Should Automakers Be Responsible for Accidents? Automaker enterprise liability would have useful incentives that driver liability law misses.

• Author: Logue, Kyle D.
• Position: INSURANCE & LIABILITY

Motor vehicles are among the most dangerous products sold anywhere. Automobiles pose a larger risk of accidental death than any other product, except perhaps opioids. Annual autocrash deaths in the United States have not been below 30,000 since the 1940s, reaching a recent peak of roughly 40,000 in 2016.

And the social cost of auto crashes goes beyond deaths. Auto-accident victims who survive often incur extraordinary medical expenses. Those crash victims whose injuries render them unable to work experience lost income. Auto accidents also cause nontrivial amounts of property damage--mostly to the automobiles themselves, but also to highways, bridges, or other elements of the transportation infrastructure. Finally, serious motor vehicle accidents often cause severe noneconomic injuries--that is, "pain and suffering." According to some estimates, such noneconomic harms amount to more than twice the magnitude of the aggregate economic damages caused by auto accidents.

All of this may be about to change. According to many autoindustry experts, the eventual transition to driverless vehicles will drastically lower the economic and noneconomic costs of auto accidents.

Why might this be so? Humans are bad drivers. People have bad judgment, slow reflexes, inadequate skills, and short attention spans. They drive too fast. They drive while intoxicated or sleepy or distracted. According to the National Highway Traffic Safety Administration, roughly 94% of auto accidents today are attributable to "driver error."

The hope is that computers can do better. Fully driverless vehicles, sometimes referred to within the industry as "Level 5s" to distinguish them from vehicles with levels of partial autonomy, would not suffer from the problems that plague human decision-making in the driving context. These vehicles thus promise to be substantially safer than the human-driven alternative.

How should the automobile tort/insurance regime be redesigned to take into account the emergence of driverless vehicles? I propose to replace our current auto tort regime (including auto products liability law, driver-based negligence claims, and auto nofault regimes) with a single comprehensive automaker enterprise liability system. This new regime would apply not only to Level 5s, but to all automobiles made and sold to be driven on public roads.

My basic argument is that while current negligence-based auto liability rules could in theory work to provide optimal accident-avoidance incentives, in practice they do not. The current system requires courts and drivers to evaluate benefit-cost tradeoffs they are not equipped to make. Also under the current system, much of auto-accident costs are offloaded onto medical and disability insurers or taxpayers. By contrast, under an automaker enterprise liability system, responsibility for those costs would be placed on the parties in the best position to reduce and insure them: vehicle manufacturers. In addition, automakers would be induced to charge enough for cars to fully internalize the costs of automobile accidents. Further, if auto-insurance contracts--and auto-insurance premium adjustments--could be deployed to improve driving habits, auto manufacturers would be induced to coordinate with auto insurers to achieve these deterrence gains. Moreover, to the extent that Level 5s reduce the cost of accidents, they would be cheaper to purchase than conventional vehicles, which would provide a natural subsidy to encourage (and potentially accelerate) their deployment.

EVALUATING THE DETERRENCE IMPLICATIONS OF CURRENT AUTO TORT LAW

Existing automaker liability law is primarily a negligence-based regime. Under current law in most U.S. jurisdictions, individuals who suffer harm caused in an automobile crash can recover from the automaker in tort if they can prove that the harm resulted from negligence (or a lack of reasonable care) on the part of the automaker in designing or constructing the vehicle. Alternatively, auto accident victims can invoke modern product liability doctrine and argue that a "defect" in the vehicle's design, manufacturing process, or warnings caused the harm. And in most jurisdictions, the definition of a product defect likewise requires a showing of negligence.

A negligence-based liability rule would induce automakers to take efficient care, provided the following two assumptions are true:

* Automakers are aware of the law and respond rationally to it.

* Courts perform a thorough and accurate benefit-cost analysis in their determinations regarding what constitutes automaker negligence or what counts as a design defect.

Under those assumptions, the negligence-based regime would incentivize efficient automaker care levels--i.e., investments in crash-risk reduction--because automakers would avoid negligence-based liability if they make all cost-justified design and warning changes.

A negligence-based automaker liability regime can also create incentives for efficient driver care-levels. A negligence-based regime would leave accident costs on victims and their insurers if the automaker is not negligent. That would induce drivers to drive carefully so as to minimize their own risk of uncompensated accident losses. Thus, an efficiently and accurately applied negligence-based automaker liability rule can produce efficient incentives for both automakers and drivers to take care to avoid auto accidents.

There are obvious problems with this rosy picture, however. First, consider the effects on automaker care levels if we relax the assumption that courts accurately apply negligence-based standards. If judges and juries are not very good at doing the complex and information-intensive analysis, the outcomes of courts' negligence determinations become highly uncertain. This can produce incentives for automakers to both over-invest and under-invest in auto safety. The incentive to over-invest can arise when manufacturers expect courts to set the standard of reasonable care (or a non-defective design) inefficiently high. The incentive to under-invest can arise if courts rely too much on custom within the industry as their source for what constitutes reasonable care because industry custom can lag what is a truly efficient level of safety.

A second problem with a negligence-based auto products liability regime has to do with driver care levels. For a negligence-based...