aims white paper: drones...space other than model aircraft or unmanned inflatable balloons used for...

AIMS WHITE PAPER: DRONES

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Executive Summary ................................................................................................................................. 4

Introduction ............................................................................................................................................ 5

The Major Issues Of Drone Usage ........................................................................................................... 6

Current Insurances Wordings Were Not Designed For Drone Usage ................................................. 6

Most Policies Have Aircraft Exclusions ............................................................................................... 6

Aircraft Exclusion In The Liability Insurances ...................................................................................... 6

AIMS Broadform (CGL) Liability Insurance -Allianz, CGU, QBE, Zurich ........................................... 6

AIMS Business Insurance Liability Section ...................................................................................... 6

AIMS Farm Business Liability........................................................................................................... 7

AIMS Home Insurance Liability Section .......................................................................................... 7

Aircraft Exclusion In The Loss Or Damage Or Theft Insurances .......................................................... 7

AIMS ISR -Property Exclusion .......................................................................................................... 7

AIMS Business Insurance Property Section .................................................................................... 7

AIMS Business Insurance Special Risks Section .............................................................................. 8

AIMS Business Insurance Theft Section .......................................................................................... 8

AIMS Home Insurance (And Domestic Cover On The AIMS CGU Farm Policy) ............................... 8

The Main Issue For Cover On Drones, Particularly Those Used For Commercial Purposes ............... 8

Are Drones Aircraft Or Model Aircraft ............................................................................................ 8

So Are Drones “Aircraft Or Model Airplanes”? ............................................................................... 9

The Civil Aviation Safety Authority (CASA) View On Model Aircraft .................................................. 9

The Civil Aviation Safety Authority (CASA) View On Drones Used For Commercial Purposes ....... 9

Possible Insurance Consequences Of Drones Used For Hire Or Reward Purposes Not Being

Considered As “Model Aircraft”........................................................................................................ 10

Third Party Usage Insurance Issues .................................................................................................. 11

Vero Liability ......................................................................................................................................... 12

Vero AIMS Broadform (CGL) Liability Insurance ............................................................................... 12

Drones Used For Sport Or Recreational Purposes ............................................................................ 12

AIMS Current Actions On The Drone Issue ........................................................................................... 13

Commercial (Hire & Reward) Usage ................................................................................................. 13

Domestic (Sports & Recreational) Usage .......................................................................................... 13

Contents


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AIMS Business Insurance Theft Section ........................................................................................ 14

Vero Endorsement Number: AIMS80 ................................................................................................... 14

Additional Definitions ....................................................................................................................... 15


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Executive Summary

In December 2015 AIMS sent out an email to our members advising how Vero had been pro-

active as the first Australian Insurer to include coverage for Drones into their standard AIMS

Broadform Liability policy wording for policies renewed on & after the 27th October 2015

and new business commencing from that date.

We acknowledge that some innovative underwriters have already responded to the

challenge by providing specialised products for the use of Drones. We believe these have a

place for the growing market of businesses that provide Drone Services for remuneration.

However we recognized that our standard AIMS products needed to be able to respond to

the increasing use of Drones for commercial & personal usage.

As evidenced in this paper the coverage for “Drones” and their usage is complex.

The position in regards to Sports & Recreational usage is relatively clear: although further

clarification is being sort from insurers.

In regards to Commercial usage, (for Hire & Reward), the issue is not at all clear. At this

stage it would appear that policy coverage is not fully provided by the AIMS Broadform

Liability policy, Business Insurance Liability Section, the Farm Business liability Section and

the Home and Farm Domestic Liability Sections.

Where your client currently is operating a drone we suggest you contact the insurer for

clarification regarding coverage.

This White paper is intended to provide the current status of our investigations into the

insurance issues for the use of Drones.

Further work is ongoing and we will issue further advices in due course.


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Introduction

Who will benefit from reading this document?

This White paper is specifically directed to our AIMS Brokers who may have clients who

have businesses that use Drones to assist in their business operations or for individual

clients who use Drones for sport or recreation.

This White paper is not intended for Broker’s clients who have businesses that provide

Drone Services for remuneration. There are specialist insurance Drone products available

for these activities.

This White Paper covers the usage of Drones for commercial & personal usage.

It is not intended for those businesses that provide Drone Services for remuneration. There

are specialist insurance products available for these activities.

The numbers of Drones are increasing significantly and our insurance policies will need to be

altered to keep pace with this change.

