Many people who grew up in the 60s may feel they are living in the age of The Jetsons. Realistically they are, or at least on the leading edge. We’ve all seen promotional videos of drones delivering packages or pizzas. We’re not there yet. However, as NASA and the FAA pave the way for a world where people can commute above traffic and goods can literally be dropped in your front yard, the insurance industry gets prepared.
Here are some acronyms you may not be familiar with yet:
- LAANC - Low Altitude Authorization and Notification Capability
- UTM – Unmanned Traffic Management
- AAM – Advanced Air Mobility
- UAS – Unmanned Aviation System aka drones
- PAV – Personal Air Vehicle (manned aerial transport)
- eVTOL – electric vertical takeoff and landing
- RPAC – Remote Pilot Airman Certification
What these have in common is that they are all terms for the UAS and PAV industry, which is moving faster than many ever imagined. The 2021 AirVenture in Oshkosh, Wisconsin had numerous displays of PAVs, including one that could land on water as well as in the front yard and another that morphed into a land vehicle when the wings are folded.
The LAANC system, pronounced Lance, allows pre-authorization by cell phone to a UAS operator who will be working in controlled airspace at or below 400 feet. It is real time access to where they can and cannot fly. Working together, the FAA, NASA and industry partners are continuing to develop the framework for an Unmanned Traffic Management system, which would ensure that drones and PAVs do not interfere with manned aviation, as we currently know it.
Cities and regional organizations are also working on how to minimize negative impact ranging from driverless and connected autos to UAS flying over their cities and towns. NASA offers a fascinating video titled "A Giant Leap for Air Transportation" under What Is Unmanned Aircraft Systems Traffic Management? available at www.nasa.gov/ames/utm. In the video, Dr. Parimal Kopardekar, Director of NASA Aeronautics Research Institute, discusses the issue of control when it is anticipated that there will be millions of drones in the sky every day versus the current daily estimate of 50,000 manned aircraft, 6,000 of those airborne. According to FAA.gov, as of August 16, 2021 there are 869,336 drones registered in the United States with 348,769 of those used commercially and 517,019 recreationally. The number of individuals certified as Remote Pilots stands at 241,567.
With the advent of FAA Rule 14 CFR Part 107 the UAS market exploded. The foundational requirements are that commercial drones must be registered with the FAA and operations must be either by or under the direct supervision of someone with a Remote Pilot Airman Certification. The FAA provides information on their website to prepare for the certification test in addition to testing facilities around the country. The cost of the test is currently $175. Waivers are also available such as operating over non-participants, night operations, operating beyond visual line of sight or BLVOS, operating multiple UAS etc.
An ongoing issue is identifying operators flying outside the regulations. We’ve all heard of commercial airline passengers seeing a drone fly close to their aircraft while landing. Drone operators have interfered with emergency crews including firefighters in dangerous situations. This year the FAA put a ruling into effect that requires remote identification of UAS. Similar to a license plate on a car only digital a UAS must be equipped with a device which can identify them in flight as well as on the ground. It is a major step in the ability to provide information for national security as well as law enforcement partners.
At the same time the FAA also put the Operations Over People rule into place, which applies to pilots operating under Part 107. Depending on the level of risk posed by the UAS, operators may fly over people and moving vehicles. This rule also allows operations at night provided the pilot has completed mandated training and the flight meets certain conditions.
That leads to some interesting questions regarding uses for both unmanned and small manned systems. The use for UAS have multiplied over the last several years and some of the top uses today include agriculture, conservation, construction, filmmaking, mining, emergency response, engineering, remote medical delivery, wireless internet access and of course the opening ceremony for the 2021 Olympics. We know the positive but how do we protect against the negative? How do we insure a personal air vehicle that is both an aircraft and an auto? Do we own air rights over our personal property? The answer to the last question is, pun intended, still in the air. The FAA claims the power to regulate drone use below as well as within navigable airspace for manned aviation. Most states have also enacted laws to regulate drone traffic over private property. If a commercial drone flies 200 ft. above your backyard during an outdoor wedding or while your daughter is sunbathing, would federal or state laws prevail? Outside of shooting it down, which is illegal in most areas, is there anything you can do?
Many aviation insurance carriers are also wrestling with these questions and several were pro-active in writing policies specifically for UAS. An aircraft policy may have premises liability but it is limited to an aviation facility where a drone is seldom welcome. Premises liability on a drone policy applies to where the drone operator is working. Personal Injury is either included or available for most UAS policies because of the Invasion of Privacy aspect. Even if there were additional premium chances are it would be less than an hour of legal counsel.
Non-Owned Liability is built into most policies. However, coverage can be tricky if you do not know your policy. Non-Owned Liability for one carrier covers continuous use for up to 30 days but with another, it is only 7 days. After that point, the equipment will need to be added to your policy.
Payload can be very expensive and Lidar equipment can easily cost $65,000 and up. One of the changes seen recently in the UAS insurance industry is that some carriers require payload with physical damage coverage be flown attached to a UAS with physical damage coverage. This change was triggered by high value losses where expensive payload with physical damage coverage suffered a loss while flown on an older, inexpensive drone with only liability coverage.
Lidar is an example of payload often used on land vehicles as well as manned and unmanned aircraft. Many policyholders don’t realize that multi-use payload should be covered on both their aviation and their business property policies. An aviation policy is not intended to cover loss from non-aviation use.
UAS policies have the flexibility of an auto policy with options to place full coverage on some equipment and carry only liability on other equipment. Varying limits of liability per UAS are also available. Most energy companies require a minimum liability limit of $5,000,000 but if the UAS service provider will only use one specific drone for the job the policy usually allows a lower liability limit on the rest of the fleet. Similar to a truck providing liability for the trailer it is towing, an insured UAS provides liability for attached payload. Cargo however is not considered payload and coverage requires a conversation with the carrier. Several other uses require specific conversations with the insurer, such as agricultural spraying. Pesticide spraying is often not an insurable risk but herbicide may be depending on the chemicals used.
It is important that risk managers for non-aviation businesses and municipalities become familiar with standard UAS coverage available to the operators they choose to hire. A template list that will work for a construction contractor will seldom work for a drone operator or business. Many operators or small drone businesses work out of their home or a small rental space without foot traffic and consequently do not have a General Liability policy. It may also be a business where the owner provides the service and doesn’t carry Worker’s Compensation coverage. A standard list of insurance requirements could easily miss requiring coverage for bodily injury or property damage caused by the operations of a UAS on behalf of the hiring party.
There are Non-Owned Liability policies available for businesses or municipalities who contract UAS service providers. This would provide coverage if the UAS operator allowed their policy to lapse or had otherwise implied coverage where there wasn’t any. The hiring party should also require a Certificate of Insurance from the service provider naming them as Additional Insured.
It is not uncommon for a Risk Manager to be unaware that drones are operating on behalf of the business. Recently a school administrator did not realize the STEM department had purchased several drones for student operation until the invoices crossed her desk. Construction companies understandably view a small drone as a piece of equipment, not an aviation vehicle. Many are unaware of the federal regulations for commercial use.
As we cross the threshold where UAS or PAV are also work tools, land vehicles, cargo transporters and personal transportation, good communication with your insurance broker becomes even more critical.
If you have any questions about insurance for exposures related to unmanned aerial systems, please contact your Marsh McLennan Agency representative for more guidance.