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21 Jan 15 14:49

Once used to describe the male honeybee that mates with the queen, the word “drone” has taken on new meaning. Today, it more commonly refers to unmanned aircraft of various sizes, shapes and designs. Drones have become big business, manufacturing has taken off and one estimate shows annual spending on commercial and military drones reaching $11.6 billion by 2023.

In the US alone the design, manufacture and operation of drones could create thousands of new jobs. We’ve come a long way since the days when the first drones were balloons; one actually flew surveillance for the Lincoln’s troops in the Civil War! Today, drones are widely used by the military, CIA, law enforcement and businesses of every stripe—from insurance to real estate to utilities to film-making. Even education: MIT uses drones to help students find their classroom.

In the US, the Federal Aviation Administration (FAA) is expected to release regulations next year that will address certification and public safety. What’s unclear is if the FAA will also regulate the thousands of smaller hobby aircraft hovering over neighborhoods and parks. It can be argued they also create a nuisance and potential for danger. To date, various courts have ruled the FAA has no jurisdiction over model aircraft, even when used for commercial purposes. In Canada a permit is required for commercial drone use and various groups are calling for increased regulations and standards.

Regardless of their design or use, drones are creating challenges and opportunities for insurers. Safeguarding these unique assets and protecting the balance sheets of their owners can be a risk worth assuming as long as underwriters get a firm grasp on what’s out there and the potential consequences.

Swiss Re is keeping close watch on claims and underwriting developments to help our clients make informed decisions. We just released a report “Insurance and the rise of drones.” Written by property and casualty underwriters and claims and legal experts, the report describes the growing use of drones and examines how various policies may respond in a variety of scenarios, with a particular eye to exclusions.

The list of insurance policy forms likely to be affected is extensive: everything from Property and General Liability to Aviation Liability, Professional Liability and D&O. So far the case law is limited, yet we can expect a myriad of legal issues to arise, including privacy, physical damage, personal injury, trespass and nuisance. In many cases, existing tort law will apply.

The list of “what ifs” is long, and growing:

- What if a drone crashes into people or property on the ground, or into another aircraft?

- What if a person’s photo is taken from a drone and that photo is used for commercial purposes?

- What if a surveyor leases a drone and in the course of operating it causes bodily harm?

- Does the surveyor have assumed liability under a contract with the drone’s owner?

- If an insured operates a neighbor’s drone for the insured’s benefit without compensation, would the non-owned aircraft exception to an exclusion apply?

- When defining a personal property exclusion on aircraft not carrying cargo, is a camera considered cargo?

No doubt this exercise can stretch the imagination, but where drones are concerned a curious mind is a prerequisite for contemplating all of the likely ramifications between takeoff and landing. Clearly, this is not a time to wing it.

Take a moment to check out our new publication to learn more about issues related to underwriting, commercial drone usage, property insurance, commercial general liability and more.

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