“Drones AKA Unmanned Aerial Vehicles – Problems, Solutions

and Insurance”2016

Presented byJohn O. Eubank, CPCU, ARM

PresidentProfessional Insurance Education, Inc.

HISTORY OF DRONES1849- Austrians attacked with unmanned balloons

1903 - Wright Brothers 1ST FLIGHT-Dec. 17th

1914-1918 – First Pilotless aircrafts

History (Cont’d)

1946 - Popular Science: “Drones, as the radio-controlled aircraft are called, have many potentialities, civilian and military.(You think!)1981 – Regulation of Model Aircraft

FAA Regulations– Changing as we speak!

PIONEER DAYS

A month in ‘drone’ law -------is a year in other aspects of the law!

So many moving parts:Federal v State v Local Governments v FAA v Homeowners v Commercial Insurance v Hobby v Profit Making Ventures v Governmental

TERMS

• Aircraft - any contrivance invented, used, or designed to navigate, or fly in, the air

• Drone: The “D-Word”

TERMS (Cont’d)• UAV: Unmanned aerial vehicle• Unmanned Aircraft: Operated without the

possibility of direct human intervention on board• UAS: A small unmanned aircraft (which, as

defined by statute, weighs less than 55 pounds) and equipment necessary for the safe and efficient operation of that aircraft. The 55 pounds comes from the equivalent of the FAA the International Civil Aviation Organization (ICAO). They set the weight at 25 KG, which is 55 pounds.

Regulations

• FMRA: Federal Modernization and Reform Act of 2012• By law, any aircraft operation in the national airspace

requires a certificated and registered aircraft; a licensed pilot, and operational approval. Section 333 of FMRA grants authority to operate in the National Airspace System (NAS)

• The FAA prior to August 29, 2016 accommodated non-recreational small UAS use through various mechanisms, such as special airworthiness certificates, exemptions, and Certificates Of Authority (COAs).

NPRM Part 107• August 29, 2016 the FAA introduced the Notice of

Proposed Rulemaking. The NPRM outlines operating and certification requirements to allow small unmanned aircraft systems to operate for non-hobby and non-recreational purposes.

• This rule creates a Part 107 in title 14 of the Code of Federal Regulation (CFR). Part 107 addresses the risks associated with UAS operations.

• Specifically, for small UAS operations, the requirements of Part 107 will generally replace the previous 333 regulations.

Part 107

• The entire Part 107 can be found at the www.faa.gov site

Does Not Apply To Hobby Aircraft

• Part 107 will not apply to all small UAS operations, including certain Model aircraft.

• Additionally, Part 107 will allow current holders of an exemption issued under section 333 of Public Law 112-95 to continue operating under the terms of their exemption, until its expiration, rather than under Part 107.

Model Aircraft

• Unmanned aircraft capable of sustained flight flown within visual line of sight of the person operating the aircraft• Flown only for hobby or

recreational purposes.

Term (Cont’d)

• Anything over 55 pounds is still a “UAS” for regulatory purposes. • Under ½ pound not defined,

but the FAA is working on this term—stay tuned.

TERMS (Cont’d)

• Remote Pilot in Command (PIC): Has the final authority and responsibility for the operation and safety of small UAS operation conducted under part 107 of the NPRM.

TERMS & More Terms

• Visual Line of Sight (VLOS) or (LOS): unaided visual contact between a pilot in command and UAS

• Autonomous flight: Some UAVs with internal programming that tells it where to fly. UAV may use its on-board GPS system to fly from one predetermined point to another.

And More Terms

• Collision avoidance: Systems to prevent them from flying into fixed objects or other aircraft. (Some units already have)

ISO’s DEFINITION

"Unmanned aircraft” means an aircraft that is not:1. Designed;2. Manufactured; or3. Modified after manufacture;to be controlled directly by a person from within or on the aircraft.

Herding Cats

• FAA and State Governments are trying to regulate the sky! • The best sites to stay current are:• www.FAA.gov• http://www.modelaircraft.org

Is Your UAV Registered?

• All drones weighing between 0.55 lbs. and 55 lbs. must be registered with the FAA• Operators flying unregistered drone

could incur fines up to $27,500 in civil penalties, and fines up to $250,000 and prison time in criminal penalties.