For example, in the United States in December 2015 it was estimated that 1 million drones

would be sold over the Christmas period.

In Australia one of our leading retailers estimated that they would, over the same period,

sell more than 4000 Drones with individual values of $2000 or more

Drones are now being used for a myriad of commercial purposes as well as sporting &

recreational usage.

This white paper looks at the insurance implications for this increasing use of Drones.

This White Paper is general advice only as the reader’s individual needs have not been

taken into account.


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The Major Issues Of Drone Usage

Current insurances wordings were not designed for Drone usage

Widespread Drones usage is a new phenomenon.

As such it’s not unexpected that our current insurance policy wordings have not be designed

to fully respond to the risks associated with such usage.

Most policies have Aircraft Exclusions

The Industry & AIMS Broadform Liability Policy, Business Insurance Liability Section, Home &

Farm Insurance liability Sections have exclusions for liability as result of the possession or

use of any aircraft and aircraft landing areas.

ISR policies, Business Insurance, Property or Theft Sections, Farm Contents Insurance and

Home Content Insurance all exclude aircraft or aircraft parts from their definition of insured

contents unless specifically noted in the schedule.

Aircraft exclusion in the Liability insurances

AIMS Broadform (CGL) Liability insurance -Allianz, CGU, QBE, Zurich

4.3 Aircraft Definition Any vessel, craft or thing made or intended to fly or move through the atmosphere or space other than model aircraft or unmanned inflatable balloons used for advertising or promotional purposes Exclusion 5.2 Aircraft, Aircraft products, Watercraft and Hovercraft Claims arising out of: a) the ownership, maintenance, operation possession or use by You of any Aircraft;

Vero recently announced a change in their definition of aircraft to include Drones but we

will cover this in another part of this paper.

AIMS Business Insurance Liability Section

Definition - Aircraft means any vessel, craft or thing made or intended to fly or move in or through the atmosphere or space. Exclusions 9. Watercraft, Aircraft, Hovercraft for Personal Injury or Property Damage caused by or arising directly or indirectly out of or in connection with: (b) the ownership, maintenance, operation, possession, or use by You of any Aircraft, including any Property used for the purpose of an Airport or any Aircraft landing strip.


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Provided that Exclusion 9(b) shall not apply to claims arising out of any model aircraft or tethered inflatable balloons used for advertising or promotional purposes;

AIMS Farm Business Liability

This section excludes liability for Aircraft – other than model aircraft or unmanned tethered

balloons used for advertising purposes.

AIMS Home Insurance Liability Section

The Liability exclusion reads like this:

We do not insure you or your family against liabilities arising from:

f. the ownership, custody, or use of any lift, other than a lift that exclusively services your

home provided that your home is freestanding and solely occupied by you and your family,

aerial device or aircraft (except model aircraft or toy kites), aircraft landing area, boat

exceeding 4 metres in length (except canoes, surfboards, surf skis or sailboards) or

motorised watercraft in excess of 10 horsepower.

Aircraft exclusion in the Loss or Damage or theft insurances

AIMS ISR -Property Exclusion

This Policy does not cover physical loss, destruction of, or damage to the following property

or loss under Section 2 resulting therefrom:

(b) Any aircraft (including its accessories and/or spare parts) other than as stock or merchandise of the Business; provided always that no cover shall apply hereunder during taxiing, take-off, flight or landing. Please note that “Aircraft” is not defined in the policy wording.

AIMS Business Insurance Property Section

“Excluded Property” means the following items unless they are shown in the Schedule as

being covered: aircraft, locomotives, rolling stock, watercraft whilst in water;

Aircraft is only defined in the QBE policy as follows -

Definition - Any vessel, craft or thing made or intended to fly or move in or through the

atmosphere or space


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AIMS Business Insurance Special Risks Section

Excluded items

We will not pay for the following items unless they are specified in the schedule:

(a) mobile plant, motorised vehicles, watercraft, aerial devices, sporting equipment,

firearms

AIMS Business Insurance Theft Section

theft of motorised vehicles (other than forklifts or similar mobile lifting plant, not otherwise insured) and/or watercraft, unless motorised vehicles and/or watercraft are specifically shown as insured in the schedule for this cover section;

AIMS Home Insurance (and Domestic cover on the AIMS CGU Farm policy)

Contents cover

What “contents” does not mean - aircraft or their accessories (other than a non-pilotable

model aircraft);

The main issue for cover on Drones, particularly those used for commercial purposes

The critical question is -

Are Drones aircraft or model aircraft

As you see from the above our existing insurance wordings do not automatically provide

cover for loss, damage or theft of aircraft or liability arising out of the use the possession or

use of aircraft.

