With the potential addition of autonomous cars and trucks to commercial fleets, commercial insureds should reassess coverage under their commercial auto, products liability, and cyber insurance policies. Automation, particularly the move toward fully autonomous vehicles, raises new coverage questions with new risk exposures for insureds and new opportunities for insurers.

This post is the first in a series examining potential coverage issues under different lines of coverage. We begin here with commercial auto insurance policies. Future posts will examine products liability and cyber insurance policies.

ISO Commercial Auto Form

Many commercial insureds’ auto policies incorporate the Business Auto Coverage Form (CA 00 01 10 13) (“Commercial Auto Form”) promulgated by the Insurance Services Office, Inc. (ISO).  The Commercial Auto Form provides coverage for “bodily injury” and “property damage” caused by an “accident” and “resulting from the ownership, maintenance or use of a covered ‘auto.’”  Although numerous cases have interpreted the scope of this coverage in cases involving vehicles other than cars and trucks, such as in accidents involving mopeds, 4x4s, riding lawnmowers, and other vehicles, courts have not yet determined whether this coverage extends to accidents involving autonomous vehicles.

Autonomous Vehicle Classifications

In a sense, today’s cars and trucks all offer some autonomous features. Some features, such as cruise control or self-parking, can operate independently once engaged by a driver. Only highly automated and fully automated vehicles can operate without driver control, however.

In its current operating guidance for autonomous vehicles — Automated Driving Systems 2.0:  A VISION FOR SAFETY, released in September 2017 (Voluntary Guidance) — the U.S. Department of Transportation’s National Highway Traffic Safety Administration (NHTSA) categorized autonomous vehicles using the International Society of Automotive Engineers’ (SAE) classification of autonomous vehicles levels between Level 0 and Level 5:

SAE Automation Levels
Source: NHTSA, Automated Driving Systems 2.0: A Vision for Safety.

NHTSA’s Voluntary Guidance describe vehicles that incorporate SAE automation Levels 3 through 5 as “Automated Driving Systems” (ADSs). Level 3 Conditional Automation ADSs require drivers to monitor and take control when necessary. Level 4 High Automation vehicles can be driven by a human, but are self-driving and do not require a driver. Level 5 Full Automation vehicles can perform all driving functions under all conditions. Level 5 vehicles include those vehicles with driver controls, as well as vehicles without driver controls, for example vehicles that lack a steering wheel or pedals. Level 5 vehicles without driver controls could incorporate seating spaces designed for conversation or work spaces with tables – but not controls that permit human occupants to assume any driving function. Let’s call these Level 5 vehicles “Personal Mobility Units” or “Level 52” (Level 5 Squared) vehicles.

Are Personal Mobility Units Considered “Autos” under the Business Auto Coverage Form?

ISO’s Commercial Auto Coverage Form identifies “autos” by numerical symbols 1-9, and 19.  Each insurance policy’s declarations page will identify the insured “autos” using those symbols.

Symbol 1 includes “Any ‘auto’” while symbols 2-9 narrow the definition of “auto” to exclude certain categories. ISO also offers the Covered Auto Designation Symbol endorsement (CA 99 54 10 13), which allows insurers to designate Symbol 10 “autos” to meet their insureds’ specific needs.

Is a Level 52 vehicle a Symbol 1 auto (“Any ‘auto’”)?  That depends on the definition of “auto.”  The Commercial Auto Form defines an auto as “a land motor vehicle” or “any other land vehicle” governed by state insurance law:

“Auto” means:

  1. A land motor vehicle, “trailer” or semitrailer designed for travel on public roads; or
  2. Any other land vehicle that is subject to a compulsory or financial responsibility law or other motor vehicle insurance law where it is licensed or principally garaged.

But “auto” does not include “mobile equipment.” CA 00 01 10 13, Section V –Definitions B (page 10 of 12).

Turning to part 1 of the “auto” definition, is a Personal Mobility Unit a “land motor vehicle?”

Of course, no court has considered this question. Those courts that have construed this definition in other contexts have considered whether the vehicle included customarily required features, whether the vehicle “resembled” a vehicle designed for use on public roads, and whether the vehicle was required to be registered by state law.

