ICLG The International Comparative Legal Guide to: Product Liability 2018 16th Edition

A practical cross-border insight into product liability work

Published by Global Legal Group, in association with CDR, with contributions from:

Addleshaw Goddard LLP Gianni, Origoni, Grippo, Cappelli & Partners Advokatfirmaet Ræder AS Hamdan AlShamsi Lawyers & Legal Consultants Allen & Gledhill LLP Freehills LLP Arnold & Porter Iwata Godo Law Offices Bahas, Gramatidis & Partners Kennedys Law LLP Blake, Cassels & Graydon LLP Lee and Li, Attorneys-at-Law Blenheim Matheson Boga & Associates Pinheiro Neto Advogados Clayton Utz Seth Associates Crown Office Chambers Sidley Austin LLP Drinker Biddle & Reath LLP (International) LLP TURUNÇ Faus & Moliner Abogados Wilson Elser The International Comparative Legal Guide to: Product Liability 2018

General Chapters:

1 Recent Developments in European Product Liability – Adela Williams & Tom Fox, Arnold & Porter 1

2 Update on U.S. Product Liability Law – Daniel A. Spira & Michelle A. Ramirez, Sidley Austin LLP 9

Contributing Editors 3 An Overview of Product Liability and Product Recall Insurance in the UK – Tony Dempster & Adela Williams & Tom Fox, Howard Watson, LLP 21 Arnold & Porter 4 The Practicalities of Managing a Global Recall – Richard Matthews & Fabian Volz, Sales Director Eversheds Sutherland (International) LLP 27 Florjan Osmani Account Director 5 Claims Bought by Funded Litigants – A Practical Guide – Louisa Caswell & Mark Chesher, Oliver Smith LLP 37 Sales Support Manager 6 – David Goh & Bindu Janardhanan, Squire Patton Boggs 42 Toni Hayward Product Liability in Asia Senior Editors 7 The Liability and Insurance Ramifications of the Increased Usage of Autonomous Motor Vehicles – Suzie Levy Francis P. Manchisi & Ernest V. Goodwin, Wilson Elser 45 Caroline Collingwood CEO Country Question and Answer Chapters: Dror Levy 8 Albania Boga & Associates: Genc Boga & Renata Leka 50 Group Consulting Editor Alan Falach 9 Clayton Utz: Colin Loveday & Andrew Morrison 56 Publisher Rory Smith 10 Pinheiro Neto Advogados: Sérgio Pinheiro Marçal & Laura Beatriz de Souza Morganti 66 Published by Global Legal Group Ltd. 11 Canada Blake, Cassels & Graydon LLP: Nicole Henderson 73 59 Tanner Street SE1 3PL, UK 12 China Squire Patton Boggs: Kelly Liu & Julien Wang 80 Tel: +44 20 7367 0720 Fax: +44 20 7407 5255 13 England & Wales Crown Office Chambers: Michael Spencer QC Email: [email protected] Arnold & Porter: Adela Williams 87 URL: www.glgroup.co.uk GLG Cover Design 14 Squire Patton Boggs: Carole Sportes & Valérie Ravit 100 F&F Studio Design 15 Germany Kennedys Law LLP: Mirjam Schorr & Benjamin Loechner 108 GLG Cover Image Source iStockphoto 16 Greece Bahas, Gramatidis & Partners: Dimitris Emvalomenos 115 Printed by 17 Squire Patton Boggs: David Goh & Bindu Janardhanan 122 Stephens & George Print Group 18 Seth Associates: Karnika Seth & Amit Seth 129 June 2018 19 Matheson: Tom Hayes & Michael Byrne 136 Copyright © 2018 Global Legal Group Ltd. 20 Italy Gianni, Origoni, Grippo, Cappelli & Partners: Daniele Vecchi & All rights reserved Michela Turra 147 No photocopying ISBN 978-1-912509-14-0 21 Japan Iwata Godo Law Offices: Shinya Tago & Landry Guesdon 156 ISSN 1740-1887 22 Kosovo Boga & Associates: Genc Boga & Sokol Elmazaj 166 Strategic Partners 23 Netherlands Blenheim: Frans de Voldere & Jan de Groot 172

