16 December, 2017
A major issue for both commercial and recreational operators of drones is ensuring they have appropriate insurance coverage.
Is there a regulatory requirement to obtain insurance?
This issue has become particularly acute in the Australian context, as regulations for remotely piloted aircraft systems (i.e. drones) have been significantly pared back.
Under these pared back regulations, a pilot or operator of a drone:
- does not require a licence from the regulator, the Civil Aviation Safety Authority (CASA), where the drone is flown for commercial reasons and the drone is under 2kg, or the drone is flown for recreational reasons. In this case, the pilot will only be able to fly the drone under limited standard conditions which are published by CASA; and
- requires a licence from CASA where the drone is flown for commercial reasons and the drone is over 2kg, or flown by private landowners and leaseholders where the drone is over 25kg.
The Civil Aviation Safety Regulations (CASR 1998) relating to the operation of drones in Australia do not specifically require operators of drones to take out insurance.
However, CASA may impose a condition on a licensed commercial drone operator to obtain insurance as part of that operator's risk management procedures. For example, it is likely such a condition would be imposed where the pilot seeks permission to operate the drone for commercial purposes at night.
Despite this loosened regulatory context, CASA advises all drones operators in its Advisory Circular on Remotely piloted aircraft systems – licensing and operations that:
"CASA strongly recommends that operators discuss with an insurer the potential liability for any damage to third parties resulting from RPAS operation [i.e. drone operation] and consider taking out suitable insurance."
Insurance coverage available
CASA recommends that commercial operators of drones take out two kinds of insurance:
- third party public liability insurance; and
- first party property insurance or UAV insurance (being a specialised insurance product for unmanned aerial vehicles).
Some standard commercial public liability policies now include express cover for liability arising from the use of a drone during business operations. However, these standard policies will generally exclude cover where the primary function of the business is the operation of a drone. This gap in coverage for specialist drone businesses has been filled, as a number of insurers now offer public liability insurance products aimed specifically at operators of drones.
As for unlicensed recreational operators of drones, it is unlikely that such operators will purchase a specialised public liability product for the use of their drone.
Recreational operators should be aware that their home and contents insurance may provide third party liability cover where damage caused by a drone occurs on the insured property.
Whether a home and contents policy will provide third party cover for such damage will depend on the wording of the particular policy. For example, some commonly available home and contents policies contain express exclusions for a legal liability arising out of an accident involving a drone.[1] Further, a home and contents policy will generally exclude cover where the liability relates to commercial endeavour. However, not all policies available on the market contain such exclusions,[2] and we therefore recommend that recreational operators of drones pay careful attention to the terms of their particular policy.
Comment
There is a danger that the relaxation of requirements as to licensing for operators of drones may dampen the appetite of insurers taking on third party liability risks of such operators of drones. Commercial users in the 'excluded category' (i.e. with drones under 2kg), are those most likely to be effected, and may face increased premiums as a result. The actual cost of a third party policy will, naturally, depend on the particular requirements of the operator's business.
In any event, it is important that both recreational and commercial operators of drones take particular care in understanding the coverage issues which may arise in obtaining insurance for drones use.
[1] For example, Allianz's standard building and contents policy excludes coverage for legal liability arising out of an accident involving a drone.
[2] For example, CGU and HBF's standard policies do not contain any express exclusion with respect to drones, although they do exclude liability arising out of commercial endeavour.
For further information, please contact:
Jonathan Wyatt, Partner, Clyde & Co
jonathan.wyatt@clydeco.com
