Ten Things Attorneys and Insurance Professionals Should Know About Using Drones in Insurance Claims

Justin Fine, Esq. | Pessin Katz Law | August 29, 2018

The commercial application of drones is increasing. Drones are being used to fight forest fires, for commercial agriculture, and to deliver medical supplies to remote areas.

Insurance companies are also increasingly using drones, which can be useful for capturing evidence during the claims process. However, there are plenty of pitfalls in using drones, including the admissibility of evidence during litigation. Further, the legal landscape for drones is changing all the time. The States and the Federal Aviation Administration (“FAA”) are rapidly issuing new laws and regulations.

In the likely event that you come across the use of a drone in an insurance claim, here are ten things to consider in order to anticipate and respond to potential issues.

  1. Drones are helpful for investigating accidents, mapping debris fields, and preserving evidence at the scene of a loss because of their ability to capture images from a birds-eye-view that are not readily visible from the ground.
  2. Drones can carry more than just cameras. They also carry sensors to measure distance, heat, radiation, sound, and light.
  3. Drones can be easily deployed in the field. Modern drones are compact enough that they can fit into a camera bag.
  4. Both personal and commercial drone use are regulated by the FAA.
  5. Evidence obtained from drones used in violation of FAA rules and regulations may not be admissible in court.
  6. Several states, including Maryland, Texas, Delaware, California, and Florida, have specific laws about the use and admissibility of evidence obtained by drones.
  7. When evaluating the admissibility of evidence, consider that there are greater restrictions on the commercial use of drones, including the regulations set out in 14 C.F.R. § 107 et seq.
  8. Even the incidental use of a drone for a commercial purpose, such as inspecting the roof of a business, can be subject to the commercial drone-use regulations.
  9. Some restrictions to keep in mind when considering the admissibility of evidence obtained from a drone is that drones cannot fly over people (including sporting events), must fly below 400 feet, cannot fly in restricted airspace, and must remain within the sight of the pilot.
  10. Additionally, commercial drone pilots must be licensed, although personal drone pilots generally do not have to be.

CGL and Aviation Insurers: Filling Gaps or Staking Space in the Race for Drones

T. Patrick Byrnes and Matthew J. Kalas | Locke Lord | April 2018

Insurers searching for new sources of premium have increasingly looked to drones. But one question has dominated the conversation: who will benefit: the aviation market or traditional general liability insurers? Recent reports suggest the answer to that question may be “both.”

During a recent webinar hosted by Insurance Journal, a panel of experts estimated that coverage for drones will grow exponentially, potentially causing the largest growth in aviation insurance in 50 years. This would be a welcome development for aviation insurers, who have experienced a sustained period of soft markets and shrinking premiums. Meanwhile, in January of this year, the International Underwriting Association (IUA) issued a report titled “Unmanned Aerial Vehicles (UAVs) – Opportunities and Challenges for General Liability Insurers” and concluded that traditional aviation policies will not address all elements of this emerging risk. The IUA opined that general liability underwriters will have a key role to play in providing cover for drone risks, particularly with respect to areas that generally fall outside the traditional aviation realm, such as privacy, cybersecurity and nuisance / trespass. Nonetheless, traditional aviation insurers would appear to have the corresponding opportunity to innovate with their own products.

While the outlook for insurers is positive, recent events serve as a reminder that participating in this emerging area is not without risk. To date the vast majority of the claims experienced, at least in the aviation market, involve hull claims, either as a result of fly-aways, operator error, or otherwise. But that may soon be changing. In February of this year alone, there were two separate reports of incidents involving helicopters and drones. In one incident, it was alleged that an air-tour helicopter in Hawaii clipped a drone while flying over Kauai. In the second, a student pilot and instructor in South Carolina suffered a crash landing when a small drone allegedly appeared directly in front of them. According to published reports, the tail of the helicopter struck a tree while the student pilot and instructor were taking evasive action to avoid the drone, causing significant damage to the helicopter. Thankfully, there were no injuries. And, on February 1, 2018, the sUASNews website posted alarming video footage appearing to be from a drone that flew within a few feet of an airliner over Las Vegas.

These incidents warn of the significant risks that drones can pose to traditional commercial aviation. Putting to the side for the moment these headline-grabbing incidents, the potential also remains for substantial property damage and business interruption claims from commercial drone uses, particularly in the event of a mishap while conducting inspections of sensitive equipment and infrastructure. Finally, the specter of privacy and nuisance / trespass claims persists, which may be the most difficult risks for insurers to address in these early days of drone cover. Thus, it is clear that both general liability and aviation insurers writing drone risks can expect to be involved in claims that will involve new and challenging issues.

