinar on Thursday co-sponsored by London-based legal information provider Lexology.
The U.S. House of Representatives unanimously passed legislation in September that would define the roles of federal and state and local governments in regulating self-driving vehicles and a clearer pathway for the cars to get to market, while provisions on drones were included in legislation to reauthorize the Federal Aviation Administration. Meanwhile, 21 states have passed laws related to autonomous vehicles, and 43 states adopted laws covering drones, with dozens of more bills pending.
“This changes the liabilities that your companies are experiencing and the items that you should think through from a legal perspective,” he said. “Questions like ‘Who is the operator of the vehicle?’ are key questions that regulators are trying to get answers to. States used to regulate the driver and require driver education and require you to have a driver’s license. Now the question is, ‘Is that still an appropriate role for state and local governments?”
But the movement toward autonomous vehicles and drones raises a host of liability questions, including whether the potential liability can be limited through corporate and contractual structures, said Jeff Seul, Boston-based partner and chair of the firm's technology industry sector group. U.S. courts are “very respectful” of the corporate liability shield and are reluctant to pierce that shield, so companies operating in this space should consider establishing subsidiaries to house most of these particular exposures, he said.
“For example, when Amazon rolls out drones on a broad scale to deliver products it sells, it would be sensible — we expect it is or is planning — to operate that business as a separate entity,” he said. “This is true even as the Amazon parent is the sole ultimate owner of the subsidiary and the delivery service operates primarily for the benefit of Amazon customers.”
If other Amazon entities contribute to the design or manufacture of the drones, they could have product liability exposure, “but they otherwise should be free from liability for things like the drone subsidiary’s negligent operation of the drone (and) damages caused by delivery delays,” he said. “The same logic would apply for (General Motors Co.) or Audi (A.G.)’s autonomous vehicles subsidiary, if and when those are launched.”
Companies operating in the autonomous transportation space need to also think about the insurance coverages they will need to cover these exposures, said Julia Palmer, a Houston-based partner with Holland & Knight focusing on marine, energy and insurance issues. In addition to traditional auto insurance, which will still be necessary despite the evolution toward autonomous transportation, other potential coverages include cyber, products liability and public infrastructure policies, she said.
“I think it is a new world and lots of new possibilities out there, particularly for the insurance industry,” Ms. Palmer said. “Drones are a big opportunity for the insurance industry.”
But there are numerous potential exposures, including damage to the drone, payload and ground equipment, and damages related to negligent drone operation, she said. In addition, there are also invasion of privacy and interference with aircraft risks.
“Most (commercial general liability) policies exclude aviation exposure,” Ms. Palmer said. “Specialized coverage is needed, and you really should consult a broker.”
From a risk management perspective, companies should also implement a safety management system for drone operations, including appropriate training, maintenance and software updates, she said. “Your insurer may in fact require that you do so,” Ms. Palmer said.