THE RISE OF DRIVERLESS VEHICLES1

THE RISE OF DRIVERLESS VEHICLES1 WHO'S IN CONTROL? Henry Silvester

BRISBANE | SYDNEY | MELBOURNE | ADELAIDE | PERTH | HOBART

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ou may not know it, but out on the roads, already, are driverless vehicles. They have been there for a few years. They are being tested in public areas. Private owners are taking them out for a spin and driving them to work. Soon you will be surprised to hop on a bus with no driver. Soon you will not be surprised at all. A Finity Consulting report published by the NSW State Insurance Regulatory Authority (SIRA) has suggested that annual sales of automated vehicles will represent 75% of all lightduty vehicle sales by 2035.2 US studies have suggested 100% uptake or close to it by 2040.

This paper explores the evolution and future of driverless vehicles, the applicable laws and insurance, particularly: The internet of things and levels of automation Who’s driving this and why? What changes to the law are needed and when? Possible effects on insurers The road ahead

"Annual sales of automated vehicles will represent 75% of all light-duty vehicle sales by 2035..."

Thanks to Kayleen Manwaring, Lecturer UNSW School of Taxation & Business Law (incorporating Atax) for her assistance in her specialist field of technology law. Thanks also to Jacinta Daher of Suncorp for her contribution to an earlier version of this article.

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2 Finity Consulting Pty Ltd, The impact of autonomous vehicles on CTP insurance and it’s regulations (January 2016) State Insurance Regulatory Authority .

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LEVELS OF AUTOMATION Already we live with lots of automation: Robotics The internet of things connecting us remotely from iPhones to fridges Cruise control, ABS, auto-park, voice command For driverless vehicles, Australia has adopted the Society of Automotive Engineers International Standard J3016 which identifies six levels of automation: Level 0 – No automation Level 1 – Driver assistance Level 2 – Partial Autonomy: the human driver retains supervisory control over the automated driving system and the driving environment (i.e. self-parking vehicles, rear-view screens). Level 3 – Conditional Automation: if prompted by the system, the human must monitor the automated system and resume control. Level 4 – High Automation: the system does the driving except the capacity exists for the human to resume control. Level 5 – Full Automation: the system does the driving with no human control.

WHO’S DRIVING THIS AND WHY? Driverless vehicles would not have support if they were considered less safe than conventional vehicles. This could be the likely perception given the media’s constant attention to tragic deaths arising from driverless vehicle testing. There is no denying a fear factor in current public opinion and this is a major consideration for both business and government. However, fear fails in the face of these facts driving driverless vehicles: Car manufacturers and cool companies like Apple, Tesla and Google are investing billions of dollars in research, development and promotion. Forecasts by Intel (the computer chip company) that the automated vehicle market will be worth US$7 trillion by 2050.

"...approximately 90% of road accidents are caused by human error and in NSW, the three main causes of injury and death are speeding, fatigue and alcohol."

Governments save money on reduced costs e.g. roads (vehicles travel more efficiently, less congestion), hospitals (less injury) and courts (less offences). The Sydney Metro rail network, currently under construction, proposes to use driverless trains to shuttle an additional 100,000 commuters across the city every hour.3 Business wins with increased productivity and costs savings (e.g. people can work whilst travelling, driverless fleets such as Uber and short/long-haul transport). Road safety by removing human error: approximately 90% of road accidents are caused by human error and in NSW, the three main causes of injury and death are speeding, fatigue and alcohol. SIRA has estimated that fully automated vehicles will reduce the likelihood of injury by: ○○ ○○ ○○ ○○

vehicle driver and passenger injuries - 80% cyclists - 70% motorcyclists - 40% pedestrians - 45%4

Environment benefits with reduced traffic congestion providing reduced greenhouse gas emissions (particularly hybrid vehicles) as well as more livable cities. Disabled and the elderly will have increased transport options.

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THE LAW NEEDS TO CHANGE The law is lagging behind the pace of technological change. At least since the last decade, investment in driverless vehicles has been increasing exponentially and yet in Australia we are only just now inviting submissions for possible national legislation. Many aspects of the law are affected: Australian Design Rules e.g. safer vehicle structure changes

"...in Australia we are only just now inviting submissions for possible national legislation."

Road Rules e.g. definition of driver Common law e.g. whose negligence? State, territory and federal legislation e.g. testing, licensing, offences, compulsory third party (CTP) schemes, product liability, consumer laws, data and privacy protection. Of note: ○○ S outh Australia was the first jurisdiction to legislate to permit testing of driverless vehicles. ○○ Based on the National Transport Commission’s (NTC): ––

policy paper on necessary regulatory reform (November 2016)

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guidelines for trials of automated vehicles (May 2017)

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discussion paper on regulatory options “to assure automated vehicle safety” (June 2017),

transport ministers approved recommendations (in November 2017) to try by 2020, to have end-to-end regulation, and most likely will go with self-certification and safe design features until international standards apply. The precise legal framework will depend upon the NTC’s consideration of submissions to their latest request, due 9 July 2018. Submissions should broadly consider the following options for legislative change:

OPTION

01

CURRENT APPROACH (BASELINE) Existing legislation and regulatory instruments

OPTION

02 ADMINISTRATIVE SAFETY ASSURANCE SYSTEM Existing legislation and regulatory instruments Mandatory selfcertification

OPTION

03 LEGISLATIVE SAFETY ASSURANCE SYSTEM Mandatory selfcertification New legislation to allow safety assurance specific offences and compliance and enforcement options Regulatory agency responsible for administering automated vehicle safety

OPTION

04 LEGISLATIVE SAFETY ASSURANCE SYSTEM + PRIMARY SAFETY DUTY Mandatory selfcertification New legislation to allow safety assurance specific offences and compliance and enforcement options Regulatory agency responsible for administering automated vehicle safety Ongoing primary safety duty

3 Denise Cullen, ‘The Legal Impact of Driverless Vehicles’ (2017) 33 The Law Society of NSW Journal 40, 40. 4

Ibid.

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The “ongoing primary safety duty” referred to in option 4 is not yet adequately defined. Self certification seems to be the primary thrust, pending changes to laws internationally that may support a standard approach across jurisdictions. Self-certification, in essence, means the manufacturers of the driverless vehicles provide assurances as to safety. There have been some public statements which give varying levels of confidence as to who will be responsible for loss caused by driverless vehicle accidents. The US motor vehicle manufacturer, Tesla, stresses that self-driving technology is to assist drivers who should remain ready to take control at any time. This suggests driver fault remains a basis for liability. Tesla’s founder, Elon Musk, has also said Tesla will pay for loss arising from any design fault. That suggests existing product liability laws would apply. Volvo in 2015 said it will accept full liability. What happens if a manufacturer ceases to trade? The United Kingdom introduced the Vehicle Technology and Aviation Bill in early 2017 which established a registry of automated vehicles and deemed insurers, or owners of an uninsured vehicle, liable for damage or loss caused by automated vehicles.

"Tesla stresses that self-driving technology is to assist drivers who should remain ready to take control at any time. This suggests driver fault remains a basis for liability."

In Australia, governments across jurisdictions should ensure consistency in the regulatory framework, as any uncertainty will likely stifle innovation and act as a disincentive to the introduction of automated vehicles in Australia.

Above: The Flinders Express (or 'FLEX'), a driverless public electric shuttle in South Australia. Source: Flinders University.

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THE LIKELY EFFECTS ON INSURERS The current approach to the insurance of motor vehicles will need to be completely revised. The adopted approach must address the issues of fault and reduced risk as we progress from conventional vehicles to each of the different levels of driverless vehicles, including a mixture of all these. Specific consideration will need to be given to:

"Insurers need to contribute to the government debate about regulation of automated vehicles..."

TRANSITION STAGE Technological developments that are making and will make vehicles safer, and premiums which can adjust to reflect any decreased risk. I nsurers needing to contribute to the government debate about regulation of automated vehicles – a balance between managing risk and encouraging innovation.

IMPLEMENTATION STAGE The different risks between automation levels 3, 4 and 5 (see page 3), and interaction with existing level 2 vehicles. Cyber insurance, specifically hacking of automated vehicles. In 2015, cyber-security researchers Miller and Valaesk hacked a Jeep Cherokee’s infotainment system and were able to manipulate the air conditioning, radio, digital display and windscreen wipers while the car was travelling at approximately 112kph. Of greater concern, they were also able to cut the vehicle's transmission causing it to rapidly lose momentum. Use of data from automated vehicles subject to privacy issues. Review of income protection policies for affected workforce whose employment will be affected. Insurance tailored for software designers, hardware and traditional vehicle manufacturers, online cartographers, highway authorities, and the consumer.

REDUCED PREMIUM INCOME FOR SOME HIGH VOLUME RETAIL LINES A new business model will need to be developed that manages the transition phase to the almost full uptake of driverless vehicles, expected around 2040 – 2050. That seems a long way off, but not when you consider what you were doing in 1996! Remember back then it had only been a few years before that the emergence of the internet. If it is assumed that collisions currently caused by human error are eliminated, then there will be a 90% or so reduction in collisions. Risk will be significantly reduced, as will the appetite for consumers to pay the current levels of premiums for CTP and property damage insurance, to name the previous high volume examples. Such policies may not even be in demand at all, although in the transition phase there no doubt will be demand. But then there is the other problem – fault.

"Risk will be significantly reduced, as will the appetite for consumers to pay the current levels of premiums for CTP and property damage insurance..."

REDUCTION IN FRAUD With the technology available, particularly as driverless vehicles become more sophisticated, the quality and quantity of data can assist in assessing the cause of a particular accident. Event Data Recorders (EDRs) already help with this. Until the information can be cloudbased and encrypted, the physical or hacked removal (or alteration) of data remains open to those seeking gain through fraud. The next question is who owns the data, the application of privacy laws, in what circumstances, and who can be authorised to access the data.