In sum, while it appears there will be plenty of market share for both aviation insurers and general liability insurers looking to write drone coverage, there is also plenty of risk as well. As larger and more complex claims come forward, which they almost certainly will, there will undoubtedly be a learning curve for all involved as insurers continue to examine and consider their approach to writing risks associated with this new technology. While insurers work through that learning curve, it will be critical to apply best practices to handling drone claims as well as to seek out and rely on service providers with expertise in this emerging area.

The Legal Impact of Drones in the Construction Industry

Amanda Ciccatelli | Inside Counsel | August 28, 2017

Until this past Fall there was some uncertainty regarding the commercial use of drones, specifically the use of drones in construction. As of late, there have been many legal challenges to the use of drones in construction, including non-registration of drones, invasion of privacy concerns, drone use in restricted areas, potential nuisance claims, and property damage claims caused by wayward drones.

In addition, the requirement in many states is that land surveying work be performed by licensed land surveyors, but drones used for land surveying in construction are often not operated by licensed land surveyors. This is a gray area that will need to be addressed by statute, regulation or case law in each jurisdiction.

Garret Murai, of Wendel Rosen as well as Construction Practice Group co-chair and editor of California Construction Law Blog, sat down with Inside Counsel to discuss the rise of drones in the construction industry and the legal impact surrounding it.

According to the U.S. Federal Aviation Administration (FAA) there were about 42,000 commercial drones in the U.S. in 2016, of which 26 percent were used in construction. While that’s a lot of drones, for the FAA, the commercial drone sector is still at an early stage of growth and the number of commercial drones flying above us is expected to increase ten-fold over the next few years to 420,000 commercial drones by 2021. The increasing use of drones in the commercial sector was given a lift when the FAA released its anticipated Small Unmanned Aircraft System regulations. The regulations, which apply to commercial drones, require commercial drones to be registered through FAA’s Small Unmanned Aircraft System (sUAS) Registration Service, require FAA certification of UA (unmanned aircraft) pilots and set forth detailed requirements governing the operation of drones.

How does the construction industry legally benefit from using drones?

Per the FAA, drone use in the construction industry falls only behind the use of drones for aerial photography (26 percent vs. 34 percent), although, as one might expect, the construction industry also uses drones for aerial photography as well as for much, much more.

“While the use of drones in the construction industry is still relatively new and will likely expand as new commercial products are developed, today, owners and construction companies have utilized drones to survey project sites, to inspect and track the progress of a construction project, and with the right tools, to turn collected data into topographic maps, to aid in volumetric measurements of stockpiles and to create 3D models,” he explained.

The bottom line benefit for owners and construction companies is that drones can provide information quickly, more frequently and at a fraction of the cost of traditional methods such as manual surveying and aerial photography and can help construction projects run more efficiently, safely and at lower cost, according to Murai.

The most recent data from the U.S. Department of Labor shows that there were 154,000 open construction jobs in the U.S. as of May 2017. While this is below the cyclical high of 238,000 open construction jobs as of June 2016 there continues to be a pronounced labor shortage in the construction industry. Although the construction industry has been on a rebound since 2012, many workers who were forced out following the 2008 real estate crash.

“While efficiency and cost savings have been the primary drivers of the use of drones in the construction industry, with the current construction labor shortage, drones have had the added benefit of allowing fewer people to do more,” said Murai.

According to the U.S. Occupational Safety and Health Administration, one in five worker deaths were in construction. The vast majority of these (38.8 percent) were the result of falls. While they have yet to develop a drone that can perform actual labor, drones can increase worker safety by allowing construction companies to monitor and inspect projects with a degree of detail that would have been impossible before.

He said, “With drones, construction companies can inspect high-up and hard to reach areas of a project and can monitor project sites to ensure that workplace and worker safety standards and regulations are being followed.”

There are key findings that came out of the FAA’s drone regulations last September that relate to the construction industry, according to Murai. First, commercial UAs weighing 0.55 pounds up to 55 pounds must be registered through the FAA’s sUAS Registration Service. UAs weighing over 55 pounds must seek an exemption from the FAA. Secondly, UAs may only be controlled by a UA pilot certified by the FAA or by someone under the direct supervision UA certified pilot. To become a UA certified pilot a person must either pass an FAA-approved aeronautical test or hold a Part 61 pilot certificate, complete a flight review within the previous 24 months, and complete a UAS online training course. Lastly, UAs may only be operated during daylight or civil twilight hours with anti-collision lighting, may not travel faster 100 mph or fly higher than 400 feet above ground level or within 400 feet of a structure, and UAs may only be flow when there is a minimum weather visibility of three miles from the control station.

