Know the rules and risk before flying a drone for commercial use

Years ago, the thought of drones being used in everyday life was something you would only see on the movie screen. However, this is the 21st century where technology is rapidly improving and becoming more advanced every day.

“Not too long ago, people stopped using drones just for a hobby and began to implement them as a part of their businesses,” says Patrick Zedreck, area assistant vice president at Gallagher. “The popularity of business owners using these unmanned aircrafts can be attributed to the decrease in cost, the portability and their easy to access information without putting an employee at risk.”

Smart Business spoke with Zedreck and Brad Meinhardt, managing director of Aviation Insurance & Risk Management, North America, Gallagher, to get a risk management perspective on drones.

How are drones being used by employers today?

The possibilities are limitless, but they have been used for things like motion pictures, documentaries, sporting events (ESPN College GameDay) or by the construction industry. Loss adjusters are even using them for significant disaster events. Drone use is also growing in the agriculture, aerial survey, mapping and security industries.

As commercial drone use increases, the Federal Aviation Administration (FAA) is trying to balance safety rules for unmanned aircraft systems against innovation. The FAA’s Drone Advisory Committee has dissenting opinions about how civilian drones should be tracked by authorities, but the FAA is considering the committee recommendations in order to create a rule about flights over people and beyond the pilot’s line of sight. After that rule is crafted, expanded commercial uses would be pipeline patrol, energy grid infrastructure oversight, package delivery or medical supply delivery to remote areas.

What kinds of risks and potential liabilities do employers need to be aware of?

Similar to manned aircraft exposures, the biggest risks are bodily injury and property damage to third parties, and invasion of privacy (personal injury).

Commercial use is governed under the FAA’s Small Unmanned Aircraft Systems Rule or Part 107. It requires the drone be registered and the pilot be certified through the FAA. Drones need to be under 55 pounds and fly within a visual line-of-sight, during daylight or civil twilight, at or below 400 feet. They can’t fly near other aircraft, over people or controlled airspace near airports without FAA permission. However, the FAA does issue waivers for certain Part 107 requirements.

FAA violations for not following Part 107 guidelines can be significant, and local law enforcement entities are empowered to enforce them. Those liabilities are not insurable. But ultimately, the worst case for careless operations would be impacting a manned aircraft and causing significant loss of aircraft and passenger lives.

How should these exposures be covered, through insurance or otherwise?

The insurance is the same as manned aircraft coverage, but excludes passengers. There is a robust insurance marketplace willing to insure $1 million of coverage for about $800 to $1,000 annually, but higher limits are available. Physical damage to drones can also be insured.

Most firms that hire a drone operator require evidence of insurance, including additional insured status. Government entities, colleges, universities and nonprofits require insurance to access their facilities.

What else should employers know about drone liability coverage or drone operation?

Be careful to study and follow guidelines of FAA Part 107 if your organization is operating its own drone. You also want to buy insurance, just like you would for any other manned aircraft on an annual basis.

When hiring an outside drone operator, vet the operator to make sure it’s legal and following best practices. Secure the insurance information with additional insured status, and consider non-owned aircraft liability insurance for yourself if your use of third-party operators is frequent.

Insights Insurance/Risk Management is brought to you by Arthur J. Gallagher & Co.