The era of connectivity is upon us and the benefits and risks of the internet of things (“IoT”) are quickly becoming apparent. The IoT is the interconnection of multiple devices through the use of radio frequency technology, which enables the exchange of data across multiple industry sectors. It is estimated that by 2020 there will be 26 billion connected devices including wearable/implantable devices, mobile devices, and a range of domestic appliances from smart TVs, fridges and radiator thermostats to coffee makers and security systems. The potential for managing lifestyle and health is clear, but when such products fail causing loss or injury, who will be liable?
The home will soon be a connected living space of smart sensors monitoring services and security and (hopefully) alerting customers and perhaps emergency services and insurers, to any risk of fire, flood, or service failure. Data generated can be used to reduce risk and enable smarter underwriting, predictive modelling and deliver quicker assessment in the event of losses. However, regulators warn of product safety issues arising from a legacy of low quality components installed into smart domestic appliances.
Meanwhile, your car is becoming a computer with wheels and an engine, connecting key fobs or keyless access, Bluetooth, wifi and mobile internet connections, and even tyre pressure monitoring systems.
A recent Department of Transport review of automated vehicle technology expressed confidence in the insurance market to deliver innovative products while also concluding that the liability framework, whether EU, sale of goods or common law based, would be sufficiently flexible to adapt to the challenges of new technology. It helpfully speculated that liability could rest with manufacturers, operators, suppliers/importers, service or data providers, or even drivers.
In healthcare, increasing talk of the “internet of living things” focusses on delivering health data from wearable or implantable devices monitoring a range of metrics which may be processed through mobile device apps (mHealth) and transmitted to healthcare professionals. Today’s healthcare professionals expect delivery of health services to increasingly rely upon digital technology, while regulators attempt to match the pace of innovation.
The providers of mHealth technology have already seen the recall of apps which have been calibrated incorrectly and failed to correctly monitor medical conditions. Healthcare professionals may be exposed in the management and analysis of digital data received from patients. Whilst patients may benefit from reduced healthcare premiums in exchange for supplying their personal data, inevitable concerns are raised as to cyber security.
As to property damage or injury, a defective smart boiler thermostat or timer fails to respond correctly to instructions, thus causing a fire, and potentially relaying incorrect data to other connected safety or security devices – where does liability rest? Such claims may target manufacturers, own-branders, service companies, designers, retailers and importers, all potentially calling upon cover across various lines of business. While insurers may limit their cyber exposure in general liability policies, liability arising as the result of a defect or fitness for purpose issue may trigger cover.
Establishing how and why a software/component fault occurred (if at all, or of what type) poses fresh challenges, particularly with innovative start-ups evolving new technology. As with most product liability disputes, the outcome may hinge upon the credibility and industry knowledge of the experts involved. Expert disciplines are developing fast to match the need to gather and analyse forensic evidence in indemnity/liability investigations.
Emerging technologies offer insurers huge opportunity both in the assessment of risks and in identifying new markets and innovative products. Targeted questions at inception should focus on supply chains and traceability of components and designs. Knowledge of the changing regulatory regime and ensuring appropriate wordings, conditions and jurisdictional limitations apply will be critical in managing exposure. However even where exclusions are applied, understanding the mechanism of a failure will be critical and, as with assessing liability, will require specialist expertise and legal advice.
Jim Sherwood
Partner and head of product liability, BLM
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