Why Did Google Have to Get Bonded?

As the state with the biggest number of tech companies, California has seen a lot of self-driving test cars on its streets from various automakers and even from Google. Up until recently, however, there were no regulations governing these experiments.

California’s DMV has taken steps to remedy that. As of September 16, 2014, all car manufacturers who wish to conduct autonomous car tests on the streets of California will have to obtain a permit from the DMV. Several luxury brands have already obtained licenses, Audi being the first one. Google, even though not strictly a “manufacturer,” is also within the scope of the regulations and needs to apply for permits. So far, it has been leading the charts with 25 self-driving Lexus SUVs which already have permits.

That Google is leading the way in something is hardly a surprise. But what is surprising is that Google, and all automakers test self-driving cars, have been mandated to post a surety bond prior to obtaining the permit.

What Is a Surety Bond, Anyway?

Some of you may not know what a surety bond is, so here comes a quick training session. Simply put, a surety bond is a binding contractual agreement between three sides: a principal, an obligee and a surety. The principal is the side which needs the bond, while the obligee is the side requiring it. The surety is the company which underwrites the bond and backs the agreement on behalf of the principal.

Usually, the bond is required to make sure that the principal will follow certain rules and regulations set out in the agreement. If they break that agreement, they become financially and legally responsible.

Why Does Google Need a Bond?

Typically, businesses need to apply for a surety bond as a pre-requisite for obtaining a license. These businesses include auto dealers, contractors, freight brokers and construction contractors. The bond is set in place to protect the public and make sure they don’t suffer any financial loss from the bonded business due to fraudulent practices. But it’s very rarely required from the big guys, such as Fortune 500 companies.

California’s DMV, however, is changing the rules. Google is required to hold a $5,000,000 surety bond in order to have the permits. Just as reference, a regular California car dealer needs a $50,000 auto dealer bond to get their license. It’s only fair, though, given the size and profits of a company like Google and other large automakers.

The Bond’s Conditions

Every surety bond is designed to protect the public from something. In the case of Google’s self-driving cars, the bond protects the state and its citizens in case any of the cars malfunctions and causes damage. If a person is injured, it will also serve as insurance coverage for them.

Furthermore, Google is mandated to report all occurrences in which the car causes an accident or damages public property. Even cases in which a car disengages from its autonomous mode need to be reported. And the fact that a car is “driverless” does not mean the tests can be held without a person at the driver’s seat. There are strict regulations even for who the driver can be. Most importantly, it has to be a person with an extremely clean driving record.

While Google is hardly likely to cause damages costing $5,000,000 with this vehicle, since the tech company has not had a car crash so far in the “autonomous” mode, even if it does, it probably won’t be adversely affected by the big penalty. Still, it’s a good thing that such protection exists.

Looking Into the Future

This is a development that takes us closer to understanding how driverless cars are going to be regulated – a question with many legal implications that has been asked by many of us.

While the bonding requirement is certainly curious, the prospect of self-driving cars hitting the roads soon is even more exciting. And there are indications that this is about to happen very soon. The DMV is already drafting regulations – this time concerning how the general public will be able to obtain and use driverless cars – and they are said to be ready by January 1st 2015.

What are your thoughts on driverless cars? Would you love it or hate it if they go mainstream? Please share your opinion in the comment section below!

Lachezar Stamatov is a regular contributor for Lance Surety Bonds blog. He is an expert in the field of surety bonds and licensing. He is following closely the dynamics of the automotive industry and has written numerous articles on the topic.

Lachezar Stamatov


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