Over the past decade, drone usage has increased dramatically among both hobbyists and commercial users. Businesses, including Amazon, Uber and various insurance companies are increasingly using drones in their business. The Federal Aviation Administration estimates that combined hobbyist and commercial drone sales will rise from 2.5 million in 2016 to 7 million in 2020. It has been estimated that this increase will create more than 70,000 jobs and infuse billions of dollars into the economy.

As changes come to the technology industry, the insurance industry will surely see changes of its own. Currently, commercial drone users are not required to carry insurance.  However, users should realize the importance of protecting themselves from the risks associated with drone operation.  Beyond the risks to the drone itself, basic tort claims will inevitably become more common as drone use increases. For instance, invasion of privacy claims may arise as drones with cameras flying over private property or near offices or commercial space potentially record sensitive or private information. Cybersecurity issues may also arise. For example, hackers may hijack drones in order to steal collected data or cargo.

Businesses should have a good understanding of how their insurance policies address the emerging risks associated with drone usage. Currently, there are several options available to protect against those risks. A general liability policy protects businesses from property damage and bodily injury claims made by third-parties, which could include claims that arise from the operation of drones. However, liability policies frequently contain an “aircraft exclusion,” which excludes coverage for any injury or property damage caused by the policyholder while using an aircraft.

The FAA classifies drones as aircrafts. Therefore, the insurance industry is likely to rely on the aircraft exclusion to avoid paying third-party claims for damages arising out of the use of drones.  Policyholders should argue that the aircraft exclusion does not apply to drones because when it was written it was intended to apply only to manned aircraft.  Alternatively, policyholders that use drones in their business could try to negotiate the aircraft exclusion out of their liability policies.

In addition to liability coverage, companies should consider hull coverage for their drones.  Hull coverage is a first-party coverage that protects businesses from costs arising out of physical damage to the drone itself.  Businesses with expensive equipment designed to be carried by a drone should also consider payload coverage. This coverage protects the insured from physical damage losses to a scheduled payload.

In response to the increased demand for insurance coverage relating to the operation of drones, and to avoid the piecemeal nature of coverage for drone operation, the insurance industry has developed specialized insurance products to respond to the exposures associated with drone operation.  Drone insurance is currently available from some of the largest insurance companies in the United States, including AIG and Liberty Mutual.  The drone insurance products available are customizable to address the specific needs of the policyholder.  The policies available can combine liability, hull and payload insurance into one policy.

As the commercial use of drones sees huge potential growth in the future, it is important for businesses to prepare for any risks and challenges drones may bring. Any business that uses drones should evaluate its insurance programs to ensure that it is adequately protected from the risks associated with drone usage. Furthermore, any business that uses drones should consider purchasing specialized drone insurance to protect itself.

For more information about the commercial use of drones, associated insurance policies, and other related legal matters please contact Andrew Noble or any other Meyer, Unkovic & Scott lawyer with whom you have worked.