So, a construction vehicle known as a “Georgia Buggy” was not an “auto” because it: (1) did not resemble an auto; (2) was operated from a platform using “hand controls affixed to bicycle­-like handlebars;” (3) lacked key components, such as a steering wheel, a windshield, a separated driving compartment, lights, turn signals, and mirrors; and (4) was not required to be registered by the state. Harlan v. United Fire and Casualty Company, 208 F. Supp. 3d 1168, 1172‑73 (D. Kan. 2016), appeal dismissed, No. 16-3310, 2017 WL 4863142 (10th Cir. Jan. 13, 2017).

A photograph submitted during the litigation surely shows that the buggy was not an auto:

Georgia Buggy Exhibit
Georgia Buggy Exhibit

Of course, a Level 52 vehicle might not “resemble an auto,” would not have any type of hand controls, and would lack some (but not all) key components, such as a steering wheel.

A crop sprayer that collided with a motorcycle was considered an “auto” under the same policy language because it was subject to compulsory insurance and financial responsibility laws, had four wheels, was self-propelled, had headlights, taillights, turn signal, and “other components similar to road‑ready vehicles.” Berkley Regional Specialty Ins. Co. v. Dowling Spray Service, 864 N.W.2d 505, 508 (S.D. 2015). Under this reasoning, a Personal Mobility Unit is an “auto.”

Turning to part 2 of the “auto” definition, is a Personal Mobility Unit “subject to a compulsory or financial responsibility law or other motor vehicle insurance law? Is it licensed? Is it “principally garaged” in any state?

All ADSs are self-propelled and, like other self-propelled vehicles, will be subject to compulsory insurance or financial laws in most states (with certain exceptions). For example, in Delaware, motor vehicles include all “self-propelled” vehicles except farm tractors, elective personal assistive mobility devices (electric two-wheeled vehicles for one person, limited to 15 miles per hour or less), and off‑highway vehicles. Del. Code Ann. tit. 21, § 101. In Michigan, industrial equipment, electric personal assistive mobility devices, electric patrol vehicles, electric carriages, and commercial quadricycles are not “motor vehicles.” Mich. Comp. Laws § 257.33. In California, self‑propelled wheelchairs, motorized tricycles, and motorized quadricycles are not motor vehicles if operated by a person who, by reason of physical disability, is otherwise unable to move about as a pedestrian. Cal. Veh. Code § 415. Under these and other regulatory regimes, all ADSs should be subject to existing compulsory insurance or financial laws in most states (pending any change in regulatory regimes to accommodate ADSs).

No state excludes autonomous vehicles from registration. An auto is generally licensed in the state where it is registered. At the time of registration, the state will issue the appropriate number of license plates, which the owner or registrant is then required to display. See, e.g., Cal. Veh. Code § 6700. A tractor-trailer that displayed Nebraska insurance plates was indisputably licensed in Nebraska, despite being registered in multiple locations under the International Registration Plan.  See Berg. v. Liberty Mut. Ins. Co., 319 F.Supp.2d 933, 938 (N.D. Iowa 2004). Thus, the proper question is not whether an ADS is licensed, but rather whether it is required to be registered, and if so, it will likely be licensed as well.

What about the location of a Personal Mobility Unit? A vehicle is generally “principally garaged” in the physical location where it is kept most of the time. A vehicle that is kept in a single location for four months was “principally garaged” in that location even though the owner did not intend to reside there permanently. Chalef v. Ryerson, 277 N.J. Super. 22, 28, 648 A.2d 1139, 1142 (App. Div. 1994). A vehicle was not “principally garaged” in Michigan because it was not kept in Michigan “most of the time.” Frasca v. United States, 702 F. Supp. 715, 718 (C.D. Ill. 1989). But a rental truck leased for a three-day period was “principally garaged” in Virginia, not Maryland where it was licensed and registered, because the leasee kept the truck at its Virginia facility during the lease period. Hall v. Travelers Cas. Ins. Co. of Am., No. 1:16-CV-00173 (GBL), 2016 WL 5420571, at *5 (E.D. Va. Sept. 27, 2016). If the manufacturer owns the autonomous vehicle and leases it to different individuals in different states, where will that vehicle be principally garaged, and will it be subject to a compulsory or financial responsibility law or other motor vehicle insurance law in that state?