24 Norway Advokatfirmaet Ræder AS: Ole André Oftebro & Kyrre W. Kielland 179

25 Allen & Gledhill LLP: Dr. Stanley Lai, SC & Amanda Soon 186

26 Faus & Moliner Abogados: Xavier Moliner 197

27 Taiwan Lee and Li, Attorneys-at-Law: Patrick Marros Chu & David Tien 206 PEFC Certified

This product is 28 Turkey TURUNÇ: Noyan Turunç & Esin Çamlıbel 214 from sustainably managed forests and controlled sources 29 Hamdan AlShamsi Lawyers & Legal Consultants: Hamdan AlShamsi & PEFC/16-33-254 www.pefc.org Omar Kamel 220

30 USA Drinker Biddle & Reath LLP: David B. Sudzus & Daniel B. Carroll 226

Further copies of this book and others in the series can be ordered from the publisher. Please call +44 20 7367 0720

Disclaimer This publication is for general information purposes only. It does not purport to provide comprehensive full legal or other advice. Global Legal Group Ltd. and the contributors accept no responsibility for losses that may arise from reliance upon information contained in this publication. This publication is intended to give an indication of legal issues upon which you may need advice. Full legal advice should be taken from a qualified professional when dealing with specific situations.

WWW.ICLG.COM EDITORIAL

Welcome to the sixteenth edition of The International Comparative Legal Guide to: Product Liability. This guide provides corporate counsel and international practitioners with a comprehensive worldwide legal analysis of the laws and regulations of product liability. It is divided into two main sections: Seven general chapters. These chapters are designed to provide readers with an overview of key issues affecting product liability law, particularly from the perspective of a multi-jurisdictional transaction. Country question and answer chapters. These provide a broad overview of common issues in product liability laws and regulations in 23 jurisdictions. All chapters are written by leading product liability lawyers and industry specialists and we are extremely grateful for their excellent contributions. Special thanks are reserved for the contributing editors Adela Williams and Tom Fox of Arnold & Porter for their invaluable assistance. Global Legal Group hopes that you find this guide practical and interesting. The International Comparative Legal Guide series is also available online at www.iclg.com.

Ian Dodds-Smith Partner Arnold & Porter [email protected]

PREFACE

I’m delighted to have been asked to introduce the sixteenth edition of The International Comparative Legal Guide to: Product Liability. The guide continues to be an ideal reference point with seven excellent general chapters covering significant developments in European, Asian and US law. This edition also has a special focus on product recalls, a practical guide around costs issues and considerations in the context of group actions in England & Wales and finally commentary on liability and insurance matters in the context of driverless cars. As always, the bulk of the edition remains the enormously helpful country question and answer section, covering 23 jurisdictions, new to the guide this year being Albania and Kosovo. I frequently have cause to make reference to the guide for matters concerning product liability all over the world and will continue to do so as the guide remains a thoroughly informative and comprehensive publication.

Tom Spencer Senior Counsel GlaxoSmithKline Dispute Resolution & Prevention Chapter 7

The Liability and Insurance Ramifications of the Increased Usage of Autonomous Motor Francis P. Manchisi Vehicles

