Specialty Podcast: Drone Insurance and Liability Coverage - Do You Need It?

Intro (00:00):
You're listening to the Alliance specialty podcast, dedicated to insurance and risk management solutions and trends shaping the market today.

Mark Shichtman (00:08):
Welcome to the Aviation Insurance Podcast. I'm Mark Shichtman of Alliant's Aviation Department in New York. On our last podcast, we touched on unmanned aerial vehicles or UAVs, also known as drones. That subject generated some interest. So, today we decided to dedicate a full podcast to drones. Let's jump in. Prior to the last 10 years or so, a relatively small group of hobbyists would build remote controlled aircraft or helicopters and fly them around. As it gained popularity, remote control air parks started popping up at that point. The federal aviation administration started governing remote controlled operations in an attempt to keep them out of the way of airplanes, but it was still limited. Modern technology now allows anyone to buy a drone for a reasonable price.

They're readily available at box stores or online retailers. Today, drones are everywhere. People fly drones as a hobby, corporations use them to survey their operations. They're heavily used in real estate, construction, agricultural, and television and movie production. The list goes on and on the issue now is that many people are flying drones without any understanding of the regulations that govern their use. Unmanned aerial vehicles are governed in the FAA aviation regulations under FAR part 1 0 7. Before anyone operates a drone, they should always do an internet search for FAR part 1 0 7 and get familiar with it. Then they should consider purchasing insurance to protect themselves for liability arising out of the operation of the drone. I'm joined today by Cielo Camacho, an intern here at the aviation department. She's going to tell us about drone operations and their regulations. Also with us today is Chris Proudlove, senior vice president at global aerospace. Global aerospace is one of the largest aviation insurance companies in the world and was the first insurance company to offer a specific policy forum for unmanned aerial vehicles. Chris heads up their UAV practice. So thank you both for joining us today.

Cielo Camacho (01:59):
Very excited to be here. Thank you.

Chris Proudlove (02:01):
Hi, Mark. I'm very happy to join the podcast today.
Mark Shichtman (02:04):
Thank you. It's a pleasure to have you. So, Cielo, can you describe the types of unmanned aerial vehicle operations from the FAA perspective?

Cielo Camacho (02:13):
Yes. There are two different types. The first one is private, which is for personal pleasure, not for compensation or hire, and the second would be commercial, which is anything not private.

Mark Shichtman (02:25):
And it's important to note that the FAA intentionally leaves the definition of commercial, very broad. So people need to be careful. So what is part 1 0 7?

Cielo Camacho (02:37):
Part 107 governs all commercial operations of UAVs, with that comes different rules and regulations that you do need to follow. For example, flying in controlled airspace, flying under 400 feet, not flying at night, not flying over people, is just couple of examples of those. But because their definition is so broad, it would only be beneficial to anyone who is above 16 to get your part 107.

Mark Shichtman (03:05):
Got it. So I know there's a list of different parameters, which people have to fly within. What happens if you need to go outside of those parameters?

Cielo Camacho (03:17):
You would need to get an exemption from the FAA, which could be done online. So for example, if you wanted to get an exemption for flying at night, you would go online and write down the details of how you would mitigate the risk, and they will be able to respond to you with approval or denial for your application.

Mark Shichtman (03:40):
As we said, the FAA defines commercial operations very broadly. Basically, they say it's anything that's not private. What are some operations that people would think are private, but are actually commercial and therefore subject to 107?

Cielo Camacho (03:54):
So, if it involves business, it is considered commercial. Even though you may not be thinking about it, for example, taking aerial pictures over your company picnic, although you might not be hired to do so, and you may not be getting compensated for the work, it still would be considered commercial work under the FAA guidelines. Filming your corporate softball game is the same thing, even though you might be doing it for fun and you wouldn't consider it doing work for your company, because you're an employee at your company, it would still fall under commercial work, according to the FAA.

Chris Proudlove (04:29):
Mark, I think the easiest way to think about it is really any flight conducted that is not for pure pleasure, is considered commercial by the FAA. So, there's no compensation required. There's no contract required, unless it's you taking your kids to the park on a Saturday afternoon to fly the drone, which would be considered pure pleasure. Anything apart from that is commercial, as far as the FAA is concerned.