Finally, “auto” excludes “mobile equipment.” “Mobile equipment” encompasses an array of land vehicles, from bulldozers to power cranes to air compressors to any vehicle “maintained primarily for purposes other than the transportation of persons or cargo.” By definition, any autonomous vehicle, including a Personal Mobility Unit, is used to transport people and cargo and therefore will not constitute “mobile equipment.” In addition, the Commercial Auto Coverage Form excludes from the definition of “mobile equipment” those “land vehicles that are subject to a compulsory or financial responsibility law or other motor vehicle insurance law where it is licensed or principally garaged.” Those land vehicles are “autos.” As discussed above, autonomous vehicles, including Level 52 vehicles, will likely satisfy this exception to the definition of “mobile equipment” and will be considered “autos.”

Does Teleoperation Affect Coverage?

As of April 2018, California mandates a remote operator for autonomous vehicles testing on public roads without drivers. Cal. Code Reg. § 227.38. Remote operators must: (1) have the appropriate driver’s license for the type of autonomous vehicle; (2) not be seated in the driver’s seat of the vehicle; (3) engage and monitor the autonomous vehicle; and (4) be able to communicate with occupants in the vehicle by a communication link. The remote operator may also have the ability to “perform the dynamic driving task for the vehicle or cause the vehicle to achieve a minimal risk condition.”  Cal. Code. Reg. § 227.02(n).

At least one company will offer that remote control to assist with the testing and development of autonomous vehicles. Phantom Auto states that it provides a remote driver seated in a control room who can operate the vehicle remotely (described as “teleoperation”). Phantom Auto describes its services as “a teleoperation-as-a-service safety solution for all autonomous vehicles that includes an API [application program interface] for real time assistance and guidance, an in-vehicle low latency communication device, and a remote operator service.”  Phantom Auto enables a remote human operator to operate an autonomous vehicle when it encounters a scenario that it cannot handle on its own, allowing for optimally safe testing and deployment of autonomous vehicles.

The ISO Commercial Auto Form covers accidents “resulting from the ownership, maintenance or use of a covered ‘auto.’” Will insurers contend that an error in teleoperation does not “result from” the “ownership, maintenance or use of a covered ‘auto’” but instead “results from” remote operator negligence? Will they argue that other insurance policies should respond instead of a commercial auto policy?

We don’t yet know the answers to these questions, but insureds testing autonomous vehicles can determine the proper allocation of liability for remote operator error and tailor their policy language to address any liability. If teleoperation survives beyond the testing phase, all insureds using this service will need to assess the parties’ risk allocation and coverage options.

What about Exclusions?

As with the commercial liability policy, ISO’s Commercial Auto Form excludes coverage for “Expected or Intended Injury,” which it defines as “‘Bodily injury’ or ‘property damage’ expected or intended from the standpoint of the ‘insured.’” If the insured cannot operate the vehicle, can any circumstance arise that could arguably trigger this exclusion? At least from an operational standpoint, an insured could not expect or intend injury if the insured cannot operate the Personal Mobility Unit. Will insurers seize on allegedly defective maintenance rather than negligent operation to trigger this exclusion? Will they remove the exclusion as no longer applicable in an autonomous vehicle world? Only time will tell, but insureds and insurers alike should consider the impact of this exclusion.

What about Premium?

In February 2015, NHTSA reported that 94% of auto accidents are caused by human error.    Pundits predict that the frequency and severity of accidents will dramatically decline as autonomous vehicles become more prevalent (despite a messy intervening period when human drivers and partial and fully autonomous vehicles share the road). As frequency and severity falls, so does risk, thus potentially impacting premium. The complexity of autonomous vehicles may impact premium in the other direction, as early model autonomous vehicles will likely be extremely expensive to repair and replace. Insurers are no doubt (or should be) assessing autonomous vehicle’s potential impact on auto premium.

Where Next? Products Liability Insurance? Cyber Insurance?

Even as auto accident frequency and severity declines with increased automation, and premium eventually drops as repair costs normalize, commercial auto insurers may need to turn to other lines of coverage, such as products liability and cyber coverage, for revenue streams, and insureds may need to turn to these same policies for coverage for autonomous vehicles. We will discuss those policies in subsequent posts with a focus on Level 52 vehicles.

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