Wilson Elser Ernest V. Goodwin

The autonomous motor vehicle industry is growing exponentially. have led to a lower fatality rate in accidents involving late-model Various automobile manufacturers, including Audi, Ford, cars. See Self-Driving Cars and Insurance, Insurance Information Volkswagen, GM, BMW, Toyota, Tesla, and Nissan, have Institute, July 2016 (http://www.iii.org/issue-update/self-driving- announced that they plan to sell fully autonomous motor vehicles cars-and-insurance). The likelihood of a driver dying in a crash by 2021. Other manufacturers will surely follow suit. While these of a late-model vehicle decreased by more than a third over three technological advancements will offer numerous benefits, including years, and nine car models had zero fatalities per million registered enhanced safety and mobility, they will also expose manufacturers, vehicles. distributors, and insurers to new and potentially greater product Autonomous driving will not only likely lead to significantly liability risks. It is likely that these advancements will reshape safer driving, but also provide greater mobility for people who are motor vehicle liability jurisprudence and the insurance industry. currently unable to drive, e.g., the handicapped and elderly. Many This article discusses how these technological advancements will people do not realise the extent to which automation has already affect the motor vehicle and insurance industries and the potential improved driver safety. One example is electronic stability control legal exposures they create. systems, which help drivers maintain control while driving on Motor vehicles have become safer since their invention in the early slippery surfaces. th 20 century. Many of these innovations led to increasing levels Autonomous motor vehicles will surely be opposed by of motor vehicle usage. Even with the incorporation of seat belts, groups, such as those supporting the fossil fuel industry, truck drivers, , mirrors, indicator lights, all-wheel drive, anti-lock brakes, taxi drivers, parking lot owners, car dealerships, and potentially the children’s car seats, Bluetooth, power steering, and other features insurance industry if it does not adapt to technological advancements. that now are taken for granted, there are still a large number of However, it is hoped that vastly increased safety, increased mobility motor vehicle accidents every year. The World Health Organization for those otherwise impaired, and the environmental benefits will estimates that there were approximately 1.25 million worldwide lead to an increase in the use of autonomous motor vehicles. Indeed, traffic fatalities in 2013. See Here’s When Having a Self-Driving forecasts predict that there will be 10 million automated vehicles on Car Will Be a Normal Thing, Gene Munster, Fortune (September public roadways by 2020. See 10 Million Self-Driving Cars Will be on 13, 2017) (http://fortune.com/2017/09/13/gm-cruise-self-driving- the Road by 2020, John Greenough, Business Insider (July 29, 2015) driverless-autonomous-cars/). In 2016, motor vehicle accidents (http://www.businessinsider.com/report-10-million-self-driving- were responsible for the deaths of 37,461 people in the United States, cars-will-be-on-the-road-by-2020-2015-5-6). Fortune estimates that an increase from 35,485 deaths in 2015. See NHTSA, Automated autonomous motor vehicles will be on roads in a “noticeable way” Vehicles for Safety – https://www.nhtsa.gov/technology-innovation/ by 2020 and that by 2040, 95% of new motor vehicles sold will be automated-vehicles-safety. Fatalities increased from 2015 to 2016 in fully autonomous. See Here’s When Having a Self-Driving Car Will almost all segments of the population – passenger vehicle occupants, Be A Normal Thing, Fortune (September 13, 2017) (http://fortune. occupants of large trucks, pedestrians, pedalcyclists, motorcyclists, com/2017/09/13/gm-cruise-self-driving-driverless-autonomous- alcohol-impaired driving, male/female, and daytime/nighttime. See cars/). USDOT Releases 2016 Fatal Traffic Crash Date, (October 6, 2017) (https://www.nhtsa.gov/press-releases/usdot-releases-2016-fatal- traffic-crash-data). There were increases in deaths in a variety of Accidents Involving Autonomous Motor scenarios involving “human choices,” e.g. occupants not wearing Vehicles seat belts, speeding, and alcohol-impaired drivers. This is not surprising because the overwhelming majority of motor vehicle While autonomous motor vehicles will lead to fewer accidents accidents are caused by human error, including drunken driving, and fatalities, it is not surprising that some media outlets have poor judgment, poor driving skills, poor reflexes, inattentiveness, sensationalised incidents involving autonomous motor vehicles. It is poor vision, and/or criminal negligence. See Self-Driving Cars also not surprising that some media outlets have blamed incorrectly and Insurance, Insurance Information Institute (July 2016) (http:// the autonomous motor vehicles. For example, this article (https:// www.iii.org/issue-update/self-driving-cars-and-insurance); see also www.popularmechanics.com/technology/infrastructure/a28984/ NHTSA, Automated Vehicles for Safety – (https://www.nhtsa.gov/ truck-hits-driverless-shuttle-on-first-day-at-work/) on the Popular technology-innovation/automated-vehicles-safety). Mechanics website (a company that will likely suffer as a result A study by the Insurance Institute for Highway Safety (“IIHS”) in an increase in the usage of autonomous motor vehicles), has a concluded that improvements in design and safety technology misleading headline of “Driverless Shuttle Has Accident on First