The Problems

• Trespass• Invasion of privacy• Bodily Injury• Property Damage

Cuius est solum, eius est usque ad coelum et ad inferos

• Latin maxim, "whoever's is the soil, it is theirs all the way to Heaven and all the way to hell”

As stated in the Restatement (Second) of Torts

• The biggest issue with UAS is privacy - Flight by aircraft in the air space above the land of another is a trespass if, but only if …

Trespass

It enters into the immediate reaches of the air space next to the land, and It interferes substantially with the other’s use and enjoyment of his land.

Court Case & Other Legal Measures

• Federal Court cases

• Privacy is evolving

Federal Law---Today or Yesterday

• The “FAA” has the exclusive authority to govern airspace• Class G airspace “Uncontrolled"

airspace in the United States. It isn't charted, and it exists wherever Class A, B, C, D or E doesn't.

FEDERAL REGULATION-Government Operation of UAV

• 4TH AMENDMENTTo create a constitutional buffer between U.S. citizens and the intimidating power of law enforcement. (Search Warrant)We could (and the courts have) spent years on ‘Constitutional Law’

5th Amendment - Government Operation of UAV

• 1946 SCOTUS Causby Case. It was related to ownership of airspace above private property.

• In this case, Causby sued the United States for trespassing on his land, complaining specifically about how "low-flying military planes caused the plaintiffs' chickens to 'jump up against the side of the chicken house and the walls and burst themselves open and die”

• The plaintiffs sued the government, arguing that they were entitled to compensation under the Takings Clause of the 5th Amendment

Shooting The Drone

• A property owner cannot shoot at an unmanned aircraft operating in navigable airspace within the exclusive jurisdiction of the United States.

Flying Computer

• Remember with a camera, the UAV becomes a flying computer that can immediately download data to anywhere

I’M NOT AN ATTORNEY

1. Intrusion (pictures/videos) upon seclusion

2. Appropriation of likeness3. Publication of private facts4. False Light

Intrusion Upon Seclusion

“One who intentionally intrudes, physically or otherwise, upon the solitude or seclusion of another, or his private affairs or concerns, is subject to liability to the other for invasion of privacy, if the intrusion would be highly offensive to areasonable person.”

Appropriation of Likeness

Right of a person to be free from unwarranted publicity or unwarranted appropriation or exploitation of one’s personality.

Publication of Private Facts

• Publishing private facts about another person, even if those facts are true.

• “Private facts" refers to information about someone's personal life that has not previously been revealed to the public, that is not of legitimate public concern, and the publication of which would be offensive to a reasonable person.

False Light

• Involves presenting a person in such a way that leaves a negative and inaccurate impression about that person.

• Person who published materials had knowledge material was false.

• Example – Photo shopping a person.

State Regulation

• The National Conference of State Legislatures has compiled one of the most comprehensive databases to date of state “drone laws.” You will need to sign up, but it’s free.

• Go to: http://www.ncsl.org

FAA “FACT SHEET”

• As a general matter, any state law that tries to restrict the operation of aircraft, including unmanned aircraft, is probably preempted.

• The FAA’s fact sheet states: “Congress has vested the FAA with authority to regulate the areas of airspace use, management and efficiency, air traffic control, safety, navigational facilities, and aircraft noise at its source.”

SC/NC Law

South Carolina – No UAV laws currently passedNorth Carolina – State Statute 15A-300.1 Restriction on use of unmanned aircraft system

USES FOR sUAV – They are tools not just toys!

• Real estate sales• Videos for commercials• Sports photography• Hunting and anti-hunting• Environmental compliance• Photography of weddings, etc.• Motion pictures• Shoreline surveys of sea turtle nesting • Fire department use of UAS

Three Ds: Dirty, Dull, or Dangerous.• Highway monitoring• Bridge, building surveys and surveying land.• Wildlife research – Aerial count of wildlife• Atmospheric research• Precision Agriculture• As-built inspections (in 3-D!) for buildings• Public Safety: finding lost children and adults• Emergency Management• Power line surveys• Surveys of mining operations• Disaster relief

InsuranceLast, but not least, insurance applications for underwriting, loss adjustment and catastrophe

Hobby/Model Aircraft

• Part 107 does not apply to model aircraft that satisfy all of the criteria specified in section 336 of Public Law 112-95. More in a minute

• The rule codifies the FAA’s enforcement authority in part 101 by prohibiting model aircraft operators from endangering the safety of the NAS.