If we could argue that Drones are “Model Aircraft” than we would be in a stronger position

on many of the current Liability & Material damage insurances.

And to complicate matters even further no policy defines the term “Model Aircraft”

Most insurance policies exclude cover that can be more correctly insured under another

policy of insurance. For example, Property & Liability policies have vehicle exclusions to

exclude the possibility that the client could claim anything under those policies that could be

covered under the motor policy.

Its logical that the same thinking went into the exclusions for “aircraft’ - there are specific

insurance policies designed for Aircraft and the Property, Home & Liability policies were


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written to exclude anything under their policies that could be covered under the Aircraft

policy.

When the current policy wordings were designed the term ‘aircraft’ was not intended to

cater for the use of any Unmanned Aerial vehicles, like Drones, as they did not exist for

common usage.

So are Drones “Aircraft or Model Airplanes”?

The term “model aircraft” is not defined in any policy wording.

An internet definition (there was none in the Macquarie Dictionary) states -

“A model aircraft is a small sized unmanned aircraft or, in the case of a scale model,

a replica of an existing or imaginary aircraft. Model aircraft are divided into two

basic groups: flying and non-flying.”

The Civil Aviation Safety Authority (CASA) view on Model Aircraft

We’ve carried out discussions with the Civil Aviation Safety Authority (CASA) and they

believe it is very straight forward.

CASA definition of model aircraft (this may be very important from an insurance aspect)

Advisory Circular July 2002 AC-101-3(0)

5.1 A model aircraft is any unmanned aircraft, other than a balloon or kite, which is

flown for sport or recreational purposes, weighing not more than 150 kg including

fuel and equipment installed in or attached to the aircraft at the commencement of

its flight.

So, it’s clear from the CASA perspective, an Unmanned Aircraft such as a Drone is ONLY a

“Model Aircraft” when the Drone is used for sports & recreational purposes and does not

exceed 150kg in weight.

The Civil Aviation Safety Authority (CASA) view on Drones used for commercial purposes

CASA advises that under existing legislation Unmanned Aerial Devices or Drones can be

broken up into two distinct groups –

1. those used for sports & recreation

2. those used for hire or reward

https://en.wikipedia.org/wiki/Scale_model

https://en.wikipedia.org/wiki/Aircraft


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Extract from CASA Advisory Circular AC 101-3(0) July 2002 9.1.1 A model aircraft flight is

considered to be commercial if it is conducted for any purpose other than the sport of flying

the model or learning or teaching the sport. It is commercial if it is used as the tool for

conducting any other commercial purpose such as aerial photography, etc. 9.1.2 In simple

terms, if you receive financial benefit for the service provided by your model aircraft (other

than teaching the sport), you have been conducting a commercial activity

The issue as far as CASA is concerned is that if it is not used for sports & recreation then it is

being used for hire or reward – with some minor exceptions?

Possible Insurance Consequences of Drones used for hire or reward purposes not

being considered as “Model Aircraft”

If the Drones are NOT used for sports & recreation purposes CASA says that they are NOT

“Model Aircraft” with the following consequences for your Business clients -

1. If the Drones are considered aircraft they could fall within the definition of “aircraft”

used in the Liability insurances wordings and would bring into play the “Aircraft”

exclusion, Liability cover could be excluded.

2. If the Drones are considered aircraft loss or damage or theft cover under ISR and Business

Insurance policies, Farm & Home Insurances could be excluded as Aircraft or Aircraft

accessories & parts are excluded property

CASA advises that Hire or Reward Drone users also MUST have an Operators Certificate

CASA also advises that any business or individual using a drone(s) for reward or hire need to

have an Unmanned Aerial Vehicle (UAV) Operators certificate which is a complicated and

costly process that involves –

1. A course for the operator/controller to understand regulations & compliance

issues

2. A nominated chief operator/controller

3. A nominated maintenance person ( although 2 & 3 can be the same person)

4. To be approved the Operator, Controller & Maintenance person(s) will need to

pass an interview by CASA

5. When operating or managing the operation of any Unmanned Aerial Vehicle

/Drone the operator must comply with the CASA usage regulations

Additionally there are many regulations that must be complied with whilst using a Drone

for both Hire & Reward and Sports & Recreation


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Attached at the end of this White paper is a CASA document outlining the regulations

applying to use of Drones for sports & recreation purposes. These regulations plus other

regulations also apply to hire & reward users. We summarise these regulations as –