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Day of Work” with a sub-headline of “A rough start for self-driver”. autonomous vehicle during a test on public roads. Autonomous motor See Driverless Shuttle Has Accident on First Day of Work, David vehicles in New York even require that autonomous motor vehicles Grossman, Popular Mechanics, (November 9, 2017) (https://www. follow an approved route with a police escort. An autonomous motor popularmechanics.com/technology/infrastructure/a28984/truck- vehicle being tested in New York must also be accompanied by a hits-driverless-shuttle-on-first-day-at-work/). Only at the end of pilot vehicle driving directly ahead of it. the article is it noted that the human driver of the other vehicle in the accident was at fault for the accident. NHTSA – Automated Driving Systems – A Vision for Safety Autonomous motor vehicle manufacturers will have to overcome 2.0 – September 2017 the public relations issues related to incidents like these, even though they will likely occur with far less frequency than in vehicles driven In September 2017, the National Highway Traffic Safety by humans. Autonomous motor vehicles may have to convince Administration (“NHTSA”) released a new version of its guidance humans that “the perfect should not be the enemy of the good” and for autonomous motor vehicles in the United States. See Automated that while there may be a learning curve with autonomous motor Driving Systems – A Vision for Safety 2.0, U.S. Department of vehicles, they ultimately will be safer than motor vehicles driven Transporation and NHTSA (September 2017) (https://www.nhtsa. by humans. Supporters of autonomous motor vehicles will have gov/sites/nhtsa.dot.gov/files/documents/13069a-ads2.0_090617_ to convince the public, and thereby legislators, that autonomous v9a_tag.pdf). It is not vastly different from the previous motor vehicles are significantly safer, more cost efficient, and administration’s guidelines, but it is noticeably shorter than the environmentally beneficial than motor vehicles driven by humans, previous administration’s version and emphasises repeatedly that it and that these benefits outweigh what should be isolated incidents. 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”. Legislative Issues A Vision for Safety 2.0 calls for industry, state and local governments, safety and mobility , and the public to assist with the Federal and State Framework deployment of autonomous motor vehicles and technologies. The DOT notes that the new policy builds on the previous policy and A relatively sizable obstacle to the increased use of autonomous incorporates feedback received through public comments and vehicles is the United States’ unique legal and legislative framework. congressional hearings. The DOT states that the new policy “paves The U.S. system is comprised of 50 states, each with individual the way for the safe deployment of advanced driver assistance laws, and governed in certain circumstances by federal law. States’ technologies by providing voluntary guidance that encourages laws are often inconsistent with each other and/or contradictory. best practices and prioritises safety”. See U.S. DOT releases new The National Highway Traffic Safety Administration (“NHTSA”) Automated Driving Systems guidance, United States Department realised that it is problematic for international vehicle manufacturers of Transportation – NHTSA, (September 12, 2017) (https://www. to be governed by disparate regulations and published a set of nhtsa.gov/press-releases/us-dot-releases-new-automated-driving- guidelines in 2016, and a revised set in 2017, which will hopefully systems-guidance). bring more uniformity to the manufacture of autonomous vehicles. The new Voluntary Guidance’s key points are as follows: Traditionally, the federal government’s role in motor vehicle policy ■ focuses on SAE International levels of automation 3–5 – has been to dictate safety standards and deal with product recalls. automated driving systems – conditional, high, and full States have provided drivers with licences and regulated behaviour, automation; including enforcing speed limits. These roles may change in the ■ clarifies the guidance process and that entities do not need to future as autonomous motor vehicles become more prevalent. While wait to test or deploy their automated driving systems; the current administration is electing to take a passive role due to the ■ revises allegedly “unnecessary” design elements from the complex technological and geographic issues, it is likely that the federal safety self-assessment; government’s role will expand to provide a more comprehensive and ■ aligns federal guidance with the latest developments and uniform approach to autonomous motor vehicle policy. industry terminology; and Some state governments have enacted permissive regulations for ■ clarifies federal and state roles going forward. autonomous motor vehicles to encourage technology and motor A Vision for Safety 2.0 slightly altered the definitions for levels of vehicle companies to create testing programs within their states. autonomous driving. Those levels are as follows: Since 2012, at least 41 states and Washington, D.C. have considered Level 0 – No Automation – Zero autonomy; the driver performs all legislation related to autonomous motor vehicles. Twenty-two driving tasks. states – Alabama, Arkansas, California, Colorado, Connecticut, Florida, Georgia, Illinois, Indiana, Louisiana, Michigan, Nevada, Level 1 – Driver Assistance – Vehicle is controlled by the driver, but New York, North Carolina, North Dakota, Pennsylvania, South some driving assist features may be included in the vehicle design. Carolina, Tennessee, Texas, Utah, Vermont and Virginia – and Level 2 – Partial Automation – Vehicle has combined automated Washington, D.C. have enacted legislation related to autonomous functions, like acceleration and steering, but the driver must remain motor vehicles. See Autonomous Vehicles – Self-Driving Vehicles engaged with the driving task and monitor the environment at all Enacted Legislation, National Conference of State Legislatures times. (March 26, 2018) (http://www.ncsl.org/research/transportation/ Level 3 – Conditional Automation – Driver is a necessity, but is not autonomous-vehicles-self-driving-vehicles-enacted-legislation. required to monitor the environment. The driver must be ready to aspx). Moreover, governors in Arizona, Delaware, Hawaii, Idaho, take control of the vehicle at all times with notice. Maine, Massachusetts, Ohio, Washington, and Wisconsin have issued executive orders related to autonomous motor vehicles. These laws Level 4 – High Automation – The vehicle is capable of performing vary in scope from comparatively wide-open schemes in Arizona all driving functions under certain conditions. The driver has the to stricter laws in Nevada, a state that requires two operators in an option to control the vehicle.

