|June 26, 2014|
Previously published on June 2014
Although the use of Unmanned Aerial Vehicles (“UAVs”) is not new, as commercial usage explodes over the next several years, unique insurance issues will arise. How will underwriters handle this topic when risks are largely unknown? What insurance will be required for each type of entity involved with UAS operations? Will contractual indemnification clauses need to be changed in conjunction with insurance policies? One thing is clear: increased UAS operations will mean increased liability issues. Causes of action based upon tort, contract, and intellectual property laws, as well as constitutional issues (First Amendment; Fifth Amendment “taking” of property without just compensation; Fourth Amendment warrantless “searches”) will arise.
II. Insurance Issues
Along with the legal framework governing UASs, the insurance market will have to be adjusted. One major problem is that the risks of unmanned flight are largely unknown at this point. The insurance market will have to consider who is in the best position to pay. The question of how to spread the risks may very well be based on the standards and rules set by the Federal Aviation Administration (“FAA”).
Three basic types of insurance will likely come into play with regard to UAVs. The first and perhaps most obvious is first party “hull insurance”—that is, insurance against damage to the UAS itself. The second is general liability insurance to cover a range of potential liabilities, including lawsuits for damage to person and property, invasion of privacy, trespass, and nuisance. Moreover, there will be a need for products liability and personal injury/property damage coverage for manufacturers, distributors, data/avionics companies, owners, operators, consultants, and customers entering the UAS market.
The insurance market will also have to consider possible defendants. The FAA could be sued for its authorization of UAS operations in certain airspace. The owner of a UAS could be sued on several bases, including negligent operation or negligent training or hiring of a pilot, and the pilot could also be sued for his or her own negligence. Product manufacturers will also need insurance to guard against suits for software malfunctions, design and manufacturing defects, inadequate warnings, breach of warranty, or failure to comply with to-be-determined safety standards. Moreover, similar to flight schools, UAS operation training facilities may be subject to liability. If a particular UAS usage is deemed to be an ultra-hazardous activity, then some of these parties may be subject to strict liability. In addition, contractual indemnification/duty to defend/duty to insure agreements will need to be crafted to protect interests among the various parties, including among owners, operators, manufacturers, pilots, training and/or rental facilities, and even property owners who allow use of their property for UAS flights.
With regard to personal injury suits, UAS capabilities create even more potential for violation of privacy, especially with respect to data collection. Policies may provide UAS-specific coverage for trespass, nuisance, and invasion of privacy; or UAS exclusions may be added to policies. Insurers, as well as the public, may be highly suspicious of UASs and likely to assess liability against a UAS versus other parties to a lawsuit. If the contest at trial is between a pilot of a manned aircraft versus an unmanned UAV, there is no “human factor” for the UAV for a jury to consider (other than possibly the drone operator, who may not have witnessed any collision or other incident). There are also fears, as we move in the direction of widespread UAS usage, of even more loss of privacy, and whether we are moving towards a “machines take over the world” scenario.
Widespread use of UASs will be a reality in the very near future. The insurance industry is already moving forward to cope with this scenario, but further efforts are required in short order.