You must only use the model aircraft (CASA words for Drones used for sports &

recreational purposes only) in your line of sight in daylight – don’t let it get too far

away from you

You must not fly closer than 30 metres to vehicles, boats, buildings or people

You must not fly over any populous area, such as beaches, other people’s backyards,

heavily populated parks or sports ovals where there is a game in progress

If you are in controlled air space, which covers most Australian cities, you must not

fly higher than 120 metres

You must not fly within 5.5 klms of an airfield

Hire or reward users must also comply with all the above regulations for sport &

recreational users plus others set out by CASA and obviously covered in any training that

they provide.

Non Compliance to these regulations may leave your clients exposed to CASA fines &

penalties and may cause them to fail to meet their obligations under OH&S laws and other

Legal Liabilities

CASA advised that they presently have around 400 certified operators.

However from our AIMS perspective, on the basis of the above numbers, we can assume

that there must be many businesses that do not have the necessary certification and like

many sports & recreational users, have little idea of the rules & regulations to which they

must comply.

Those client’s that operate their Drones for their own business have an increased legal

liability exposure together with the insurance issues as outlined in this paper.

Third Party Usage insurance issues

Because of the certification issues CASA advised there seemed to be an increasing use by

businesses of third parties to carry out Drone work.

Those businesses who have decided to use third parties for their Drone work will need to

check that the provider has the necessary specialised insurance and are fully certificated

and meet CASA requirements. If not this could create potential issues for your client’s

business.


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Vero Liability

In December 2015 AIMS sent out an email to our members advising how Vero had been pro-

active as the first Australian Insurer to include coverage for Drones into their standard AIMS

Broadform Liability policy wording for policies renewed on & after the 27th October 2015

and new business commencing from that date.

Vero AIMS Broadform (CGL) Liability insurance We attach, at the end of this report, a copy of their wording change to allow for the commercial use of Drones BUT we make the following points about this new cover that severely limits the extent of the cover– This Policy does not cover any liability directly or indirectly caused by or arising from:

1. the ownership, maintenance, operation, possession or use of Drones where the client provides Drone services for remuneration as part of their Business;

2. the ownership, maintenance, operation, possession or use of Drones carrying a payload other than fixed photographic, video, surveillance, measuring or monitoring equipment;

3. Drones with a maximum takeoff weight greater than 10kg; 4. Drones operated or used outside the operator’s Line of Sight; 5. If the client’s Products are Drones; 6. Any breach of privacy law resulting from the operation or use of Drones 7. Any breach of Civil Aviation Safety Regulations (Subpart 101)

(i) The operator (where required by law) must hold a valid UAV Operators Certificate as issued by CASA and comply with the terms and conditions of such Certificate;

(ii) the controller (where required by law) must hold a valid UAV Controller Certificate as issued by CASA and comply with the terms and conditions of such Certificate; All these restrictions would need to be highlighted to those clients who use a Drone for their business needs. Clients who provide Drone services for reward will need to have a specialised Drone Insurance, there are some underwriters who provide this cover.

Drones used for sport or recreational purposes The issues for our Domestic & Farm Domestic covers is much better.

CASA says Drones used for sports or recreation are Model Aircraft but this does not

necessarily mean that insurers will accept this definition.


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Provided we can obtain confirmation that our Underwriting Partners accept this definition

the client will have Liability protection for sports & recreational use.

An issue exists under the Contents section of cover with the term “non –piloted”. It remains

a question to be answered as to whether a Drone is non-piloted and puts at question any

loss, damage or theft cover under the Domestic insurances.

AIMS Current Actions On The Drone Issue

Commercial (hire & reward) usage After the release of the Vero amendment to the AIMS Broadform liability policy to allow for

limited commercial use of Drones we wrote to all other partners and asked them to advise

whether they are prepared to grant automatic cover for the use of Drones –

1. CGU have come back and advised they are prepared to provide the cover but will

only look at these on a case by case basis.

2. QBE have a specialized Drone Insurance product but we are still awaiting their reply

to our request for the Broadform liability policy

We will let you know the outcome of this request when the other Underwriters reply.

AIMS will also be obtaining from each partner their view in writing on their understanding of

whether using a Drone for commercial purposes is a model aircraft from a Liability Insurance

perspective.

