Autonomous Vehicles - How Will Regulators Keep Up With The Technology?

by Farella Braun + Martel LLP
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On December 16, 2015, the California Department of Motor Vehicles (CA DMV) issued draft regulations for the deployment (not just testing) of autonomous vehicles. When adopted, they may be the first such regulations in the country. The National Highway Transportation Safety Administration (NHTSA) is moving ahead with testing of self-driving technologies in anticipation of setting safety standards. Meanwhile, Google and virtually every major car manufacturer has stepped on the innovation gas pedal to develop self-driving technologies. Will regulators be ready when the cars are? How will the regulation of autonomous vehicles impact the liability landscape and, in turn, how that liability will be insured?

NHTSA researches and regulates vehicle design and safety. It has been testing crash avoidance technologies as they have emerged, such as automatic braking and lane change warning systems. NHTSA is also aggressively testing and promoting vehicle-to-vehicle (V2V) technologies, because it believes that V2V communication is critical to enhancing safe driving, even before cars become fully automated. In August 2014, it issued a notice of proposed rule-making in anticipation of requiring V2V technology in new cars. Those rules will also address privacy and cyber security issues, and now Congress has proposed rules to address the security of car information and communication systems. NHTSA’s research priorities include perhaps the most critical issues created by incremental changes – driver-vehicle interaction. How well will drivers pay attention as incremental technologies take over some aspects of driving (such as advanced adaptive cruise control of the kind Tesla recently installed on its Model S)? Can drivers react quickly and calmly enough to take over in the event automated systems fail? The research appears driven by NHTSA’s conviction that autonomous cars will successfully reduce the number and severity of crashes, eliminate congested highways, and reduce fuel consumption and noxious emissions.

In its May 2013 Preliminary Statement on the subject, NHTSA confirmed its intention to establish autonomous car design and safety standards. At the same time, it agreed that individual states were better suited to regulate driver licensing, and the conditions for deployment of cars on state roads. In an April 2015 letter to the CA DMV Director, anticipating California’s draft regulations, NHTSA emphasized its work on safety standards, apparently hoping to preempt any effort by California to try to invade its jurisdiction. Certainly, few want to see 50 sets of rules governing technology that would kill the market for these cars before it could develop.

Four states – California, Nevada, Florida and Michigan – allow testing of autonomous cars under strict conditions. California’s new draft rules for deployment continue to take a one-step-at-a-time approach, and address five key areas: permit to deploy, conditions for operation, driver tests, information privacy and security, and adherence to traffic laws. (A summary can be found at the CA DMV website.)

California’s regulations describe a controlled transition period intended to fully work out the glitches in autonomous vehicle operation before allowing widespread use. Manufacturers wishing to deploy passenger cars in California will have to obtain a permit, good for three years, certify that the cars comply with safety and performance requirements, and show that an independent agency has confirmed that the cars can operate safely in autonomous mode. Each car must still have a steering wheel and a qualified driver. Autonomous motorcycles and commercial vehicles may not be deployed.

Notably, for now manufacturers may not sell an autonomous vehicle in California. They may be operated “on no more than a leased basis.” Manufacturers must also install “black boxes” on the cars to record operating data and provide monthly reports to the CA DMV.

Manufacturers will have to show that their vehicles comply with traffic laws. The regulations do not limit the geographical areas (e.g., paved highways, congested cities) or weather conditions (snow, fog, clear sunshine) in which the vehicles may operate. However, the manufacturer will have to certify the areas and conditions in which the vehicle can safely operate and show that it cannot operate autonomously outside those restrictions. Back-up or fail-safe systems must be in place if the technology fails.

Drivers must obtain a certificate confirming that they can operate the car in autonomous mode and be ready to take over on system failure. Drivers remain responsible for traffic violations.

Privacy and cyber security are high priorities for CA DMV, not just the NHTSA. California will require manufacturers to certify that the vehicle can respond safely to a cyber attack, and that information collected will be used only for stated purposes.           

The regulations do not assign liability to manufacturers for injuries involving autonomous vehicles, but assume manufactures will be liable. The rules thus require manufacturers to present proof of financial responsibility (insurance, surety bond or self-insurance in the amount of $5 million) to respond to a judgment for bodily injury or property damage resulting from an autonomous vehicle crash.

In the next article, we’ll explore how manufacturers plan to respond to their liability exposure from autonomous vehicles. Already, Google and other manufacturers have expressed disappointment at the conservative approach of the CA DMV. They believe that their cars are already capable of carrying passengers more safely than conventional cars and are worried that the regulations will slow innovation. As we shall see, at least some manufacturers are already moving ahead of CA DMV to reshape the financial responsibility landscape as well, openly conceding that they will likely bear most or all liability from autonomous vehicle crashes.

Insurers can sometimes be slow to change when faced with new risks. In emerging markets, many insurers often hang back, letting a few brave carriers “test the waters’ with new types of policies before those policies go mainstream. This may encourage manufacturers to “self-insure” the liability risks associated with self-driving cars. But insurers are going to see the market for conventional auto insurance decline as liability shifts from drivers to manufacturers. Whether they will work with manufacturers (and other component suppliers) to create a market for the new product liability exposures remains to be seen.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Farella Braun + Martel LLP | Attorney Advertising

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