Model/Hobby (Non Commercial drones)

• FAA recommends that amateur drone operators (Remember this could be a juvenile or a senior citizen operator) follow safety guidelines established by Academy of Model Aeronautics (AMA).

• Fly below 400 feet and remain clear of surrounding obstacles

• Keep the aircraft within visual line of sight at all times, use a spotter if necessary – Must be able to see with naked eye

• Do not interfere with manned aircraft operations• Don't fly within 5 miles of an airport • Fly on licensed AMA fields• Don't fly near people or stadiums – How near?

MORE MODEL/HOBBY

• Don't fly an aircraft that weighs more than 55 pounds. The airframe must weigh fifty-five pounds or less, fully loaded on takeoff. The weight includes all components and the payload.

• Do not intentionally fly over unprotected persons or moving vehicles, and remain at least 25 feet away from individuals and vulnerable property

• Do not fly in adverse weather conditions such as in high winds or reduced visibility

• Do not fly under the influence of alcohol or drugs – We assume that is the pilot!

More on Hobby• Ensure the operating environment is safe and that the

operator is competent and proficient in the operation of the UAS

• Do not fly near or over sensitive infrastructure or property such as power stations, water treatment facilities, correctional facilities, heavily traveled roadways, government facilities, etc.

• Do not conduct surveillance or photograph persons in areas where there is an expectation of privacy without the individual’s permission.

• For more safety information, please download the Know Before You Fly Brochure from the FAA

Lawsuit Possibilities – APPLICABLE TO BOTH PERSONAL & COMMERCIAL

A. Invasion of privacy claims against drone operators – We have talked about this.

B. Data breach claims against drone owners/operators if resulting data is hacked

More Lawsuits

C. Drone crash resulting in property damage D. Drone crash resulting in bodily injury of a third-party E. Drone crash resulting in damage to the drone itself F. Class action shareholder litigation alleging improper implementation of drone program by management (D &O)

MORE LAWSUITSG. Non-commercial drone operator results in bodily injury, property damage and/or personal injury (homeowners’ coverage)H. Drone related incident leads to the grounding of a company’s drone delivery fleet (business interruption coverage)I. Product liability claims against drone manufacturers if one of their drones malfunctions due to manufacturing and/or design defect (product liability coverage); Breach of Warranty; Provide adequate warning or instruction failure.

More Lawsuits

J. Risk transfer/indemnification agreements with third-party drone operators for companies that implement drone usage but do not perform this function in-house

K. Airports/Air Traffic Control errors

L. Terrorist – Extortion, Cyber Hacking

Now Lets Talk Insurance

1. Homeowners2. Commercial General Liability3. Inland Marine4. BOP ??????????????5. Other than ISO

Reasons for Insurance

• Existing policy exclusions. Most insurance company commercial general liability (CGL) policies contain exclusions for aviation exposures, which are likely to apply to drones.

• Contractual requirements. Business customers eventually may require liability insurance as a condition of doing business.

Reasons (Cont’d)

• Legal environment. The plaintiffs’ bar may be gearing up to bring suits against companies whose drones cause property damage or bodily injury.

• Reputation. Drone insurance signals prospective customers that the insured firm is professional, thorough and reputable.

Insurance under ISO Homeowners

• The 1991, 2000 and 2011 ISO Editions are all essentially the same• NON ISO CAN VARY A LOT!

The ISO HO Exclusion says:

C. "Aircraft Liability"This policy does not cover "aircraft liability".

*********************************************

• 1. “Aircraft Liability”. For the purpose of this definition:

(1) Aircraft means any contrivance used or designed for flight except model or hobby aircraft not used or designed to carry people

or cargo;

Exception to Exclusion

So when we insert the Definition into the exclusion we have the famous ISO ‘exception to the Exclusion’ coverage.