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Level 5 – Full Automation – The vehicle is capable of performing shift from the operator of the motor vehicle to the manufacturer of the all driving functions under all conditions. The driver may have the motor vehicle and/or the manufacturer of the technological component option to control the vehicle. that failed, thereby causing the accident. Several manufacturers, e.g. A Vision for Safety 2.0 recommends that the Federal and State Volvo, Mercedes, and Google, have announced that that they will regulatory responsibilities are as follows: assume liability for autonomous motor vehicle accidents. NHTSA’s Responsibilities Motor vehicle manufacturers have long been subject to product liability lawsuits. However, the number and types of product ■ setting Federal Motor Vehicle Safety Standards (“FMVSS”) for new motor vehicles and motor vehicle equipment (with liability lawsuits will likely increase because of autonomous which manufacturers must certify compliance before they vehicles. Autonomous vehicle manufacturers, and manufacturers sell their vehicles); in general, will likely face product liability claims based on various ■ enforcing compliance with FMVSS; theories of liability, including inter alia, strict liability, negligence, and breach of warranty. Manufacturers of autonomous vehicles will ■ investigating and managing the recall and remedy of not be the only entities to encounter increased exposure to product noncompliance and safety-related motor vehicle defects nationwide; and liability lawsuits. Manufacturers of the various component parts, e.g. software and hardware manufacturers, will also be exposed to ■ communicating with and educating the public about motor vehicle safety issues. greater product liability risk. Assessing liability with autonomous motor vehicles will be complicated by the possible combinations States’ Responsibilities of driving modes, ranging from no autonomy to full autonomy. ■ licensing human drivers and registering motor vehicles in Potential factors include the comparative negligence of a human their jurisdictions; operator’s actions, the functionality of software and sensors ■ enacting and enforcing traffic laws and regulations; manufactured by potentially dozens of legally separate entities, the ■ conducting safety inspections, where states choose to do so; designs of the autonomous driving systems, and the training and/ and or warnings associated with operating an autonomous vehicle, ■ regulating motor vehicle insurance and liability. including vehicle and system maintenance, among others. Assigning liability will be more complicated when motor vehicles Congressional Legislation Regarding Autonomous Motor are operating in Levels 1 through 3, when the operator is more likely Vehicles to be operating the vehicle. That calculation will likely resemble traditional motor vehicle liability calculations. When motor vehicles While the United States House of Representatives passed a bill are operating in Levels 4 and 5, when a computer is likely operating regarding autonomous motor vehicles, the bill has stalled in the the vehicle, the liability calculation will more closely resemble a United States Senate after several Senators cited safety concerns. It traditional product liability analysis because it will involve the failure is noteworthy that those safety concerns do not just relate explicitly of an automated product. However, even at Levels 4 and 5, there will to accidents, but also to cyber safety and consumer privacy issues still be the possibility for human negligence if the owner/operator has associated with autonomous motor vehicles. There is an inherent not properly updated the motor vehicle, or if the owner/operator has conflict between the positions of some Senators and Derek Kan, modified the autonomous motor vehicle operating system. the Undersecretary of Transportation for Policy, who has explicitly These liability calculations and apportionments will involve stated that the DOT is not going to select what technology will be determining which of the many component part manufacturers, if used in autonomous motor vehicles. any, played a role in an incident. As software algorithms become However, no federal laws have been enacted. The DOT recently more vital to the success and failure of autonomous vehicles, motor convened a “listening summit” on autonomous motor vehicles vehicle manufacturers will necessarily have to be more focused at which companies from the private sector, federal regulators, on the integration of software and hardware. In product liability and state regulators discussed issues regarding autonomous motor practice, it is well-established that liability can be apportioned up vehicles and related policies. See U.S. DOT Public Listening and/or down the supply chain to the cause of a particular failure. Summit on Automated Vehicle Policy (March 1, 2018) (https:// These risks are often addressed between component parts suppliers www.transportation.gov/AV/avsummit). The main takeaway from and manufacturers under the terms of supply agreements where a the listening summit was that regulators will not impose many contractual duty to defend and indemnify against damages caused by a rules, if any, and will let technology progress. The DOT noted that malfunctioning device is delineated. However, that same automation compliance with its guidance would be voluntary and that if anything and interconnectivity could also allow a clearer picture to develop via was perceived as a mandate and/or a requirement, it would impede the vehicles’ internal software, so it should theoretically be easier to innovation. Elaine Chao, the Secretary of Transportation, stated that discover what contributed to the accident than in an accident wherein the Department is not in the business of “picking winners and losers”. 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, Product Liability Considerations on manufacturers. A manufacturer’s duties to warn at the time of sale are well established. However, if a manufacturer discovers High-profile incidents of autonomous motor vehicle accidents, and new risks after a sale, the legal framework for a manufacturer’s the public’s natural resistance to change, will likely affect product responsibilities is not nearly as well established. The Restatement liability considerations and legislative issues. (Third) of Torts, published in 1998, included a post-sale failure to In a technologically advanced setting, apportioning liability will warn duty. However, only some states have adopted that stricter not be as straightforward as it used to be. There will certainly be standard. Due to the increased connectivity, manufacturers will novel and challenging legal issues. The exposure will likely evolve likely be held to a higher standard regarding notice of certain over time as autonomous motor vehicles are adopted by the public. failures and notifying consumers/users of those failures. Once Generally, it is likely that as control of vehicles shifts from manual manufacturers become aware of potentially risky software programs operator-controlled to autonomous computer-controlled, liability will and/or product defect issues, they will need to act quickly to provide

