Drone Insurance Coverage Highlights

There is no escape from the buzzing of the drones anymore. Drones, officially known as unmanned aircraft systems (“UAS”) are taking off everywhere. Virtually every gift recipient or hobbyist is discussing or exploring the possible use of drones in a business setting. Some, with an eye of incorporating this new tool into their business; others with the idea of starting a brand new business.

There is a critical distinction that must be made at the outset; there are only two categories of drone use, hobby/recreational and commercial. If a drone is used for recreation and there is no connection to any business aspect, it is legal to operate it under Federal Aviation Administration (“FAA”) guidelines. If the use is commercial, it is illegal; no exceptions exist for general drone use in the United State’s air space. A very limited number of specific exceptions exist for government agencies and a very limited number of approved uses by private companies.

We have received many inquiries from companies using drones to assist in their business under the claim that they do not directly receive payment for the use of the drone and therefore believe that they are safe to operate the UAS under the recreational guidelines. This position is wrong and unsupportable under the law. Others claim that the FAA does not pass laws and has not banned the use and therefore it is ok to use them in a commercial setting. This group must be placed in the same category as the people that assert frivolous tax arguments such as the claim that the IRS does not have the authority to collect taxes.

There are two recent developments that clearly establish that it is illegal to use a drone for any purpose related to commercial activity. The decision in the appeal of Huerta, FAA v Pirker, NTSB Order No. EA-5730, November 17, 2014 found in favor of the FAA on the issue of whether a drone is an “aircraft” under the control of the FAA. The operator of the UAS in Huerta is subject to a $10,000 penalty for careless operation of his remote controlled blimp.

The NTSB found that:

This case calls upon us to ascertain a clear, reasonable definition of “aircraft” for purposes of the prohibition on careless and reckless operation in 14 C.F.R. § 91.13(a). We must look no further than the clear, unambiguous plain language of 49 U.S.C. § 40102(a)(6) and 14 C.F.R. § 1.1: an “aircraft” is any “device” “used for flight in the air.” This definition includes any aircraft, manned or unmanned, large or small. The prohibition on careless and reckless operation in §91.13(a) applies with respect to the operation of any “aircraft” other than those subject to parts 101 and 103. We therefore remand to the law judge for a full factual hearing to determine whether respondent operated the aircraft “in a careless or reckless manner so as to endanger the life or property of another,” contrary to § 91.13(a).

The second development was the January 8, 2015 FAA announcement of UAS Guidelines for Law Enforcement. The FAA announced that:

The proliferation of small, relatively inexpensive unmanned aircraft (UAS) presents the Federal Aviation Administration with a challenge in identifying people who don’t follow the rules of the air or who endanger the nation’s airspace. So, the agency is asking the law enforcement community for help.

The Law Enforcement Guidance for Suspected Unauthorized UAS Operations provides clear direction to law enforcement for the investigation, reporting, arrest and potential prosecution of persons operating a drone for any purpose related to business. Any claim that a drone may be operated for a purpose related to a business is now closed until such time as the FAA issued revised guidelines or creates an avenue for legal operation.

The fact that commercial drone use is illegal impacts the potential insurance coverage available to a business that uses drones. Currently, many businesses are operating drones, selling aerial imaging services, obtaining real estate photos or otherwise knowingly or unknowingly operating drones illegally in their business. Many with the caviler attitude that they do not care stating that “all of us fliers are just doing what we’re doing until they come down with rulings.”

Consequently, a business that uses a drone for any purpose is engaged in an illegal activity. This raises the question of whether there is any insurance coverage for the operation of the drone. The standard commercial general liability policy provides coverage for bodily injury, property damage and personal injury among other coverages. The insurance coverage afforded under the policy may be excluded for many reasons including

  1. Bodily injury or property damage arising out of the use of any aircraft;
  2. A knowing violation of the rights of another; or
  3. Personal injury arising out of a criminal act committed by or at the direction of the insured.

The UAS has the potential to cause traditional damages such as damage to property or damage to a person but, it also has the potential to cause non-traditional injury such as the invasion of the right of privacy. Under the standard commercial general liability policy, there is a strong potential that an insurance company may deny coverage for damages arising from the operation of a drone. Any business that is operating a drone should seek the opinion of an attorney regarding whether their activity is exposing the company to an uninsured risk.

These business risks will soon be a component of general liability coverage. Verisk Analytics Inc., the company that drafts the insurance forms used by most insurance companies has created endorsements to address the liability exposure of commercial drones. There are three proposed endorsements that may be available in June that will cover bodily injury, property damage, and personal and advertising injury for scheduled UAS. This means that a business will be required to disclose the use of UAS on its application for insurance or at the renewal of its policy.


This article is not intended as legal advice in any particular situation. You are advised to seek the opinion of an attorney for any legal questions.