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Drones and insurance: Where are we now?

By Christine G. Barlow, CPCU | November 12, 2019 at 06:00 AM | The original version of this story was published on FC&S Insurance


When drones were first introduced, they were the hot new thing. Parents were buying them for their children as well as themselves, and concerns revolved around privacy and interference in commercial airspace. There were incidents of drones flying into buildings and hopes that drones could be useful when adjusting claims, in search and rescue missions, and many other activities beneficial to society.


One early question about how to regulate drones back in 2014 was whether drones were aircraft.


So, where are we now?


A lot has changed.

The Federal Aviation Administration calls drones Unmanned Aircraft Systems or UAS.

In 2014, ISO created exclusion forms for unmanned aircraft. These forms define drones as, “unmanned aircraft designed to be controlled by a person not in or on the aircraft,” and exclude coverage for such craft from most commercial liability policies.


Along with the exclusion,  limited coverage endorsements were created. These endorsements provide coverage for scheduled drones that are used for a specific project that is also listed on the schedule.


In 2015, ISO developed an inland marine form that can be added to the contractors equipment, machinery and equipment, and miscellaneous articles coverage forms. This form allows the insured to schedule the drones onto the policy for specified amounts, as well as blanket coverage. Coverage is for physical damage under specified conditions. And the Unmanned Aircraft Property and Cargo Coverage Form covers damage to drones, essential equipment used with drones, and cargo owned by the insured when carried as part of the operations.


It wasn’t until 2017 that ISO created an endorsement for the homeowners policy, Aircraft Liability Definition Revised to Remove Exception for Model or Hobby Aircraft, revising the aircraft liability definition to remove the exception for model or hobby aircraft. A separate exclusion also exists: Personal Liability Injury for Aircraft Liability Excluded. There are some state-specific endorsements excluding personal injury for aircraft liability.


New endorsement on the horizon


Three new endorsements for commercial liability become effective in December 2019. They are Limited Coverage for Designated Unmanned Aircraft, to be attached to Owners and Contractors Protective Liability Coverage Part; Exclusion – Unmanned Aircraft, to be attached to Railroad Protective Liability Coverage Part; and Limited Coverage for Designated Unmanned Aircraft, to be attached to Railroad Protective Liability Coverage Part.


These limited coverage endorsements require the UAS to be scheduled on the form along with a description of the operation or project the drone is being used for. One of them describes loading or unloading and applies an aggregate limit to coverage if an aggregate limit is shown in the schedule. Another describes loading and unloading and an aggregate limit and adds an exclusion for damage to property arising out of the ownership, maintenance, use or entrustment to others of any aircraft that is an unmanned aircraft.


FAA concerns


From the outset, one of the crucial issues with UAS was interference with commercial and governmental airspace. Soon after their release to the public, drone sales grew swiftly, and the FAA was concerned about airspace and keeping drone pilots out of the path of commercial aircraft traffic.


First, the FAA had to distinguish between hobby aircraft and UAS, and then develop requirements for flight. The FAA defined three types of operations: civil, public, and model. Drone pilots were required to register their drones with the FAA.


In 2016, as more businesses found uses for drones in their operations, regulations were created for non-hobby and non-recreational drones. Drones were regulated by weight, speed, time of day and operation by a remote pilot. Pilots were required to have a remote pilot airman certificate with a remote UAS rating.


Then, in January 2018, the FAA Reauthorization Act was revised. Several sections now refer to the proper flying of UAS. Representatives of UAS interests also are included on many aviation advisory committees.


What hobbyists should know


Recreational flyers are required to register their drone with the FAA, mark it on the outside with its registration number, and carry proof of registration when flying the drone. Users are required to fly only for recreational purposes and follow the safety guidelines of a community-based organization.


There are now mobile apps that inform pilots which areas are restricted airspace. Flying in controlled airspace is not allowed except for certain circumstances, and lists of certain approved sites are available.


A new law will require operators to pass an online aeronautical knowledge and safety test and carry proof that they passed the test. The FAA is rolling this out in increments, but the law was passed in May 2019. The eight conditions outlined for recreational drone flyers by the FAA are listed in the slideshow above.


What businesses should know


Drones may also be flown for business purposes. As such, many businesses are using them to video properties for real estate sales, web page advertisements, weddings and other social events.


Flying a drone for business requires a Remote Pilot Certificate and registration of the drone with the FAA. Among the restrictions for using drones for business are that drones must weigh less than 55 pounds, be within visual line of sight of the pilot, and not fly over persons, under a covered structure or inside a covered stationary vehicle. The drone is limited to 400 feet off the ground, 100 mph airspeed, and daylight only operations.


Waivers may be available for some operations. Information on the requirements and waivers may be found on the FAA websites.


A recurrent safety problem with drone flyers is interference with emergency personnel; the National Interagency Fire Center states that aerial firefighting efforts have been shut down nine times this year and that at least 20 other drone incursions have hindered firefighting operations from January through October of this year. Aerial firefighting efforts can significantly slow the spread of a fire; a fire can grow exponentially in 20 minutes, and two recent interferences stopped airdrops for 45 minutes and for one hour. Planes dropping water dip as low as 150 feet above ground when dropping the water, giving them little room to safely land if a drone strikes them. Bird strikes are bad enough, but drones are plastic and metal and can do more damage.  In California, firefighters are allowed to destroy drones that are hampering their efforts, and there are penalties for those drone pilots.


