Drones are an increasingly popular hobby for adults and kids.
And it’s all fun and games and cool videos until something glitches, and an out-of-control rack of spinning blades hits someone in the head. Or crashes into a house.
The potential for drones to cause injury and property damage raises questions about what types of activity are covered by existing insurance and whether drone hobbyists or professionals should have specific insurance that covers drones, and whoever or whatever gets in the way.
Kevin Amrhein, president of the Florida Insurance School of Continuing Education and the CE partnership, has answers for insurance professionals who can expect to see an increase in drone coverage conversations as the use of drones for fun and profit continues to grow. He outlined some need-to-know information for insurance professionals in his Insurance Journal Academy of Insurance course, Insuring Drones (Because Humans Do Dumb Things with Them).
What Not to Say About Drones
Insurance professionals need to know the limitations of what they should discuss with clients or advise clients when it comes to drones, Amrhein said.
“Lots of folks will ask you questions throughout your tenure as an insurance professional — ‘Hey, can I do this with my drone? Can I do that with my drone?'” Amrhein said. “And I think we as insurance professionals need to be confident enough to be able to say, ‘There are rules. You are responsible for the rules.'”
Rather than presenting “yourself to your insureds as the end-all-be-all of drone regulations,” he said. “I think it’s probably more in your interest to present yourself to your insureds as the insurance expert.”
For example, what if a client wants to know whether they can charge a fee to take pictures of groups with their new drone?
“If you were asked that question, as an insurance agent how would you respond to that?” Amrhein said. “Do you feel like that’s a question that you are supposed to answer?”
Taking pictures may instinctively seem like a low-risk venture, but in this case, it’s the payment that will trip up coverage and change the rules, Amrhein said.
“If you are charging for the use of a drone, it’s no longer considered recreational use,” he said. “There are separate rules about commercial use, and this is now commercial use. Lots of separate rules, including what kind of certifications are required and what you have to do to get those things.”
Regardless of professional status or skill, drone operators need to follow regulations. The best place to start learning is at the federal level, said Amrhein. He recommends insurance professionals and drone operators study the rules on the Federal Aviation Administration site, www.faa.gov. Drones are aircraft and subject to the same regulatory authorities as other aircraft on federal, state and local levels, he said. It’s up to operators to know and follow the regulations in their area, whether they are flying for personal enjoyment or professional pursuits.
“You better know what you’re talking about,” Amrhein said. “Or I would say steer the conversation back to, ‘That’s a great question. I’m only going to talk to you about insurance.'”
Personal Drone Use Coverage
When it comes to personal, recreational drone use, common concerns are bodily injury claims and property damage claims, Amrhein said.
“Liability is the insurance you cannot go without,” he said.
From a liability standpoint, all the ISO (Insurance Services Office Inc.) forms have the same language, and the definition of aircraft liability is very comprehensive, Amrhein said. “If you were to read this definition, your takeaway would be pretty much anything you do with a drone or somebody else does with your drone is going to be a problem for you. It’s going to trigger the definition of aircraft liability.
“Now, why does ISO define aircraft liability? Do you think it’s because they want to cover it? No,” he said.
“When we have specifically defined terms in policies like this, it’s generally because we want to limit or exclude coverage,” Amrhein said. “And if we’re going to limit or exclude coverage, we have to be very clear, unambiguous as to what it is we don’t want to pay for.”
However, in defining aircraft liability, ISO adds its own interpretation of what aircraft is, Amrhein said. It essentially says that aircraft means any contrivance used or designed for flight, except model or hobby aircraft not used or designed to carry people or cargo.
“Well, what about most recreational drones?” Amrhein said. “Well, by definition, a drone doesn’t carry people. We know that. What about cargo? Can drones be manufactured to carry cargo? Sure. Are there drones that are built for that purpose? Yes.
“Is a typical recreational drone that you would buy on Amazon or buy at Best Buy for your son or for your daughter, or for yourself for recreational purposes, maybe to take some video? Is that thing designed to carry cargo? No.”
Amrhein said it creates a give-back in the exclusion because the aircraft liability exclusion can’t be used to remove coverage if the drone isn’t aircraft.
“The exclusion is very clear in the policy. It says we don’t cover aircraft liability. But what did we tell you? In the definition of aircraft, liability doesn’t include drones.”
However, as drones have become more common, insurance is adapting. It’s important for those seeking and selling drone coverage to be specific in their requests, to read all the policy information and to double-check endorsements for exclusions that apply to model or hobby aircraft.
“If there’s an exclusionary endorsement added to the homeowner’s policy, some carriers for a premium will remove that,” Amrhein said. “So, it’s incumbent on us to determine if the policies that we have sold have been modified to remove liability coverage.”
Personal injury, for example, is not specifically addressed in an unendorsed homeowners policy, Amrhein said.
“In the ISO world, personal injury coverage is added by endorsement. Now, it’s very, very common that personal injury coverage would be included. A lot of carriers are going to include personal injury coverage, and if it’s required to be added by endorsement, they’re going to add the endorsement,” he said.
Commercial drones are used for photography and surveillance in a wide range of industries, including construction. They are also used for tasks such as delivering packages or spraying crops.
“If the drone is being monetized and there is a claim filed against the insured,” Amrhein said, “even if we have an unendorsed policy that has no concern with drone liability, if it’s being used for business, remember that the word business brings an entirely new set of concerns to the table.”
He noted, again, that the “ISO commercial property policy says it includes drones or, in this case, aircraft on its list of property not covered.”
Anyone using a drone for their business should ensure they have the right liability coverage, he said.
The good news is that businesses that only use drones occasionally don’t have to pay a full term of premiums; they can seek out endorsements for specific projects or operations, he added.
Because commercial drones are typically larger, more powerful and more extensively equipped, they are usually more expensive — some costing tens of thousands of dollars. This makes insuring the drone a bigger issue.
“Having adequate insurance on the drone itself is going to require some type of equipment policy or specialty policy,” Amrhein said. “So, and for a premium, you’ll find markets that will do it.”
Amrhein also discusses the brief history of commercial drone use, insuring drones, liability for privacy violations, and more in the course, which is available on-demand through the Academy of Insurance at https://www.ijacademy.com. Live and on-demand courses are free for academy members.