Emerging use of drones raises insurance issues

As the use of drones becomes more common, new liabilities will emerge and insurance companies are sure to respond with insurance plans that protect drone manufacturers, programmers and operators from the financial pitfalls of litigation.

While the use of drones remains in its infancy and we do not yet know precisely how the insurance market will develop in this area, it is worthwhile to consider the potential areas of concern that will need to be addressed in such plans.

Drones have an infinite number of uses. Engineering firms and insurers may use them to perform inspections, government entities may use them to aid search and rescue missions, media companies may use them to offer unique coverage and delivery companies already plan to use them for more efficient deliveries. Such uses will lead to legal challenges as unmanned aircraft are flown over private space, record personal information and cause property damage.

While the end-user of a drone may be the person who would most obviously face liability for its use, owners, manufacturers, programmers and trainers/instructors will also find themselves susceptible should drone operation go awry.

Each entity involved in the creation and use of the drone will require tailored insurance policies to cover their individualized risks.

Numerous areas of law will be implicated by the use of drones - personal injury, property damage, privacy intrusion and nuisance, to name a few. There is legislation pending in many states that directly addresses drone-specific liabilities.

As illustrated by Conner Forrest's March 2015 article, "12 Drone Disasters that Show Why the FAA Hates Drones," published in TechRepublic, incidents involving drones are becoming frequent.

Drones have landed on the White House lawn, crashed into people's faces while being used at promotional events, caused injuries to athletes and spectators and interfered with other aircraft. Such occurrences, all of which carry legal consequences, will further intensify in frequency, and owners, operators, manufacturers, programmers and trainers/instructors will need to hedge their legal exposure with insurance coverage.

There has also been concern expressed regarding the potential hijacking of drones. Just as computer systems can be remotely accessed and manipulated, drones are susceptible to similar hazards, and liability is certain to arise if such an event occurs.

There is uncertainty surrounding coverage for such situations under standard commercial general liability (CGL) policies. Many CGL policies exclude claims relating to use of aircraft, and it is unclear whether drones will be considered "aircraft" for such purposes.

Exclusions also exist for intentional conduct, meaning that any intentional privacy violations by drone operators will not be covered. Further, traditional professional liability policies for pilots were written prior to the advent of drones and only considered coverage for persons sitting in cockpits.

To fill this uncertainty gap, some insurance companies, such as AIG, have already begun offering insurance policies specific to the use of unmanned aircraft. Details of these policies are not expressly outlined. Rather, persons seeking coverage are directed to work with an agent to create a policy that meets their needs. Such coverage is purported to include language specifically drafted to address exposure related to drones, as well as liability based upon third party use, hijacking and electronic malfunctions. It is unclear whether such coverage will address privacy violations, trespassing and nuisance.

An insurance company specializing in drone insurance, Unmanned Risk Management, has also arisen to provide coverage, with an apparent focus on military, law enforcement, film production, search and rescue and agricultural uses. All policies purport to be written and covered by A to A++ Rated Aviation and Aerospace Insurance Companies.

Again, details regarding the coverage such policies entail is sparse. Another company, Aerial Pak, claims to focus on remote control aerial photography insurance, providing coverage for bodily and property damage, as well as damage to the aircraft and camera equipment.

Zurich Canada launched a new drone insurance product in April of 2015, enabling companies to minimize risk while taking advantage of the opportunities that drones provide. As Zurich recognized, "[u]sing a drone for any commercial purpose is considered an aviation activity and will therefore fall under the broad aviation exclusions of most general liability policies, should a drone cause damage or injury."

The company plans to roll out its drone insurance package globally, based on demand and applicable regulations.

The insurance industry is sure to play a key role as drone use becomes more common. The means and methods employed by insurance companies in writing coverage for drone-related liabilities is still evolving, and this developing area requires careful monitoring, m