Ann Hickman is a senior research analyst and the curriculum director for the IRMI Construction Risk Conference. She coauthored the original release of IRMI Workers Comp, a Complete Guide to Coverage, Laws and Cost Containment, wrote several construction risk and insurance specialist (CRIS) courses and serves as editor of the IRMI Construction Risk Manager e-newsletter. She is a construction risk and insurance specialist (CRIS) and holds the chartered property casualty underwriter (CPCU) and associate in risk management (ARM) designations. Visit irmi.com.
Unmanned aircraft systems (UAS), commonly referred to as drones, represent an enormous growth industry with potential uses across many trades. Drones are well suited for applications in construction, agriculture, energy, wireless communications, insurance, search and rescue, law enforcement, firefighting, real estate, photography and film.
For now, commercial entities are not permitted to use UAS unless the company has obtained authorization from the Federal Aviation Administration, but regulations that would allow widespread use of drones within specified parameters are expected by 2016.
Drones are already being used by contractors to monitor and document project progress and conditions, to inspect work in difficult-to-access places (for example, bridges and high-rise building exteriors), to detect air or water leaks and to document and investigate accidents. As with many new technologies, UAS have the potential to offer substantial benefits to contractors.
UAS have the potential to dramatically improve workplace safety by reducing the need to send people into high-risk, life-threatening situations. They also offer efficiencies in the time and cost required to achieve the same result through other means. Finally, because they are battery operated, using UAS may reduce the environmental impact of a firm's operations.
Unmanned aircraft present most of the same loss exposures presented by other forms of aircraft, but on a smaller scale. Damage to the hull is perhaps the least worrisome of all UAS risks, especially for those with a small fleet, because it is quantifiable and the devices used in most commercial operations have become relatively inexpensive. The most catastrophic exposure is the potential for interfering with a manned aircraft, such as a commercial passenger jet, whether by operator error, mechanical failure loss or hijacking of the wireless communication link with the controller. A crash landing of the UAS can also cause serious injury or damage, albeit on a smaller scale than that of a manned aircraft.
In addition to bodily injury, UAS could produce personal injury claims alleging interference with another's rights, such as the right to privacy and the right to refuse entry onto one's property. Many UAS have a camera that sends a live feed back to the operator and allows video and photos to be taken.
Whether such invasion of privacy is intentional or unintentional, the prospect of being observed or photographed in the privacy of one's own backyard is no small concern. Finally, cyber exposures related to how photos, video and other data collected by these devices is stored, used and protected must be examined thoroughly.
Insuring UAS Exposures
Over the past few years, it has become widely accepted in the insurance industry that UAS constitute "aircraft," and are treated the same as a manned aircraft when determining coverage for the exposures associated with owning and using UAS. This can have both advantages and disadvantages for the construction business owner. Aircraft exclusions prevent coverage for most of the exposures outlined under traditional policies. Coverage can sometimes be added back by endorsement, but where the exposures are deemed significant, an aviation insurance policy may be the best option.
Standard commercial property policies do not cover aircraft, therefore no coverage would be available in these policies for damage to the UAS itself (the hull exposure). Many commercial enterprises with a small number of moderately priced UAS elect to retain this risk. Those with a larger fleet of UAS (or one or two very expensive drones) may opt to purchase an aviation policy that provides both hull and liability coverages.
The market for aviation insurance for UAS is fairly robust, as unmanned aerial vehicles present a tremendous growth opportunity for a mature industry that already has the expertise in place to write the coverage. Hull coverage is estimated to cost about 8 to 10 percent of the drone value for a reasonably sophisticated drone (retail price of $3000-$5000) and as high as 15 to 20 percent for a lower-end model.
Currently, there are no mandatory liability insurance requirements for UAS, but as the industry grows, minimum liability insurance requirements are almost certain to follow. Liability insurance for UAS can be purchased as part of an aviation insurance policy or by modifying the commercial general liability (CGL) policy to cover this risk exposure.
Companies that are in the business of providing UAS services are the most likely to purchase an aviation policy to cover these risks due to the overall value of their fleet and because they will likely not be candidates for liability coverage under the CGL policy. In the aviation market, limits of up to $10 million are currently available, and up to $20 million can be found in the excess market.
The CGL policy contains an aircraft exclusion that removes coverage for the most significant UAS exposure—bodily injury or property damage sustained by third parties. Some insurance companies will modify the policy to cover this exposure. For companies that use small drones to perform tasks that are incidental to the firm's revenue generating operations, there may be little or no additional premium for this coverage.
That can be expected to change if losses start to accumulate or if a catastrophic event occurs. Furthermore, as underwriters start to collect data on types of drones that have higher incidence rates, expect more conscientious underwriting of this exposure to occur. Until then, the CGL policy will be the primary source of coverage for companies that have only incidental exposures.
Unmanned aircraft offer contractors an opportunity to improve safety, efficiency and project documentation efforts. But they also present the potential for serious losses, especially when operators are not adequately trained. Following proper safety and maintenance procedures can reduce these risks, but contractors should also talk to their liability insurers about adding coverage for UAS to their policies.
Many insurance companies are willing to provide at least some coverage for a contractor's incidental use of drones on construction projects at little or no extra cost to the company.