It’s a Bird! It’s a Plane! But Is It Insured? California Case Reinforces Importance of Liability Coverage for Drone OperationsAs the popularity and diverse nature of drones increase, the liability risks associated with drone operations increase as well. A California federal judge recently held that a standard CGL aircraft exclusion barred liability coverage for injuries related to drone operations. The case arose out of a wedding reception gone wrong when a wedding photography company operated a drone to capture the big day. While the drone was hovering at eye level, a guest collided with the drone and sustained serious injuries, including loss of sight in one eye. The court found that the drone fell under the ordinary meaning of the word “aircraft” as defined in the Merriam-Webster’s Collegiate Dictionary, even though the policy did not define the term “aircraft.” The court ruled that the insurance company could recover the costs it spent defending the wedding photographer because the exclusion meant that the insurer did not have an obligation to defend the photographer against the suit filed by the injured wedding guest.

In a previous post, we advised against relying on the ambiguity of the term “aircraft” to avoid application of the aircraft exclusion in the standard CGL policy. The ambiguity argument has become all the more dangerous as courts like this one decide that a drone is an “aircraft.”

Reliance on a CGL policy becomes more problematic because many CGL policies explicitly exclude coverage for drones. For example, Commercial General Liability Form CG 21 09 06 15 excludes coverage for an “unmanned aircraft,” which is defined as an aircraft that is not designed, built, or modified to be directly controlled by person on or in the aircraft.

CGL policies can provide liability coverage for drone operations by endorsement. Commercial General Liability Form 24 50 06 15 provides coverage for an unmanned aircraft. Coverage A provides coverage for bodily injury and property damage, while Coverage B provides coverage for personal and advertising injury. You may purchase either coverage or both.

A CGL policy does not provide property coverage for the drone or its cargo; it provides liability coverage only. Commercial Property Form 04 14 12 16 protects drones that you own, rent or lease if you have a contractual obligation to provide insurance. This endorsement is appropriate for a drone if you are not transporting cargo. If you choose to endorse your standard policy with this form, carefully describe your operation in its entirety in the schedule to procure complete coverage. Commercial Inland Marine Form IH 00 61 01 16 is a separate form that covers cargo, but its coverage is limited because it lacks business interruption coverage.

A specialty drone policy generally provides liability coverage for drone operations, as well as property coverage for the drone itself. Because specialty policies are customizable, you can select what coverage you want. Both annual policies and on-demand policies are available. On-demand policies provide time-limited coverage for specific operations, while annual policies provide coverage throughout the policy period. Insurance companies offering specialized drone policies tout their comprehensive coverage for those companies that regularly utilize drones. Both new entrants into the insurance market as well as traditional aviation insurance companies are rushing to provide this coverage, thus expanding coverage options for drone operators.

For more information on drone coverage, please view our webinar.

FEMA Reverses Halt to New Flood Policies during Shutdown; New Six-Month NFIP Extension Leaves Debate over Reforms to 116th CongressFollowing criticism from industry groups and members of Congress, FEMA has retreated from a December 27 announcement that it would stop issuing new flood policies and renewals during the ongoing partial shutdown of the federal government. Meanwhile, a six-month extension passed by Congress and signed by President Trump on December 22 gives lawmakers through May 31, 2019, to reach consensus on possible reforms for the National Flood Insurance Program (NFIP).

Costly natural disasters in recent decades have tested the sustainability of the program, and in 2017, Congress forgave $16 billion of NFIP’s debt to keep the program solvent. These challenges have led some in Congress and the insurance industry to call for reforms to the program, including changes to align rates more closely with risk.

Changes in the makeup of the 116th Congress may reshape the debate, including the passing of the chairmanship of the House Financial Services Committee from Jeb Hensarling, an advocate for substantial changes to NFIP, to Maxine Waters. Waters previously sponsored legislation that would have brought significant reforms to NFIP, but in recent years has emphasized the need to ensure that rates remain affordable.

The reauthorization of NFIP, even as leaders failed to agree on funding for the government, again demonstrates the bipartisan popularity of the program and commitment to its continuity, notwithstanding disagreement over long-term changes.

Debate over NFIP Reforms Likely to Extend into 2019A new short-term extension through December 21 leaves the National Flood Insurance Program (NFIP) in limbo as Congress grapples with a lengthy to-do list in advance of the holidays.  NFIP, the biggest source of flood coverage in the U.S., has been reauthorized through a set of short-term extensions in the last year as lawmakers debate the prospect of reforms to the program. NFIP has struggled to remain solvent in the wake of costly hurricanes, but lawmakers have not yet reached a consensus on how to make the program more sustainable.

In the face of the most recent extension, FEMA published a statement calling the short-term reauthorization “an opportunity for Congress to take bold steps to reduce the complexity of the program and strengthen the NFIP’s financial framework so that the program can continue helping individuals and communities take the critical step of securing flood insurance.” We have previously written about FEMA’s own changes to the program, including steps to loosen restrictions on private insurers selling NFIP policies, as well as purchasing reinsurance for the program. Congress will have to determine the viability of other changes, such as proposals to make rates correspond more accurately to risk and funding for mitigation of flood-prone areas.

The short-term extension through December 21 puts NFIP reauthorization on the same timetable as other significant legislative deadlines, including the expiration of a continuing resolution to fund the government. Should Congress pass another extension for NFIP without making changes to the program, the 116th Congress will take up the debate with several changes to the key players in the negotiations. Most notably, current House of Representatives Financial Services Committee chair Jeb Hensarling will be succeeded by incoming chair Maxine Waters.  Waters co-authored a reform act in 2012 that would have significantly curbed government subsidies to premiums, but in recent years has advocated a more cautious approach to rate increases.