Up up and away – A bird’s eye view of drone insurance

I am sure that many of you reading this will by now own a drone or UAV (Unmanned Aerial Vehicle). Retailers have predicted that the demand for drones is at an all-time high and they certainly seem to have an ever increasing popularity as recreational gadgets. Whilst the majority of drones available to the general public at a reasonable price are limited in battery life, agility and technical ability, there is however, an even bigger area of growth; that of commercial drones. The potential application of drone technologies to various businesses is a large and rapidly expanding market.

Drones can offer a multitude of solutions in various industries including:

• The maintenance and monitoring of construction sites;
• Geophysical aerial surveys;
• Security surveillance;
• Media and journalism for aerial photography and filming;
• Maintenance and inspection surveys of structures such as wind turbines, bridges and tunnels and railway tracks;
• Transport including the delivery of parcels, food supplies, spare parts to tankers, medication, human organs or defibrillators;
• The ability to carry out risk monitoring, assessment and claims investigation in the insurance and risk prevention industries; and
• Crop supervision and 3D mapping in agriculture.

Whilst these potential applications for commercial drones are exciting and represent substantial costs and risk savings, their use comes with a number of associated hazards and concerns around safety, security and surveillance.

Fundamental risks when using drones include the potential for mid-air collisions and “drone strikes” which are becoming more frequently reported in the media. In addition, there are privacy issues and numerous cases of dangerous flying.

Non-commercial drone operators do not require any form of licence or registration to operate a drone weighing less than 20 kilograms (as most do) and yet if your average drone fell out of the sky as a result of engine failure for example, it has the capacity to cause significant damage. It will not surprise you to learn that there is already a website dedicated to drone related injury claims in the US.

Numerous near misses with larger aircraft have been reported. If there is an actual collision, the consequences could be catastrophic. In 2016, the UK Government reported that over 70 pilots of commercial airlines had experienced near misses with a drone. The Civil Aviation Authority (CAA) has the power to fine and prosecute errant drone pilots and the number of fines being issued is increasing. There is also a risk to property, vehicles and utilities such as overhead power cables.

The issue of insurance has therefore become a hotly debated matter and, in the absence of proper regulation, many insurers are carefully reviewing their policies and indeed some are attempting to exclude liability for drones from home insurance policies.

It is clear that drones present both aviation and liability risks and the market for standalone drone insurance is projected to grow significantly to account for the growing application of drones in industry and their increasing recreational and commercial use.

Whilst home insurance policies potentially provide some form of cover for liability arising out of the use of recreational drones the exclusions and nature of coverage can vary widely. For example, the wording of a number of household policies from major UK insurers gives rise to some difficult questions of construction as to the precise nature of the drone activity covered. Furthermore, the distinction between recreational and commercial use may become blurred when video footage is captured by a drone and is subsequently uploaded on the worldwide web and shared, resulting in some form of income.

For anyone properly using drones for commercial purposes, users need to understand that the Civil Aviation Act 1982, Section 76 imposes strict liability on the operator of an aircraft and that can include drones.

In the EU, it is compulsory for commercial operators using drones greater than 20 kilograms to have third party liability cover. As a result, many insurers are now having to consider extending basic commercial cover to include the use of drones. Aviation is a standard exclusion and most insurers have to look to specialists in aviation risks to provide the cover.

Commercial users and insurers need to be alive to the various and diverse risks involved in operating drones. These can include:

• Theft or device loss;
• Product liability arising out of malfunction and potential consequences including property damage, business interruption losses and personal injury;
• Public liability as a result of collisions with structures, people and aircraft;
• Invasion of privacy. Insurance requirements for breach of privacy cover may well include privacy impact assessments and compliance with statute and regulations. It is entirely possible that drone operators may end up breaching legislation such as the Human Rights Act, the Data Protection Act, the Regulation of Investigatory Powers Act and the Sexual Offences Act;
• Data protection/cyber-crime: drones are also vulnerable to hacking and cyber-crime and it will be necessary to have more adequate cyber security measures in place if insurers are to offer cover; and
• Nuisance claims arising from noise complaints, invasion of privacy and trespass.

It remains to be seen if drone insurance will be made mandatory for lighter drones but it is clear that when the compulsory registration of drones weighing over 250 grams comes into force in November 2019 that the authorities (such as the CAA) may well be able to identify the owner of any drone which has caused damage or has been involved in an incident.

At the moment, the market for drone insurance is relatively small but with the projected expansion of the market and the diversity of the potential commercial applications, significant growth is anticipated and insurance is expected to be a key component when addressing risk management issues. It is clear that safety, security risks and privacy considerations are driving demand for insurance cover.

It is only as the market for drones expands that the true risks and extent of those exposures will become known, as a result of which it is likely that legislation and regulation of drone use will become a key issue for debate.

If you require any further information or advice in relation to cyber risks, insurance or coverage issues, please contact Nicola Maher – Insurance Litigation Partner, or any member of the Edwin Coe Insurance Litigation team.

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