Damage to the UAS

4. Property Not CoveredWe do not cover:d. Aircraft, meaning any contrivance used or designed for flight, including any parts whether or not attached to the aircraft.We do cover model or hobby aircraft not used or designed to carry people or cargo;

HO MEDICAL PAYMENTS

Under Medical Payments:B. Coverage F – Medical Payments To OthersWe will pay the necessary medical expenses …causing "bodily injury". …, this coverage applies only: …

2. To a person off the "insured location", if the "bodily injury":

b. Is caused by the activities of an "insured";

Homeowners Business Exclusion for Medical Payments

Coverages E and F (Exclusion for Liability & MP) do not apply to the following:

2. "Business"a. "Bodily injury" or "property damage" arising

out of or in connection with a "business" conducted from an "insured location" or engaged in by an "insured", whether or not the "business" is owned or operated by an "insured" or employs an "insured".

…b. This Exclusion E.2. does not apply to:

Medical Payments

(2) An "insured" under the age of 21 years involved in a part-time or occasional, self-employed "business" with no employees;The FAA requires ANY commercial use of a Drone (UAS) to have 333 Approval (now Part 107) . Will this happen for a part time business????????(3) Professional Services"Bodily injury" or "property damage" arising out of the rendering of or failure to render professional services;Depending on what the part time business did this could apply.

Privacy Issues – This is the big issue. Privacy issues

ISO’s HO 24 10 05 11 PERSONAL INJURY COVERAGE

This endorsement, under ISO rules, is added by endorsement. It says in part:

Under the Definitions:

"Personal injury" means injury arising out of one or more of the following offenses, but only if the offense was committed during the policy period:

HO 24 10 (Cont’d)

• The wrongful eviction from, wrongful entry into, or invasion of the right of private occupancy of a room, dwelling or premises that a person occupies, committed by or on behalf of its owner, landlord or lessor;

• Oral or written publication, in any manner, of material that slanders or libels a person…

• Oral or written publication, in any manner, of material that violates a person's right of privacy.

EXCLUSION – DISCUSS WITH UNDERWRITER

This insurance does not apply to:1. "Personal injury":a. Caused by or at the direction of an "insured"

with the knowledge that the act would violate the rights of another and would inflict "personal injury";b. Arising out of oral or written publication of material, if done by or at the direction of an "insured" with knowledge of its falsity;…d. Arising out of a criminal act committed by or at the direction of an "insured";

“What’s In Your HO Policy?”

• There are insurers that don’t have the ‘give back’ for BI and PD.

• There are insurers that don’t offer the HO 24 82.

• There are insurers that automatically add ‘Personal Injury’ Coverage.

• Do you know which ones of yours do----or do not?

Non ISO Insurance for Hobby & Models UAV

Academy of Model Aeronautics Full "OPEN" Membership:• Age 19-65 - $75; 65 & over - $65; Under 19 (as of July 1st) -

Free• Benefits: $2,500,000 BI & PD liability insurance coverage

Personal Injury (?????)• $25,000 Medical Coverage-AD&D Policy ($10,000 Death

Benefit)• $1,000 Fire, Theft, and Vandalism coverage

ISO CGL Forms (CG 00 01)

• All Editions of an unendorsed ISO CGL exclude aircraft - only under Coverage A (BI & PD)

• “Bodily injury" or "property damage" arising out of the ownership, maintenance, use or entrustment to others of any aircraft, "auto" or watercraft owned or operated by or rented or loaned to any insured.

• Aircraft not defined

What About A Subcontractor?

• The exclusion only applies to aircraft which are owned, operated, rented or loaned to any insured. Therefore, the insured still has coverage for vicarious liability, such as arising from aircraft owned or used by sub-contractors or independent contractors. (This could be a big deal if insured uses a sub to operate their drone)

Contractual Liability

• What do contracts say if your insured is using a subcontractor to take pictures?• Has your insured been added to their

aviation policy as an Additional Insured?• What does AI endorsement say?

Coverage B

Under the unendorsed CGL form there is no exclusion for aircraft under ‘Personal’ Injury

June 1, 2015 ISO Endorsements

ISO introduced• 7 new endorsements to the CGL• 7 new endorsements to Commercial

Umbrella/Excess forms• Revisions to 2 current CGL endorsements, and 2

current Commercial Umbrella/Excess endorsements.

• All have an edition date of “06 15.” • Doesn’t mean all insurers are using!

