local, state and federal law. The majority
of states now have laws limiting where
and how drones can fly. These requirements overlap with the FAA regulations
governing airspace and operation. While
most insurance companies are aware of
these requirements, many companies fail
to account for laws that are not specific
to drones. Every drone program must
have policies and procedures to ensure
that the flights do not commit trespass,
do not violate personal privacy rights and
do not endanger the public. This can best
be done through the development of a
comprehensive drone operations manual
that is used internally and can serve as the
basis for overseeing outside contractors.
As more individuals and corporations
use drones for fun and profit, there will
be more drone-related claims. The first
question after an incident is going to be
whether there is an applicable policy. As
a general rule, commercial drone operations are covered only by specially written
policies, not by general liability policies.
Even when there is an applicable policy, if an insured is using the drone in
violation of law, the claim will likely not
be covered. Personal use is less clear.
Some homeowners’ policies or personal
umbrella policies may cover hobby use,
while others will exclude such use as
constituting aircraft operations. Again,
the insurance company must fully understand the applicable law to determine
whether there is coverage.
Reputational or brand risk
This is frequently overlooked, but is critically important to established insurance
companies. People often have a visceral
negative reaction to drones. A poorly
implemented drone program can anger
customers and the public, thereby tarnishing a well-earned reputation and
impacting revenue. At the extreme, angry
homeowners have been known to shoot
down drones.
The best way to mitigate this risk is to
create a transparent and respectful pro-
gram, and require contractors to do the
same. This usually includes several steps.
First, pilots should provide advance no-
tification of flights to the property own-
er and to neighboring properties. This
avoids any problems with people being
surprised by an unexpected drone. Sec-
ond, operators should either avoid flying
over private property without permission
or, at least advise property owners of their
intent to do so. Third, every drone pro-
gram should incorporate a data retention
and privacy policy that is available to the
public and strictly enforced.
The same steps that insurance companies take to minimize reputational and
brand risk can help to reduce the risks
that may lead to claims. For example, unintentional or uninvited flight increases
the chances of liability claims and may
void insurance coverage by constituting
an unlawful act under the applicable policy. Also, accidents are much more likely
when a drone is operated in close proximity to a structure or people, or flown
in an unfamiliar environment. Insurance
companies might consider whether to require a degree of customer education as a
condition for writing drone policies or in
exchange for a policy discount.
Risk of damage or injury
Drones have the potential to cause griev-
ous bodily injury or, in the worst possible
scenario, cause a mass casualty event
such as an airline crash. The best way to
mitigate this risk when drones are used or
contracted by insurance professionals is
through the development and implemen-
tation of safety-driven policies and proce-
dures. The policies will ensure that safety
measures are employed on a consistent
and uniform basis and can serve as an
important defense tool in the event that
litigation arises from an adverse event.
The policies should include requirements for operator training, recurrent
pilot proficiency examinations, vetting
and auditing, equipment inspection and
maintenance, and detailed record keeping. If an outside vendor is used for drone
services, the vendor should be required to
demonstrate a similar program.
When an insured either causes damage or is damaged by a drone, the claim
should be evaluated in light of applicable
policy language and whether the drone
was being operated in a reasonable manner in light of all existing laws and regulations. This is a daunting task given
how quickly the law and technology are
changing. Needless to say, it is difficult in
the current environment to assess the risk
involved with underwriting a policy, settling a claim or defending an insured. The
best approach to mitigating this risk is to
stay abreast of legal developments and to
seek expert advice early and often.
James Mackler Mackler, (jmackler@
fbtlaw.com) is a member of the law firm
Frost Brown Todd LLC and founder of their
Unmanned Aircraft Systems practice. He
advises the insurance industry and other
businesses on the laws impacting the use
and management of these systems. He holds
a commercial helicopter pilot certificate and
is a former military aviator who served eight
years of active duty in the U.S. Army.
As more individuals and corporations
use drones for fun and profit, there will
be more drone-related claims. The first
question after an incident is going to be
whether there is an applicable policy.