Recently the FAA announced new airspace restrictions over 60 facilities, mostly federal prisons, as deliveries were trying to be made to prisoners or drones were otherwise interfering in federal operations. Drugs and cell phones are popular paraphernalia that have been attempted to be delivered to prisons or even over the southern border.


The ability of drones to deliver packages is one of the benefits of drones. While regular package delivery is still a ways off, Amazon has long been working on developing a drone delivery program. Not only can household goods be delivered, but also medications can be delivered to remote areas, or areas that have sustained a disaster and are short on medical supplies and personnel. Walgreens has a delivery service starting in Christianburg, Virginia, and Uber is working on an Uber Eats delivery program where food will be delivered to a staging area for drivers to deliver food to customers. UPS delivered two packages from a CVS store in Cary North Carolina last Friday. One of the problems with delivery is access to the delivery point; lack of a back yard, small mailboxes, and other items factor in to making delivery, not the door-to-door action, anticipated. Amazon may have a delivery system in the coming months, and microbots called RoboBees may help with pollination, search-and-rescue missions, surveillance and other tasks.


News agencies may use drones for traffic reporting, and police may use drones for crime scene mapping, serving warrants, responding to 911 calls and other scenarios. This creates the potential for millions of drones to be flying through the air. With large numbers of drones in the air, collisions, dropped packages, drones crashing into buildings or people and other problems all become more likely. The FAA already receives more than 100 reports monthly of drones, so controlling drone traffic will become important. With the predicted volume of drones, automation of a flight control system will be critical. Monitoring existing restricted airspace along with the unrestricted areas drones commonly fly in will be difficult. NASA is currently researching unmanned traffic management (UTM) systems to create safe, low-altitude traffic operations.

UPS has been certified to scale its delivery system beyond its testing sites in North Carolina. The drones being used have been used by the Swiss postal service in 2015 and in medical delivery in 2017. The drone can carry packages up to five pounds and over twelve and one-half miles beyond visual line of sight and over people. It is allowed to deliver onto campus settings such as hospitals and universities, but cannot yet deliver to residences.


From the beginning, drones have been used to provide assistance in rescue operations. Between May 2017 and April 2018, 65 people were saved by drones, 22 of whom were in grave danger. The ability to attach a thermal imaging camera to a drone to assist in finding people can be key in finding people after dark or those who have tried to take shelter under brush or other obscure areas. As more public agencies such as firefighters, police and other emergency personnel adopt the use of drones, the more drones can help rescue those in dangerous situations. In September, police in Daytona Beach, Florida, used a drone to determine whether a grenade that a person was threatening to set off in a hotel room was operational. Knowing that the grenade was a dummy, grenade allowed the police to end the situation safely. The Daytona police have had a drone unit since 2017 and have used it to help capture a murder suspect, assess damages after Hurricane Irma, watch over large events and other day-to-day uses.


Passenger vehicles are not the only things headed towards autonomous operations; autonomous drones are being developed as well. An autonomous drone would be ideal for mapping, inspections, and many other uses. As with vehicles, these early autonomous drones are highly restricted but show what will be possible in the future.


Privacy has long been an issue.


There have been situations where a homeowner shot down a drone that was over his yard. In 2015, a Kentucky man shot down a drone and was charged with criminal mischief and wanton endangerment. A later federal lawsuit filed against the man in 2017 was dismissed.

Other incidents involving a person shooting a drone down resulted in the shooter being arrested. The FAA made it clear in 2016 that shooting at any aircraft, including drones, was a safety hazard and a federal crime. It is a felony and carries a penalty of up to 20 years in prison.

Drones have been flown near the White House, in commercial airspace, at emergencies such as wildfires and others. However, a recently proposed bill would make the airspace up to 200 feet in altitude over private property under the control of the property owner, thereby restricting the FAA’s ability to regulate that airspace making zoning for that area the responsibility of the state or tribal entity governing the land. Depending on how states would choose to establish regulations, shooting down drones over one’s own property could become legal. The bill must first be passed, so there is a long way to go yet.


 Recently the Ford Motor Company filed a patent for a drone that would launch from a vehicle’s trunk and provide emergency services when a vehicle breaks down or help rescuers find vehicles that have gone off-road and are difficult to find. The drone could shine a light, provide GPS coordinates, turn on a siren or provide other services.


Drones can be incredibly useful in handling claims, particularly in catastrophic situations. On average, it takes drones 20 to 30 minutes to fly the entire surface area of a home for a claims investigation. Drones provide a clear view of damage and keep adjusters safe by allowing them to stay on the ground instead of climbing onto roofs. Likewise, drones can go into damaged buildings that would be unsafe for adjusters, or into areas with hazardous chemicals that have not been cleared for entry. More and more carriers are using drones in their claim practices.


Unfortunately, the public image of drones is less than positive. The reports of drones at airports causing flights to be canceled, hampering firefighting efforts, and threatening privacy puts drones in an unfavorable light. In June, it was reported that less than one-third of U.K respondents to a survey felt positive about drones.


While ISO has developed some standard endorsements, many carriers are developing policies specifically for drone risks. A unique approach to drone insurance is companies that provide on-demand insurance in one-hour increments. Coverage can be bought by the hour, by the month, or annually through SkyWatch. The flight must be mapped out and submitted to the carrier in order to receive a quote for coverage. Hourly insurance provides liability coverage only. If buying coverage by the month or year, liability and hull coverage can be purchased. Verifly sells coverage in 1, 4, or 8-hour increments.


Analysis brought to you by FC&S Expert Coverage Interpretation, the recognized authority on insurance coverage interpretation and analysis for the P&C industry.

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