Mark Shichtman (04:58):
Understood, and therefore subject to part 1 0 7 and in need of the operator to have a license. Correct. Let's talk a little bit about insuring drones. Chris, most businesses have a standard general liability policy, and most homeowners probably have something similar. What coverage is provided by standard liability policies?

Chris Proudlove (05:19):
Well, really there are a few different ways for drone operators to get insurance coverage. The first might be via a standard CTL commercial general liability policy, as you described there, but very often any right backs that are provided for drone operations are somewhat limited and they would also be subject to any exclusions that are in the base policy, such as illegal act. So, I think it's generally wise for drone operators, or really any entity that is operating aircraft, to seek out insurance from the specialist aviation insurance market, because then you're going to get a policy that has been written and designed specifically for aviation. So, in this case, we are talking about a policy that can cover damage to any property that is owned by the insured. It could be the aircraft, it could be an item of payload like a camera or a LIDAR system. It could be ground equipment that is associated with the drone operation. And then in addition to that, insurance can be purchased for third party liability, both to people on the ground, bodily injury, but also property damage. If the drone hits a car or a property or some other assets, coverage can be provided for that as well. Beyond that, there are really a lot of additional items that you can cover under the policy, be it personal and advertising injury, premises, liability, medical expenses. You'll find really that every aviation policy is pretty broad and that it is designed to include the full operational exposure that the insured has for operating those aircraft.

Mark Shichtman (07:18):
Now, what situations do you see on your side that typically cause UAS claims?

Chris Proudlove (07:24):
I would say most often the claims are caused either directly, or as a significant contributing factor, by operator error, by pilot error. The drones are pretty easy to operate these days. They come with instructions, they have a lot of good technology built into them that helps them avoid obstacles and keeps them safe. You know, the operator knows when the battery's running low and all those kinds of things. So, they are pretty easy to operate, but at the same time, it's easy to get yourself in a situation where you may lose sight of the drone. One of the rules under part 107, is that you have to have visual line of sight of the drone at any time. That means you have to be able to see it. So, you know, that sounds simple, but on a blue-sky day, like it is today, a white drone in the sky can be pretty easy to lose. So, all of a sudden, you are flying the drone, you think you have it, you know where it is, and then you lose sight of it. That's when you get into a situation where you don't know how to get the drone back to you, whether you should land it where it is, what obstacles might be there. You can certainly get into a lot of situations where there's risk and hazard. So, you know, the most simple thing is just to really maintain proper operational control at all times, stay in good sight of the drone, make sure it's not obscured by obstacles and just do what you can as an operator to keep those types of incidents from taking place.

Mark Shichtman (09:09):
Right. And unless you're just, as you said, flying the drone in the park with your kids, you probably want to have a second pair of eyes with you who can stand in a different place than you're flying the drone and potentially have a different angle to keep eyes on it.

Chris Proudlove (09:26):
Yes, absolutely. You are required to have visual sight at all times. So, if you're flying in an area where you are going to lose sight, then you should have a observer there to, in that position that they can see it, and they can be talking to the operator via radio and keeping in communication. I've seen lots of incidents over the years of drone operators flying around commercial premises and others where I've been standing next to the operator, and I know that they can't see the drone because I can't see the drone. And I know that they put aircraft into situations that they shouldn't do, whether it's flying over people or things like that. So, yeah, maintaining visual sight, that means being able to see it at all times is really crucial.

Mark Shichtman (10:13):
Now, obviously, flying your drone into a person or into someone's property could give rise to a claim, but I've heard some pretty interesting claims pop up that have nothing to do with the direct operation of the drone, but with the information that it gathers after. Can you tell us a little bit about some of those things that you've seen?

Chris Proudlove (10:34):
Yes. This speaks to the personal and advertising injury endorsement that could be provided under the policy. And one of the risks of operating drones is that there’s potential for invasion of privacy. If you go back a few years, I don’t know if you recall, there was a commercial for Audi cars where a swarm of drones was following the driver down the road, and there are all these stories about, drones are going to be watching us and invading our privacy and so on. That really hasn't become the reality. I don't think that's, that is something that we need to be concerned about, but certainly if you are flying a drone, let's say you are taking pictures for a real estate listing, and you're going to be flying the drone above a house, taking nice scenic shots. You can do a lot of things to help prevent that risk of invasion of privacy by knocking on all the neighbor's doors and saying, "Hey, I'm going to be flying a drone in the area. Do you mind? Is there anything in your backyard that you would not want to be shown?" And then in the post-production check all the images really carefully to make sure that there's nothing that is incriminating or potentially is invading somebody's privacy. So really just take the precautions necessary to make sure that you are not publishing anything that could cause concern, because it's that, it's the publication that triggers the coverage. The flying over somebody's house is not invasion of privacy. It's when you publish something that invades their privacy, that's where the coverage is triggered. So just, take precautions that are reasonable and common sense, and I think you'll stay out of trouble.