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upgrades and/or recall the defective products. Product recalls are that in 2040, the total will drop to approximately $100 billion in relatively common for certain types of products and are usually total automobile insurance loss costs, including a 60% decrease in handled by various regulatory agencies. Due to the increased personal automobile losses. KPMG notes that lower losses lead connectivity, and access to information regarding product and to lower premiums and the insurance industry will be impacted consumer information, manufacturers and retailers will have fewer substantially by the increase in autonomous motor vehicles if it does defences for not recalling almost all products. not adapt. The potential for hacking an autonomous motor vehicle’s operating Insurers may feel that they have ample time to prepare for these system to gain information and/or cause injury will present changes because the Insurance Institute for Highway Safety manufacturers with significant data security exposures. While those estimates that mass-market adoption (95% of registered vehicles) threats exist today, the growing interconnectivity with other vehicles of vehicle safety features takes 30 years. See Estimated Time of and the internet will only amplify those risks. Users’ personal data Arrival – New safety features take 3 decades to spread through could be accessed and stolen. If these issues are prevalent with a certain entire fleet, Insurance Institute for Highway Safety Highway Loss product, manufacturers, including those of the component parts and/or Data Institute, (January 24, 2012) (http://www.iihs.org/iihs/sr/ security systems contained therein, would likely be subject to product statusreport/article/47/1/1). However, insurers do not typically liability lawsuits and/or class action litigation. The investigations wait until new safety features are adopted fully to adjust insurance attendant to litigation will also require the use of novel and educated premiums. Front airbags were invented in 1984 – and made experts in those fields. Since this will be a new area of litigation, mandatory on all new passenger vehicles since 1998 – but only identifying the relevant experts will be a significant undertaking. achieved full adoption in 2016. Significant insurance premiums for It is likely that liability for accidents involving autonomous motor airbags were incorporated long before then. vehicles will be determined by courts on a case-by-case basis One potential way for insurers to adapt is to introduce hybrid and will evolve over time, similar to traditional product liability automobile insurance policies that contemplate all levels of jurisprudence. 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 Effect on Insurers to a product liability calculation when motor vehicles are operating autonomously. Almost all motor vehicle manufacturers have product liability Insurers will also want to require that motor vehicle manufacturers insurance. Accordingly, insurers will have to consider all of the insert hold harmless, defence, indemnification, and additional potential benefits and risks of automation when drafting policies insured language in all contracts with downstream vendors and sub- and/or agreements with any potential insureds. Insurers will also contractors. They should also require motor vehicle manufacturers need to hire claims representatives familiar with the technology to have clearly defined maintenance procedures to be followed by the incorporated in autonomous motor vehicles. operators. Insurers will also want to align the interest of operators The framework for insurance will also evolve, especially with the to ensure that operators have financial interests in avoiding