Droning Along: What Commercial Real Estate Property Owners Should Consider In The Drone Age

Jennifer Smith | Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, PC | November 16, 2016

Drone use in the real estate industry has exploded in recent months. The utility of drones in sales, marketing, construction, surveying, and inspection of real property is undeniable. There is vast potential for commercial use of drones in the real estate industry. Their use has become very important in marketing strategies for brokers and developers, for inspection teams on construction projects and even for construction of high-rise cable structures. For example, drones can assist with moving dirt on a construction site using autonomous dump trucks, bulldozers, and excavators with real time mapping of the movement of soil and cement. Drones have also been extremely useful to surveyors in preparation of property reports and for owners who use drones for property security.

Drones are also increasingly used in other industries, like retail, as has been in the news lately. Both Amazon and Walmart are testing the waters of drone usage for faster retail package delivery. Most recently, Walmart is looking to use drones to increase the efficiency of their distribution warehouses. UPS has jumped on the bandwagon, delivering an inhaler via drone recently in Boston and even 7-11 recently delivered slurpees, a chicken sandwich, donuts and hot coffee to a private home that placed an order in Reno. Smaller local businesses are finding ways to utilize drone technology, like a local pharmacy in San Francisco that is testing the use of drones for delivery of prescription drugs and other items.

With the increasing popularity of these uses of drone technology comes the need to address the potential risks and threats to real property rights, privacy rights, liability and personal injury. Here is short list of what property owners should be thinking about with the increasing use of drone technology:

  • Owners and operators of office, industrial and retail operations have a number of issues to concern themselves with. Upgrading of building rules and regulations should be considered to accommodate drone technology. Drones can be tricky to navigate, and it takes skill to avoid hitting poles, trees and buildings. If tenants do business with vendors or retailers that use drone delivery, should building rules and regulations address delivery schedules? How will liability be addressed?
  • As always, commercial property owners need to consider their tenant mix. Is a drone user tenant going to interfere with other tenants’ quiet use and enjoyment? One North Dakota business park caters exclusively to drones with the park’s tenants all involved in the training and development of drones.
  • The low cost of drones is making it easier to invade low-altitude airspace and drones are increasing the value of low-altitude airspace. Do drone users need to acquire easements or licenses from property owners before flying through their airspace?
  • Will governments exercise their eminent domain authority to condemn public drone pathways or corridors through private airspace?
  • Drone zoning ordinances could allow drone usage in certain locations and certain times so as not to invade the privacy of property owners. They could also set forth hover rules so that delivery drones are constantly moving to their destination and not hovering in places like outside high-rise windows. Drone zoning could even involve conservation areas where drone usage would be excluded all the time. However, even if zoning regulations limit drones to flying only above roads, there could still be privacy issues. Drones will likely still have vantage points into high-rise windows looking into confidential meetings, work spaces and private residences.
  • The patchwork of existing property laws will need to adapt to give property owners clear rights. Would surface trespass and takings laws apply to situations involving low-flying drones? Will municipal or state laws exclude drones or other aircraft from entering into low-altitude airspace up to the existing navigable airspace line (typically 500 feet above ground)? A 2013 Oregon state statute permits a civil claim for drone trespass against anyone who flies a drone over their parcel a second time at a height of less than 400 feet after being asked not to do so. Remedies under that statute are treble damages for personal injury or property damage and up to $10,000 in attorneys’ fees. One drone owner filed suit against his neighbor in Hillview, Kentucky in January 2016 when the neighbor shot down the $1,800 drone that was flying low, hovering over the neighbor’s pool and daughter who was sunbathing at the time. This case, known as the ‘drone slayer’ case could, as reported in Fortune, “lead to a reconsideration of that standard [the exclusion of aircraft below 500 feet], or it could reaffirm it. If private property owners retain the right to limit drone access to their airspace—including, perhaps, via shotgun—it would represent a significant wrinkle for many of the most ambitious plans for putting drones to work.”

As recently reported in Fortune, “[b]ecause of the long list of potential commercial uses for drones, the drone industry is expected to expand dramatically over the coming years. By one estimate, as much as $89 billion could be invested worldwide on drones over the next decade and the FAA has forecasted that, by the year 2020, as many as 30,000 drones will be coursing through skies above the United States at any given time.” Given the significant growth of the drone industry that is being predicted, it will be interesting to see how property laws will transform to deal with the issues drones create and what protections property owners will take on their own to secure their property rights.

Flying High: The Use Of Drones For Property Inspections

Kelly Greco | Fox Rothschild LLP | November 5, 2016

With the rapid expansion of the drone industry, the FAA has granted more than 4,200 special permits for companies wanting to utilize drones to advance innovations in their businesses.[1] According to the Association for Unmanned Vehicle Systems International, companies representing more than 600,000 jobs and $500 billion in economic impact were among the first 1,000 exemptions granted.[2] One such innovation is already being seen and tested in the area of real property inspections. The use of drones for real property inspections is transforming industries like insurance and telecommunications.