Mark Shichtman (12:22):
I know there was an example where a drone was used to survey a business's property very innocently and somehow the company lost track of the information - it got sold or given to an advertising agency who wound up publishing the picture on a highway billboard. There was a, there was someone that was depicted in the picture, which nobody noticed, sunbathing out by their pool, who certainly didn't wish to, or expect to find their likeness on a billboard. And I know it gave rise to a advertising injury claim. So, you know, people need to be cognizant of where their data is going to wind up, where their pictures are going to wind up. And it's pretty important to have some controls to prevent the loss of the control of that information. So, Chris, besides the obvious type of claim, a drone flying into a person or property, have you seen any examples of a claim that most people wouldn't have thought about before?

Chris Proudlove (13:25):
When we embarked on this venture of insuring unmanned aircraft back in 2013, we really weren't sure where the claims were going to come from and what the causes of accidents would be at the time. There was a lot of talk about drones flying into aircraft on approach into airports and bringing down passenger airliners and all kinds of catastrophic scenarios that were being shared about what drones could possibly do. Fortunately, we really haven't seen any examples of anything quite that bad, but we've had a few strange claims. One that springs to mind was a client that was charging the drone battery in a hotel room, and the pilot was taking a nap on their bed with the drone sitting on a table in the window, charging up, and as the sun came around in the afternoon, the battery overheated and set fire to the curtains in the hotel room. Fortunately, the pilot had woken up pretty quickly and was able to put the fire out. But I can assure you that as an aviation insurer, it will be pretty hard for me to explain to my boss why one of our clients just burnt a hotel down. So, yeah, there are a lot of interesting hazards and claims pop up for all kinds of reasons that we wouldn't necessarily expect.

Mark Shichtman (14:51):
Right, and the aviation specific policies do typically cover what we would call related premises liability, which, your battery example would be part of it.

Chris Proudlove (15:03):
Yeah, absolutely. Like I say, the policies are broad, typically aviation policies with premises coverage are limited to airport premises only. So, if you drive your private automobile onto an aircraft because you want to load the golf clubs into the back of your private CAN, your auto insurance ceases when you take your car airside, but, and that's where your aviation policy would take over. But of course, for drones, you are specifically not allowed to operate them near airports. So the premises coverage that we provide is really for all locations in relation to the operation of the aircraft. So it's very broad and all encompassing.

Mark Shichtman (15:52):
That's a great example. Thanks for that. So, Chris, where can people find information on best practices to avoid these types of claims?

Chris Proudlove (16:03):
Well, there are lots of ways that operators can get additional training and have assistance in writing, operating procedures, and safety manuals. There are lots of companies that are providing those services we work with, or we have a partnership with a company called Dart Drones, and they can certainly provide assistance for training and all kinds of safety related benefits for drone operators. But there are many more besides, so that's really, you know, one of the keys to operating safely is having operators that are trained and practiced and like everything it takes practice and you need to stay current. You know, if you don't fly drones for months, it's the same as not driving a car for six months. The first time you get in, you have to re-familiarize yourself a little bit where with where everything is. So, you know, you need to stay current, you need to stay proficient, and that really helps, but, have a proper safety manual at hand for every flight that you follow and help yourself to stay safe by using proper safety documentation.

Mark Shichtman (17:18):
Safety is no accident. And even for individuals operating drones, it's important to have a safety plan and maybe have a manual that you at least think about when you're operating your drone. It's not just for businesses. Well, again thank you to our guests, Cielo Camacho and Chris Proudlove for joining us today. We appreciate your guys time. If you would like more information on Global Aerospace, unmanned aircraft, vehicle insurance products and services, you can visit their website at www.globalhyphenarrow.com, and for information on this or any of our insurance brokerage services, please visit our website, www.alliant.com. We look forward to seeing you next time on another Aviation Insurance Podcast. Thanks for joining us.