Drone Insurance: We’re not in Kansas anymore

Oz was a fantastical place of Munchkins, Wizards and talking scarecrows. However, after a Kansas house dropped on the Wicked Witch of the East, her sister threatened “I’ll get you, my pretty,” and soon sent her monkeys aloft to retrieve Dorothy and her little dog, too! Things coming out of the sky that can deliver and retrieve are no longer a fantasy, though. Today’s drones pose a host of opportunities and challenges for users and those around them. So, what does drone insurance cover and why should we care?

To start with, you are liable for your actions and what goes up must come down which means there will be consequences that accompany increased drone use. Online retailer eBay reported drone sales of $16.6 million last year for 127,000 units. That’s just one retail outlet. Inexperience, limited battery life and small gas engines all have potential for unintended havoc. Such a purchase should start with some education.

Let’s start with the regulations. With the “busiest and most complex airspace in the world”, the Federal Aviation Administration (FAA) is scrambling to appropriately regulate and guide the use of drones.

In pursuit of fun, safety and profit, drone manufacturers and users (e.g. businesses, hobbyists and the government) have formed a group known as Know Before You Fly which offers a host of useful and timely information.

Interestingly, there are few regulations governing personal use of drones. The FAA offers hobbyists* this set of guidelines for safe operation:

• Fly below 400 feet and remain clear of surrounding obstacles
• Keep the aircraft within visual line of sight at all times
• Remain well clear of and do not interfere with manned aircraft operations
• Don’t fly within 5 miles of an airport unless you contact the airport and control tower before flying
• Don’t fly near people or stadiums
• Don’t fly an aircraft that weighs more than 55 lbs
• Don’t be careless or reckless with your unmanned aircraft – you could be fined for endangering people or other aircraft

*Any commercial use including the sale of aerial photography requires an FAA permit.

Personal Use Drone Insurance

However lax the regulatory environment, it doesn’t absolve anyone of liability should a drone directly or indirectly cause property damage or provoke a law suit over invasion of privacy (personal injury). According to the Insurance Services Office (ISO) homeowner policy form, model aircraft is not excluded from coverage though some individual insurance company policies may be different. It’s worth checking yours to be certain before take-off.

Though not inexpensive, personal drones often are used by teens or others who may not fully understand the consequences of their actions. Consider this scenario. A teen boy sends his camera-equipped drone over the swimming pool of a neighboring teen while she is (ahem) sunbathing in the privacy of her back yard. He uploads the images to FaceBook and VOILA! – a potential personal injury claim. Also, think of operators who fly their drones across busy streets of highways and crash the craft into traffic that subsequently causes an accident. The only limitation for mischief is a lack of imagination.

One good piece of advice is that homeowners with drones ought to seriously consider buying or increasing their liability umbrella coverage. An umbrella policy with limits of $1 million to $5 million may cost about the same as the hobbyist’s drone. Even if you are not responsible for injuries or accidents, the defense costs for a drone incident could be crash landing on your bank account in the absence of adequate coverage.

Commercial Drone Coverage

The FAA expects that drones for non-personal use (e.g. delivery, surveying, photography, surveillance, search & recovery, maintenance/damage inspection, etc.) will exceed 30,000 units in just five years. In fact, forty percent of businesses are expected to use drones in their business in the coming decade. If your drone is used for any commercial gain, you have to get FAA permission and you will want to secure drone insurance. In June of this year, ISO released its coverage form in most jurisdictions that offers model language for exclusions as well as limited liability coverage.

Creating coverage and regulations to insure and govern the use of drones is (pardon the analogy) like building a plane while you’re flying it. The rules are going to change as will the technology. For the hobbyist and commercial entrepreneurs, the sky’s the limit. For insurance companies, there’s an opportunity to assume that risk and let you take to the air with more confidence.