As risks associated with the Internet of Things become increasingly apparent, it is inevitable that legislators will need to grapple with how legal responsibility for these risks should be managed. This will give rise to complex issues, and difficult policy choices will need to be made to provide adequate protection for users, without creating the prospect of huge potential liabilities that may deter ongoing innovation and development of disruptive IoT technologies.

The advent of the IoT will also present novel challenges and opportunities for the insurance industry, which has traditionally played a very significant role in efficiently managing risk. In particular, IoT technologies have tremendous potential to enable insurers to better assess existing risks, and may also prompt the development of new types of insurance products.

Who is liable when IoT technologies fail to function as promised?

Legal theories of liability are usually based on allocating responsibility for loss or damage to a legal person who is responsible for the act or omission that has resulted in that loss or damage. But how do we apply these theories where an automated device is responsible for the relevant act or omission?

Perhaps one of the most high-profile debates surrounding liability for IoT devices arises in the context of automated or “driverless” vehicles. In theory, an increasing level of vehicle automation should reduce the accident rate on the roads by eliminating human fallibility. However, it is extremely unlikely that accidents will be eliminated altogether. So who should be responsible when an automated vehicle causes an accident that injures another road user or causes damage to third party property?

There are a range of possibilities for who may have contributed to an accident between two automated vehicles and may therefore potentially share in the fault:

A further complication may be the level of automation in each vehicle. It is unlikely that the world will make a neat leap between drivers having full control over their vehicles and vehicles becoming fully automated. There will be an intermediate stage when some features of the vehicle are automated, but others will remain under the control of a human driver (who will also likely be capable of manually overriding the automated features). Indeed, a level of partial autonomy is already a relatively common feature of vehicles on our roads today, such as adaptive cruise control and assisted emergency braking.

No one would yet suggest that these features should negate the legal responsibility of the driver in case of an accident (although the driver may have their own claim against the manufacturer for a defect which contributed to the accident). However, the farther we travel along the automation spectrum, the harder it will be to argue that the human driver should bear sole responsibility for an accident. Risk will need to progressively shift to other entities who are able to influence the outcome on our roads. However, it remains to be seen whether manufacturers of automated driving systems will ever be ready to assume full responsibility, at least while they do not have full control over the driving environment. Insurers may play a role in covering this gap.

There is also a question over what role regulators and standards bodies should play. For example, should road traffic authorities be responsible for quality-testing vehicle automation systems before they are allowed on the road in order to confirm that they are able to follow local road rules properly? And, if so, what responsibility should they have if they approve a system that turns out to be defective?

These are challenging issues. However, they are not issues that we can ignore for much longer, as they are no longer in the realm of the hypothetical. As of June 2016, Google had 58 self-driving cars on public roads in the United States. In Florida, in May 2016, the driver of a Tesla Model S Car (which includes an Autopilot feature) was killed after colliding with a truck, sparking a significant media debate about safety and other issues associated with self-driving systems. In light of this, Australian regulators are currently investigating options for effectively managing liability issues in order to encourage the further development of the automated vehicle market in Australia.

Potential regulatory reform

In November 2016, the National Transport Commission released a policy paper on automated vehicles identifying existing legal and regulatory barriers and setting out recommendations for a regulatory reform program to enable a graduated transition towards a fully automated driving environment. The NTC’s recommendations, which have since been approved by the Transport Infrastructure Council, include:

  • as a first step, confirmation by the Transport Infrastructure Council of its current policy position that for partially and conditionally automated vehicles the human driver will be attributed with full legal responsibility for motor vehicle accidents;
  • in the short term, a focus on enabling an increased number of on-road trials of automated vehicles, supported by the development of national field testing guidelines and a review of existing state and territory exemption powers to accommodate those trials;
  • in the medium term, the implementation of a complete regulatory framework to support the large-scale roll-out of automated vehicles, which would encompass the implementation of a national safety assurance regime to clarify product standards and liability levels for manufacturers, and a range of legislative reforms (including a review of compulsory third party insurance schemes) to ensure appropriate cover for accidents involving automated vehicles; and
  • in the longer term, the development of a regime for government access to automated vehicle data, which (amongst other things) is expected to play a key role in ascertaining fault assignment and liability, and ongoing engagement with international bodies for the development of global standards for automated vehicles.

This type of proactive reform strategy will be key to ensuring that IoT technologies continue to flourish in Australia.

This is an edited extract of The Rise of the Machines: A Guide to the IoT. For a copy of the publication, please contact Michael Swinson.