State Farm was the first insurer in the United States to receive Federal Aviation Administration (“FAA“) permission to test Unmanned Aircraft Systems (“UAS“) for commercial use.[3] Insurance giants American International Group Inc. (“AIG“), United Services Automobile Association (“USAA“), and Allstate followed suit, each receiving approval from the FAA to use UAS to conduct property inspections in the United States.[4]Using UAS for property inspections allows State Farm, AIG, USAA, and Allstate to inspect areas that are difficult or dangerous for humans to inspect, such as wind farms, condemned buildings, damaged roofs and collapsed buildings.[5] The insurance companies hope that drone technology will allow them to utilize UAS as remote insurance inspectors, allowing them to inspect properties more safely, quickly and easily. In addition, Allstate believes that “[d]rones used in the claims process could provide faster payments to customers, especially in an area where widespread damage occurs quickly.”[6]

However, the FAA limits how State Farm, AIG, USAA, and Allstate can use UAS in their operations.[7] For example, the insurance companies can fly drones over private or controlled-access property only with the permission from the owner or other authorized party.[8] Therefore, the insurance companies need to have permission from all landowners they fly over.[9] In addition, flights must take place away from airports and most urban areas and must be during the daytime.[10] Such restrictions will certainly make it more difficult for insurance companies to use drone technology to its full potential. The restrictions, however, strike a balance between the commercial use of drones and the FAA’s concerns regarding privacy and safety.

Similarly, telecommunications firms hope to be able to utilize UAS to inspect more dangerous or difficult inspections.[11] To achieve this, Aerialtronics joined efforts with Neurala and NVIDIA to demonstrate a UAS system that can visually inspect a cell tower and recognize the equipment mounted on the mast.[12] In the near future, such a system will be able to automate the documentation of assets and assess the mechanical functionality and condition of the cell tower to identify rust and other defects.[13] In a recent blog posting, John Donovan, the chief strategy officer for AT&T, wrote about his excitement for the future of AT&T and drone technology.[14] AT&T recently launched the trial phase of its national drone program, which is currently using drones to perform aerial inspections of its cell towers.[15]

Looking forward, AT&T hopes to use Flying Cell on Wings to provide LTE coverage at large events and rapid disaster response.[16] In this way, AT&T will be able to provide coverage when cell towers are usually clogged by increased traffic.[17] The future use of drones is also expected to expand beyond the insurance and telecommunications industries. Drones will likely be used by governments and companies to safely inspect bridges, buildings, wind turbines and other infrastructure.[18]

Our UAS team at Fox will continue to monitor the use of drones in property inspections and the restrictions placed on such usage by the FAA.

[1] Bart Jansen, USA Today, Insurers adopt drones for airborne inspections, Mar. 21, 2016, available at http://www.usatoday.com/story/news/2016/03/31/insurers-adopt-drones-airborne-inspections/82434322/[hereinafter “Jansen”].

[2] Id.

[3] State Farm, State Farm Cleared for Takeoff: FAA okays insurer to test damage-assessing drones, Mar. 16, 2015, available at https://www.statefarm.com/about-us/newsroom/2015/03/16/cleared-for-takeoff.

[4] Leslie Scism & Jack Nicas, The Wall Street Journal, Insurers Get Approval to Use Drones: AIG, State Farm and USAA will be able to use the unmanned aircraft to do inspections, Apr. 8, 2015, available at http://www.wsj.com/articles/aig-receives-faa-approval-for-drone-use-1428499777 [hereinafter “Scism & Nicas”]; Cameron Graham, Technology Advice, 3 Companies Using Drones to Improve Inspections, June 23, 2015, available at http://technologyadvice.com/blog/information-technology/companies-using-drones-for-inspections/[hereinafter “Graham”].

[5] Id.

[6] Graham.

[7] Scism & Nicas.

[8] Id.

[9] Id.

[10] Id.

[11] Jansen.

[12] Drone Business.center, Intelligent Drone Will Automate Inspections, Oct. 4, 2016, available at https://dronebusiness.center/intelligent-drone-automate-inspection-12525/?utm_source=Drone+Business+Center&utm_campaign=78d7db7320-dbc_10081610_7_2016&utm_medium=email&utm_term=0_5c60558777-78d7db7320-124566457 [hereinafter “Drone Business.center”].

[13] Id.

[14] John Donovan, Drones Taking Our Network to New Heights, July 13, 2016, available athttp://about.att.com/innovationblog/drones_new_heights.

[15] Id.

[16] Id.

[17] Id.

[18] Drone Business.center.