Moving On From the Uninsured Motorist to the Insured Un-Motorist: Insuring the Driverless Car, and Other Innovations

The time may be approaching when no distracted, intoxicated or fatigued driver ever causes an accident and automobile insurance as we know it becomes a thing of the past. If this seems like fantasy, only a few years ago, so did the reason: the “driverless” car—an idea that has fascinated the public for decades is quickly becoming a reality.

There has been a fair amount of discussion and commentary on insurance issues related to this new technology. An article last year in the Wall Street Journal posed the question, “How Do You Insure a Driverless Car?” The answer, it concluded, was not to be found any time soon, noting that insurance companies were unprepared for driverless, or autonomous, cars and were presently unable to evaluate or price the risk. But with the “Internet of Things” setting the pace for current technology trends, some commentators predict that autonomous cars will be common as soon as the year 2020, so it is not too early to think about the risk of driverless cars and the inevitable questions of insurance coverage related to this new risk and others like it.

From an insurance standpoint, the two most basic questions regarding the driverless car appear to be, first, who is the insured “driver” and second, does the “driver” have responsibility for accidents that occur when the car is driving autonomously. Some commentators suggest the insured would be the person responsible for operating the car or putting the car in motion, regardless of whether the person is in the car or is operating the car remotely. Drivers—even those who do not control the car—would remain responsible for accidents. Other commentators, however, suggest that the car itself—or more appropriately, the manufacturer of the car or the developer of the software operating the car—would carry responsibility for accidents, thereby turning fender benders into products liability lawsuits.

The buzz about insuring the future driverless car stands in contrast to other innovations already widely in use that appear to have caught the insurance industry off guard. As new business models develop—such as car sharing and valet parking, home rentals and exchanges, personal transportation, referral services and consumer ratings—and businesses move exclusively to the electronic storage of information, the insurance industry seems to lag behind. The New York Times, for example, has reported on individuals unable to obtain insurance for occasional Airbnb rentals. Insurers may argue that this type of activity falls within the business activity exclusion to the typical homeowner’s insurance coverage. To fill this gap, Airbnb—which has been operating for nearly seven years—is for the first time offering Host Protection Insurance for all rentals in the United States. When a critical mass demands action, the insurance industry eventually reacts by drafting a new policy specifically designed to address the new risk, for an additional premium, of course.

Before such specialized products are introduced, insurers want policyholders to bear the new risk even if their existing policies—at the point of sale—are marketed as broad coverages drafted to cover unknown risks. Insurers’ knee-jerk reaction is to argue that coverage for such new risks was not intended by the policies placed before a new risk was fully appreciated. This happened with pollution claims, despite very broad wordings that allowed such claims before insurers began selling in earnest pollution-specific policies. Most recently it is happening again with claims arising from cyber attacks. Insurers contend that there is no coverage under commercial general liability policies for claims arising from data breaches, even though many policies contain broad personal injury coverages for disclosure of private information. At the same time, insurers are now introducing new cyber-specific coverage.

Courts are correct to disregard an insurer’s after-the-fact policy intent argument. The goal of insurance policy interpretation is to give effect to the parties’ mutual intent at the time of contracting. That mutual intent is to be determined, in the first instance, from the language of the policy. Thus, courts should hold insurers to the language of their policies—language they drafted—when that language clearly and unambiguously provides coverage for a claim. It should not matter from a coverage standpoint that the insurance industry did not predict or understand the risks that may arise from new technologies or ways of doing business when issuing the policy.

And the driverless car? We are, of course, years, if not decades, away from highways populated only by fully self-driving vehicles, their passengers occupied in other activities—enough time for the insurance industry to consider the risk and adapt its coverage.