losses. increased use of autonomous motor vehicles. The paradigm will Owners of autonomous motor vehicles will still want insurance likely shift from a user error focused evaluation to a product liability policies for their vehicles for incidents other than accidents, e.g. focus. As products become increasingly automated, the burden theft, vandalism, storm damage, flooding, mechanical/electrical might be on the manufacturer to prove it was not responsible for breakdown, etc. an incident. This will be a marked shift from the old paradigm in motor vehicle accident evaluations. There is a small possibility, if Insurers will also have to contemplate cyber liability insurance the integration of autonomous motor vehicles is not seamless, that implications. Manufacturers will need coverage for risks associated the liability issues could threaten the financial viability of motor with cyber-attacks, hacking, and breaches of data privacy. If motor vehicle manufacturers. However, it is likely that such a scenario vehicle insurers do not have a cyber-liability capability, they will would be prevented via regulation and/or legislative action. be avoided by manufacturers as motor vehicles only become more technologically advanced, thereby exposing manufacturers to In the short-to-medium-term, the cost of replacing components on further cyber liability risks. autonomous motor vehicles will be significantly more expensive than on regular motor vehicles. However, as market competition The biggest risk to motor vehicle insurers is if motor vehicle and efficiency increase, the cost of manufacturing autonomous manufacturers, through advances in their own technology and access motor vehicles, and the components therein, will decrease, leading to potentially proprietary loss data, become insurers themselves. eventually to significant declines in insurance premiums. In the Manufacturers will gather data on motor vehicle speed, distance long-term, an increase in the amount of autonomous motor vehicles between vehicles, brake pressure, weather conditions, distractions, paired with the increasing popularity of shared rides, could impact and other information gathered by proprietary software in the the types of insurance available and insurers’ financials. KPMG autonomous motor vehicles. The manufacturers will then be able to estimates that in 2013, personal automobile insurance accounted for aggregate that data from all of their autonomous motor vehicles to 87% of automobile loss insurance, while commercial auto insurance better understand and price the risk associated with their autonomous accounted for 13% of automobile loss insurance. KPMG estimates motor vehicles. Tesla has already started this, in conjunction with that by 2040, personal automobile insurance losses will fall to 58%, Liberty Mutual Insurance Company. See Insure My Tesla (https:// while commercial automobile insurance losses will rise to 28% www.tesla.com/support/insuremytesla%20). Tesla is not currently (due to an increase in ride-sharing) and product liability automobile underwriting or retaining the risk, but it is gathering the data, losses will comprise 14% of automobile insurance losses. See learning the claims process, and likely preparing for the likelihood Marketplace of Change Automobile Insurance in the Era of of maintaining a fully-captive insurance division. The insurance Autonomous Vehicles, KPMG, (May 2, 2016) (https://home.kpmg. industry will have to adapt and provide added value to motor vehicle com/content/dam/kpmg/pdf/2016/05/marketplace-change.pdf) . manufacturers to ensure that they are not severely impacted by Moreover, KPMG estimates that in 2013, there were approximately advances in technology. $145 billion in total automobile insurance loss costs. It estimates

