By Carolyn Boyle - Editorial Services Director

Thanks to advances in autonomous technology, we stand poised on the cusp of a revolution that has the potential to transform transport in the 21st century as radically as Henry Ford’s Model T assembly line did in the early 20th century.  As legislators and regulators scramble to catch up, the landscape continues to evolve. In September 2017 the US House of Representatives unanimously passed legislation to define the role of state and local governments in regulating autonomous vehicles, creating a pathway to market via an exemption process while the federal government comes up with final rules on necessary safety features and operational requirements. Meanwhile, agencies such as the Department of Transportation continue to issue guidance and policies to support the development and deployment of this new technology.

 Questions likewise abound over the issue of liability and where it rests in an automated world, compounding this uncertainty and posing further risk management challenges. Autonomous vehicles are complex products which combine software and hardware from many different suppliers. Moreover, once in circulation, they will not always be owned or controlled by their end users. Many driverless cars may be used on a subscription or lease basis; some companies may own fleets of automated vehicles and function as a dispatch agency for them, while others may function exclusively as transport network providers, aggregating vehicles owned by individuals or businesses into an on-demand service.

Against this backdrop, it is small wonder that some players have adopted a wait-and-see approach, preferring to wait until the regulatory dust has settled and the uncertainties have begun to resolve themselves before exploring the opportunities presented by this new technology.

However, it is also true that automation has been an integral feature of modern production processes ever since that first Model T assembly line started rolling. Lessons learned in this context can thus serve as a roadmap in the transportation space, allowing industry players to plot a safe course through apparently uncharted terrain. While there has been little focus on this to date, it seems that the law that applies to corporate liability in other sectors should equally be serviceable in the automated transport domain. Thus, just as in manufacturing, transportation companies can seek to limit their potential liability through careful corporate and contractual structuring.

To learn more on managing risk in an automated future, watch Holland & Knight’s recent webinar.

In general, the US courts will respect the shield of corporate liability and will seek to pierce it only in very limited circumstances; essentially, any company that satisfies the basic incorporation and operation requirements should enjoy its protection. This is also true of subsidiaries, whose corporate integrity will again be respected as long as they themselves have respected the relevant corporate formalities. It thus makes sense to consider pursuing autonomous vehicle initiatives through separate legal entities. Take the example of Amazon: were the online titan to roll out the use of drones for last-mile delivery and set up a subsidiary for this specific purpose, that subsidiary alone would be liable for negligent operation, damages caused by delivery delays or similar. Other Amazon entities that contributed to the drones’ design, manufacture or control systems would be shielded from such liability (although they would still be vulnerable to product liability claims).

Adequate insurance for the subsidiary should further enhance its function as a corporate shield, supporting the impression that it has separate corporate integrity and is honouring its responsibilities to both customers and creditors.

Meanwhile, autonomous vehicle providers and users can also use contractual tools to limit or apportion litigation expenses, regulatory burdens and other types of obligation. For example, the operator of a fleet of autonomous vehicles could require the providers to make representations and warranties in relation to the vehicles’ quality, performance and maintenance – perhaps backed up by insurance or another form of contractual security. Of course, such contractual arrangements would need to be tailored to the specific products, use and commercial relationships at hand; but they nonetheless afford significant opportunities to create greater certainty by shifting and allocating liabilities.

To learn more on managing risk in an automated future, watch Holland & Knight’s recent webinar, available here.