Use of unmanned aircraft – drones – has grown dramatically in recent years, but purchase of coverage for drones has lagged behind. If your company has not revised its insurance program to include drone coverage, your company could be without coverage for this new and increasingly important technology.
More than 2.5 million drones were sold in 2016, and the Federal aviation administration expects that number to grow to 7 million in 2020. While many drones are sold to hobbyists, commercial applications for drones constitute an increasing share of the drone market. Construction companies, agricultural operations, real estate agents, insurance claims adjusters, photographers, delivery services, and surveyors are just a few of the companies and professionals now exploring use of this new technology to improve services and increase profits. Some companies are purchasing drones while others are relying on third-party vendors to provide drone operations.
As with any new technology, however, drones pose unique insurance challenges, which, if left unaddressed, could lead to potentially uncovered insurance losses. To ensure that your company is protected for drone operations, you should:
- Assess your company’s use of drones to determine potential exposure for property loss and third-party liabilities.
- Review existing policies to determine whether drone liabilities are insured (they likely are not).
- Determine whether to add drone coverage to your existing property and commercial general liability policies, to purchase a specialty drone policy, or to rely on third-party vendor coverage for liability exposures arising from that vendor’s drone operations.
Traditional Insurance Policies May Not Insure Drone Liabilities
Use of drones in business operations is likely not covered under your existing insurance policies due to the commonly included “aircraft exclusion.” While most non-aviation policies do not define “aircraft,” insurers will likely argue that drones constitute “aircraft,” leaving you with, at best, a messy fight with your insurance company to obtain coverage, and, at worst, no coverage at all. Pay careful attention to policy language to determine the availability of coverage.
Three Options for Drone Coverage
- Unmanned aircraft endorsements to existing insurance policies – Your current insurance carrier may offer insurance for drones through endorsements to your property, inland marine, and commercial general liability policies. ISO form endorsements for these policies provide first- and third-party insurance coverage for drone use in commercial settings. While these endorsements expand coverage for drones, consider them in light of your company’s business operations to avoid leaving your company exposed for certain potential loss scenarios.
- Specialty market aircraft coverage – If your company regularly uses drones in its business operations or maintains a fleet of drones, consider purchasing a specialty insurance policy to insure your drone use. While not every commercial application for drones requires specialty coverage, a drone-specific policy can provide a more complete coverage option for companies that regularly employ drones in their everyday business.
- Coverage as an additional insured under vendor’s insurance policies – If your company relies on third-party vendors to operate drones on its’ behalf, require the vendor to name your company as an additional insured under its policies. This strategy is not without risks, however, as your coverage is dependent on the limits, coverage grants, and exclusions of a policy that you did not negotiate and may not even have seen prior to the loss event. Require your vendor to provide a copy of the applicable insurance policies; do not rely on a Certificate of Insurance (COI). Only the insurance policy provides coverage; COIs expressly disclaim coverage and instead state that the insurance policy alone provides coverage.