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DIFFICULTY IN DETERMINING FAULT Is the driver at fault? Who is the driver of a driverless vehicle? Perhaps we do not need to know, all we need is the manufacturer so reinsurance will be relevant. But then if it is a design error that caused the loss, whose error caused the loss? Was it a cartographic error that made the vehicle drive off a new freeway that was not there when the program was uploaded and someone did not install those time-intensive updates? For automated vehicles, the possible causes of an accident and current responses to managing the risk of loss include: 1. The human occupant was at fault (e.g. they did not resume control of the vehicle when prompted). This could involve a claim against the insurer of the at-fault party for personal injury and/or property damage using applicable CTP legislation and common law negligence. 2. The vehicle was improperly maintained (e.g. did not install a system update when prompted). Claims in negligence could be made against the owner of the automated vehicle or coverage may extend as it currently does under, for example, the CTP policy, if this was characterised as negligent maintenance - similar to not replacing worn tyres.

"...if it is a design error that caused the loss, whose error caused the loss?"

3. The vehicle did not perform as it was designed or expected to, leading to claims in negligence or defective products against the manufacturer/supplier of the automated vehicle under the Australian Consumer Law (ACL) or a combination. 4. The vehicle's software was faulty so that the vehicle’s manufacturer may possibly claim against designers of the software supporting the automated system under the ACL. 5. A road authority may be liable, e.g. if road design created the risk, although this currently is a restricted line of recovery in many jurisdictions due to legislation.

Above: National Transportation Safety Board (US) investigators examining a self-driving Uber vehicle that was involved in a fatal accident. Source: NY Times.

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THE ROAD AHEAD Australia can look overseas for guidance, but the following are some possible suggestions as to how we may lead the debate:

1. GOVERNMENT FUND AND MANUFACTURER INSURANCE Owners of vehicles pay a levy on registration of vehicles. This funds a no fault statutory scheme for all losses arising from accidents. The government can seek contribution from manufacturers and suppliers based upon breaches of self-certification of safety, or using existing product liability and consumer laws modified to deem the government as the consumer. In this context, only manufacturers and suppliers will need insurance.

2. THE NEW LEGAL ENTITY5 ENABLING INNOVATION WHILE STILL PROTECTING RISK Legal entities can be defined as people, companies and… the automated vehicle itself. This approach allows the vehicle to be deemed at fault, bypassing manufacturers, and all other entities that potentially may have valid defences to liability through existing product liability, contract and negligence law. One exception proposed is if there is an unforeseeable external event, e.g. the driver deliberately bypasses the self-drive function. Compensation for personal injury and property damage is to be paid from a community fund contributed to by some or all of government, manufacturers and consumers. Insurers compete in the wholesale re-insurance market, rather than at the retail level.

AND FINALLY... There is a lot to be done by governments and the private sector before people can be reassured as to the benefits of driverless vehicles, particularly when the media emphasises almost every driverless vehicle fatal accident. From an insurance perspective, a whole new business model needs to be considered if the driverless vehicle lives up to the promise of removing over 90% of collisions. The law needs to catch up to the rapid pace of technological change. In finding our way, we must not lose sight of the simple yet complex feature which underpins the driverless vehicle – computer code. This enables the myriad of sources of information - from lasers to cameras, from radar to satellites - to be processed to make life and death decisions for us. How will the vehicle respond? Will there be an ethical consideration? The question I am asked most when discussing driverless vehicles is along the lines of, “If the vehicle has to choose between killing two children crossing the road and killing the passenger, what does it do?”. An engineer told me this wouldn’t happen as the scenario would be avoided before it got to this. If ever you have had a computer freeze up on you, and who hasn’t, then the confidence of this response is less reassuring. Two things are clear: driverless vehicles are here to stay, and we need to better understand both their risks and benefits.

5 Lynden Griggs, “A radical solution for solving the liability conundrum of autonomous vehicles” (2017) 25 Competition & Consumer Law Journal p.151.

"From an insurance perspective, a whole new business model needs to be considered if the driverless vehicle lives up to the promise of removing 90% of collisions"

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ABOUT THE AUTHOR HENRY SILVESTER PRINCIPAL

[email protected] +61 2 8651 0222

Henry Silvester is a Principal in Barry.Nilsson.’s Insurance & Health team. He specialises in matters surrounding compulsory third party insurance and is experienced at handling fraudulent and catastrophic injury claims, especially in cases where the medical evidence is complicated. With more than 20 years experience in the insurance industry, including 12 years at the bar, Henry is an adept advocate and very experienced in alternative dispute resolution. He regularly advises on policy issues - including the application of exclusion clauses – as well as regulatory and reform issues. Henry was listed as a leading compulsory third party lawyer in Doyle’s Guide 2016. He co-authors BN’s CTPFiles publication and recently authored the chapter on expert opinion in the engineering text, Handbook of Human Motion. Together with his engineering and academic colleagues, Henry is exploring the legal impact of driverless vehicles.

BRISBANE | SYDNEY | MELBOURNE | ADELAIDE | PERTH | HOBART

bnlaw.com.au