As drone technology continues to rapidly evolve it has unleashed numerous commercial growth opportunities for businesses; however, along with those opportunities come a myriad of complex liability and coverage issues related to insuring the use of commercial drones ranging from privacy to personal injury.
For commercial drones and ancillary business activities, the following general types of insurance coverage should be considered: (1) liability, (2) personal injury, (3) privacy torts, (4) property, and (5) workers' compensation.
Any company flying drones as part of its business model faces a wide range of risks which can cause serious damage or injury to persons and property, as well as damage to the drone itself. Insurance policies are essentially contracts and typically contain a specific exclusion for claims related to the use of "aircraft." Whether a drone constitutes an aircraft in this context is an unsettled issue and that uncertainty echoes throughout the realm of drone insurance.
The FAA has indicated that it considers drones as aircraft for purposes of applying aviation related statutes and regulations. The term "aircraft" is defined under federal law as "any contrivance invented, used, or designed to navigate, or fly in, the air," and under federal aviation regulations as "a device that is used or intended to be used for flight in the air." The FAA contends that both definitions are broad enough to encompass drones. Moreover, regardless of the FAA's view as to whether drones are considered aircraft for regulatory purposes, such is not necessarily binding when interpreting an insurance contract.
As a result of the FAA's position that drones are aircraft, insurance companies are expected to aggressively apply the aircraft exclusion to avoid coverage. However, it can be argued that the aircraft exclusion should be interpreted narrowly with the policy construed in favor of coverage because the aircraft exclusion was originally intended to apply only to manned aircraft and not drones.
Until the FAA clarifies what constitutes a commercial drone and whether it falls within the definition of aircraft, uncertainty will remain. Moreover, insurance companies will likely revise the definition of aircraft in their policies to include drone operations within the exclusion from coverage for aircraft.
Due to the uncertainty concerning the aircraft exclusion as it may apply to drones, many insurance companies have begun offering drone-specific insurance policies. For example, American International Group, Inc. has created insurance products covering some of the risks confronted by businesses operating drones.
Businesses are also confronted with the risk of privacy tort litigation such as trespassing and harassment. Those businesses must assess and evaluate their insurance policies to determine whether it covers privacy tort liability. In addition to aircraft or drone exclusions discussed above, since privacy torts typically have an intent element to them, certain exclusions found in commercial general liability policies barring coverage for intentional conduct may also be implicated. Whether it applies depends on the nature of the particular claim.
Furthermore, although drone specific policies typically cover claims for damage or injury to persons and/or property, such policies may not cover privacy-related torts. Therefore, businesses should work closely with their insurance agent and insurance company to confirm coverage for operations involving drones.
Most insurance policies also include what is generally known as an illegal acts exclusion. Those exclusions are typically held to only apply to intentional violations of the law, versus negligent violations. In any event, the fact that a violation of the law can potentially exclude insurance coverage for drone operations is all the more reason to ensure that your drone operations are fully compliant with federal and state law.
As part of the analysis of coverage, businesses should also review their workers' compensation insurance and any professional liability insurance to confirm that coverage for claims is not excluded when drone operations are involved.
Even businesses that do not operate drones themselves can be affected by drone related exclusions. Businesses that retain another company that operates drones might be sued as a result of that company's drone operations. Thus, not only should those businesses review their own insurance policies to confirm coverage exists for drone operations, but they should also require that they be included as an additional insured under the drone operator's insurance policy to protect against potential litigation.
As regulatory hurdles are cleared, the drone industry is poised for takeoff. However, commercial drone operators need to protect their businesses from the risks and potential liabilities that come with this growing industry. To address that need, businesses must evaluate and assess their existing insurance policies to determine whether drones are covered, and if not, pursue coverage solutions offered by insurance companies that are specifically designed for the exposure faced by commercial drone operators.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