CG 21 09 06 15This endorsement has 3 sections (A, B, and C)Section C adds this Definition:

C. The following definition is added to the Definitions section:"Unmanned aircraft" means an aircraft that is not:1. Designed;2. Manufactured; or3. Modified after manufacture;to be controlled directly by a person from within or on the aircraft.

CG 21 09 (Cont’d)Adds exclusion (1) to Coverage A

g. Aircraft, Auto Or Watercraft (1) Unmanned Aircraft"Bodily injury" or "property damage" arising out of the ownership, maintenance, use or entrustment to others of any aircraft that is an "unmanned aircraft". Use includes operation and "loading or unloading". This Paragraph g.(1) applies…

CG 21 09 (Cont’d)

Here is the section B. of the CG 21 09 06 15:

B. The following exclusion is added to Paragraph 2. Exclusions of Coverage B -Personal And Advertising Injury Liability:

CG 21 09 (Cont’d)

2. ExclusionsThis insurance does not apply to:Unmanned Aircraft"Personal and advertising injury" arising out of the ownership, maintenance, use or entrustment to others of any aircraft that is an "unmanned aircraft".

The Other Category CG 21--

• Exclusion – Unmanned Aircraft (Coverage A Only) (CG 21 10 06 15): As the name suggests, this exclusionary endorsement applies to Coverage A only; and

• Exclusion – Unmanned Aircraft (Coverage B Only) (CG 21 11 06 15): This endorsement applies to Coverage B only.

CG 24-- Endorsements• These are Limited Coverage Endorsements

• Limited Coverage for Designated Unmanned Aircraft (CG 24 50 06 15): This endorsement extends limited protection under both Coverage Parts A and B;

• Limited Coverage for Designated Unmanned Aircraft (Coverage A Only) (CG 24 51 06 15): Extends protection for Coverage Part A -

• Limited Coverage for Designated Unmanned Aircraft (Coverage B Only) (CG 24 52 06 15): Provides limited coverage for Coverage Part B) losses only.

ISO UMBRELLAS

Under an Edition Date of Nov. 2016 is introducing three additional optional endorsements for use with theCommercial Liability Umbrella Coverage Part:

The main one is:

• CU 21 74 Exclusion – Unmanned Aircraft –Limited Following Form Exception, to expressly exclude bodily injury, property damage and personal and advertising injury arising out of the ownership, maintenance, use or entrustment to others of any unmanned aircraft, but contains an exception to the exclusion generally providing that the exclusion does not apply to the extent that valid underlying insurance exists for the unmanned aircraft.

ISO Commercial Insurance SummaryBOP

As of December 1, 2016 there will be BP 15 11 to exclude BI, PD & P/A arising out of the ownership, maintenance, use or entrustment to others of any unmanned aircraft regardless of whether such aircraft is owned or operated by or rented or loaned to any insured.Designated Unmanned Aircraft Coverage BP 15 12. Coverage for bodily injury and property damage, and/or personal and advertising injury may be excluded with respect to unmanned aircraft, but with an exception to provide limited coverage for designated unmanned aircraft and only with respect to designated operations or projects.

Update (Cont’d)1. March 2016 ISO introduced several Inland Marine forms (IH 00 61) to serve as options for addressing certain property exposures relating to unmanned aircraft property and cargo carried by such aircraft

2. Insurers may have their own endorsements that are similar to or entirely different from the ISO documents. Defense cost in addition to policy limits – Standard

ISO CGL and Umbrella forms pay defense cost in addition to any indemnity payments. Be sure insurer forms do also

Non-ISO UAS Markets

• There are many markets for UAS insurance. • “UNMANNED AVIATION RISK

MANAGEMENT, ACCIDENT PREVENTION AND INSURANCE ” published by, and available from, WWW.Global-Aero.com

Common questions that come up regarding UAV insurance

1. Do I need insurance for my drone?2. How much does UAS insurance cost?3. Do I need to be approved by the FAA to obtain UAS insurance?4. FAA makes no mention of insurance requirements

Summary & Possible Answers

We don’t have time for “Questions” AND Answers! There are far more Questions than answers.

Many of the answers will be determined in our courts and maybe not ?????? .

The Future

• Today• Tomorrow• Next Week• Next Month• Next year

• WHO KNOWS!!!!!!!!!!!

Thank you for the privilege of your time!