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Unmanned And Underinsured: Issues And Opportunities Presented By The Increasing Use Of Drones In Various Industries

Many industries have taken to drone technology to reduce costs, decrease risk and improve performance and efficiency. A study by PWC indicates the value of business services using drones is now at $127 billion. Industries employing drones run the gamut from real estate to construction, agriculture and government. The construction industry frequently uses drones to inspect dangerous or hard-to-reach areas. Drones are used by farmers to conduct aerial surveys of everything from water usage to crop maturity. In an apparent first, in July of 2016, Dallas police killed a mass shooting suspect by using a drone to deliver and detonate a bomb in the suspect’s hiding place.

There seems to be no current limit to the possible use of drones across a diverse array of industries. While some of these uses are non-controversial – farmers checking their crops – others – like a bomb wielding Robocop – raise serious social and legal questions. One major legal concern is potential liability stemming from the use and/or misuse of drone technology. Relatedly, there are many questions regarding the insurability of, and coverage for, losses occurring as a result of drone use.

This article first looks at the primary areas of risk associated with drone use and, then, discusses some trends in the insurance industry aimed at addressing those risks. On the one hand, many risks associated with drone use are common-place, such as personal injury and property damage. On the other hand, the technology presents unique risks which traditional commercial policies may not contemplate, such as cyber-security and invasion of privacy. Additionally, the technology itself may present common risks in un-common ways.

The potential liability for both commercial and non-commercial drone use is being touted in some circles as a “new frontier” in tort litigation. A simple web search reveals a number of plaintiff’s firms describing the “horrors” of drone use, including children struck by shrapnel from falling drones, drones maliciously invading personal spaces and neighbors “shooting down” allegedly trespassing drones. Many drone operators are surprised to find coverage for these claims may not be available under their traditional homeowners or general liability policies. Coverage often depends on the definition of a single word or phrase and most policies were not drafted with drone use in mind. This creates uncertainty for both insurers and their insureds when confronted with a claim.

Consider, the seemingly innocuous example of a company hiring a drone operator to film a marketing “fly-over” video. A hacker then seizes the drone and uses it to collect racy images of a neighboring property owner. This one scenario presents potential issues of cyber-security, negligence, trespass and invasion of privacy. Just how this diverse array of issues may affect coverage depends highly on the policy language and, under a “standard” policy, could result in undue surprises to the carrier or the insured.

The CA Government has made minimal progress tackling the issues presented by spreading commercial use of drone technology. In late-2016, the CA legislature passed and the governor signed two bills involving drone use: SB 807 and AB 1680. SB 807, the “firefighter rule”, provides protection for first responders who damage a drone while providing emergency services. AB 1680 makes it a misdemeanor to use a drone in a manner that interferes with the provision of emergency services. Other bills addressing liability outside the emergency services context were vetoed by Governor Brown. As a result, CA has yet to implement a comprehensive statutory framework governing drone use or misuse.

Thankfully, many in the insurance industry are prepared to embrace drone use and provide special coverage for drones. Given the $127 billion market for services using drones, it is no surprise insurers are getting in the game. One company, Verifly, offers hourly “on-demand” drone insurance, with $2.5 million in coverage priced from $10/hour. Starr has released a new line of policies aimed at drone use in the construction industry. AIG advertises liability coverage for drones and their operators, customizable by use. The advantage to those companies who have embraced, rather than ignored, the growth in drone use is access to a new and growing market and greater predictability with regard to exposure from drone-related activity.

Given the rise in drone use, modern liability policies need to be clear what, if any, drone-related coverage is available. Likewise, those exploring, or who have already adopted, commercial drone use as a business practice need to ensure they have the appropriate coverage. Finally, if there is any question about potential coverage or liability issues related to drone use, competent legal counsel should be sought immediately. Addressing these issues up-front ensures drone technology will continue to benefit, not burden, to your business.

ABOUT THE AUTHOR: Adam Pedersen is an associate attorney in Tyson & Mendes’ San Francisco office. Mr. Pedersen specializes in general liability, employment, and construction litigation. Contact Adam at 415.464.4935 or apedersen@tysonmendes.com.