We also want to understand the wording implications of a client using a drone for business

use and not being certified. Under the Vero extension there would be no cover but given we

believe many clients do not have CASA Certificates how will this affect any cover even if

underwriters agree to cover Drones.

Domestic (Sports & recreational) usage As regards Domestic Insurances (including the Farm Domestic Insurances) we will –

Obtain our partners agreement that Drones used for sport & recreation purposes

are Model Aircraft


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Ask them to exclude the term “non –piloted” from the contents section

definition

AIMS Business Insurance Theft Section

Just for clarification purposes we will write to our Underwriting Partners and

obtain confirmation that the term “ theft of motorised vehicles” does NOT

include Drones

Vero Endorsement Number: AIMS80

Aircraft, Watercraft Endorsement Exclusion 5.2 Aircraft, aircraft products, watercraft and hovercraft is deleted and replaced by: 5.2 Aircraft, aircraft products, watercraft and hovercraft Claims arising out of:

(a) the ownership, maintenance, operation, possession or use by You of any Aircraft; Provided that exclusion 5.2 (a) does not apply to claims arising out of the ownership, maintenance, operation, possession or use of Drones in Australia subject to:

(i) the operator (where required by law) holding a valid UAV Operators Certificate as issued by CASA and compliance with the terms and conditions of such Certificate; and/or (ii) the controller (where required by law) holding a valid UAV Controller Certificate as issued by CASA and compliance with the terms and conditions of such Certificate;

(b) the ownership, operation or use by You of any Watercraft or Hovercraft exceeding 15 metres in length, while such Watercraft or Hovercraft is on, in or under water. Provided that 5.2 (b) does not apply to claims arising out of:

(i) Watercraft used in operations carried out by independent contractors for whose conduct You may be held liable; (ii) Hovercraft owned or operated by others and used by you for Business entertainment; (iii) Watercraft owned by others and used by you for Business entertainment; (iv) Sailing craft or other non-powered craft exceeding 15 metres in length, while in Australian territorial waters.

(c) Your Products that are Aircraft or Aircraft component parts used for maintaining an Aircraft in flight or moving upon the ground or used in the construction of an Aircraft hull or machinery which to Your knowledge are incorporated in an Aircraft.


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Additional Exclusion in respect of Drones This Policy does not cover any liability directly or indirectly caused by or arising from: (a) the ownership, maintenance, operation, possession or use of Drones for military or law enforcement purposes; (b) the ownership, maintenance, operation, possession or use of Drones where You provide Drone services for remuneration as part of Your Business; (c) the ownership, maintenance, operation, possession or use of Drones carrying a payload other than fixed photographic, video, surveillance, measuring or monitoring equipment; (d) jet propelled Drones; (e) Drones operated or used outside the operator’s Line of Sight; (f) Drones with a maximum take off weight greater than 10kg; (g) Your Products that are Drones; or (h) breach of privacy law resulting from the operation or use of Drones;

(i) a breach of Civil Aviation Safety Regulations (Subpart 101) including but not limited to: (i) Subpart 101.065 Operation on prohibited or restricted area; (ii) Subpart 101.070 Operation in controlled airspace; (iii) Subpart 101.075 Operation near aerodromes; (iv) Subpart 101.080 Permission for operation of unmanned aircraft near aerodrome; (v) Subpart 101.085 Maximum operating height; (vi) Subpart 101.090 Dropping or discharging things; (vii) Subpart 101.095 Weather and day limitations; (viii) Subpart 101.245 Operation near people; (ix) Subpart 101.250 Where small UAVs may be operated; (x) Subpart 101.280 UAVs not to be operated over populous areas; (xi) Subpart 101.285 Use of aeronautical radio.

Additional Definitions

For the purpose of coverage provided in this endorsement: Drone shall mean unmanned aerial vehicles (other than fireworks, rockets, balloons or kites) used for commercial purposes only in connection with the Business stated in the Policy Schedule. CASA shall mean Civil Aviation Safety Authority as specified under Section 8 of the Civil Aviation Act 1988 (Cth). Line of Sight shall mean direct visual contact only aided if required by spectacles or contact lenses. Subject otherwise to the terms, General Conditions, Claims conditions and exclusions of the

Policy.


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Whilst AIMS is not able to offer legal advice, we may be able to assist in providing more

clarification. If required, please contact


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AIMS (A&I Member Services), is the member services provider to

Austbrokers and IBNA. AIMS is a joint venture between the two,

and works for the collective benefit of the member brokers.

www.aims.insure

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