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

Francis P. Manchisi Ernest V. Goodwin Wilson Elser Wilson Elser 150 East 42nd Street 150 East 42nd Street New York, NY 10017 New York, NY 10017 USA USA

Tel: +1 212 490 3000 Tel: +1 212 490 3000 Email: [email protected] Email: [email protected] URL: www.wilsonelser.com URL: www.wilsonelser.com

Francis Manchisi is a partner in Wilson Elser’s New York Metro offices. Ernest Goodwin is a partner in Wilson Elser’s New York Metro offices. He focuses his practice on the defence of domestic and foreign He focuses his practice on product liability, specifically the defence manufacturers and insurance carriers. Frank, who has practiced at of domestic and foreign manufacturers, distributors, and retailers in Wilson Elser throughout his career, helped build and now leads the the United States, Canada, and Europe. Ernie also provides clients firm’s highly regarded Product Liability, Prevention & Government with innovative and timely strategic counsel to help them make better- Compliance practice and is a member of the Executive Committee. informed decisions, resolve complex legal challenges, and achieve For more than 25 years, Frank has served as national product specific business goals. In addition, he also has experience inthe liability counsel to manufacturers of boats and boat components. defence of manufacturers, distributors, and retailers of industrial He also currently serves as national counsel to a U.S. manufacturer products and equipment, and defended corporations in construction, of swimming pool products and to a Japanese manufacturer of labor and employment, securities and commercial matters. Ernie also lathes and machining centres. In connection with these and other represents manufacturers in litigations and pre-suit investigations in engagements, Frank also frequently is retained by insurance carriers claims involving property damage arising out of fires and liquid leaks. based in Finland, Sweden, and Norway to represent their Ernie prides himself on being responsive to clients and colleagues, insured manufacturers in U.S. lawsuits involving products made in regardless of the day or time, and thinks outside the box and in terms Europe and sold in the United States. of the big picture when defending a claim or lawsuit.

Wilson Elser, a full-service and leading defense litigation (www.wilsonelser.com), serves its clients with nearly 800 attorneys in 31 offices in the United States and one in London. Founded in 1978, it ranks among the top 200 law firms identified by The American Lawyer and is included in the top 50 of The National Law Journal’s survey of the nation’s largest law firms. Wilson Elser serves a growing, loyal base of clients with innovative thinking and an in-depth understanding of their respective businesses. The firm is also a founding member of Legalign Global™, a premier international network of separate and independent insurance-related law firms formed to meet the legal needs of the growing multinational insurance market. Member firms include BLD Bach Langheid Dallmayr, DAC Beachcroft and Wotton + Kearney.

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