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Managing your risk by Michael Kelly

NCACC Risk Management Director Michael Kelly writes a regular column on risk management for CountyLines. With more than 41 years of risk management/ insurance experience, he holds the CPCU - Chartered Property & Casualty Underwriter, ARM-P - Associate in Risk Management for Public Entities, CRM - Certified Risk Manager, ARe - Associate in Reinsurance and CIC - Certified Insurance Counselor Professional Designations. He can be reached at michael.kelly@ncacc.org or (919) 719-1124.  For archives of this column click here.

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Aug 04

Drones … they are here to stay

Posted on August 4, 2015 at 1:00 PM by Todd McGee

Drone - 2.jpgToday whenever I pick up an insurance or risk management trade magazine, I inevitably find there is an article on either managing the risk for Cyber Liability or the rapid proliferation of Drones. “Drones” is the popular name for unmanned aircraft systems (UASs), also known as unmanned aerial vehicles (UAVs)

The Association for Unmanned Vehicle Systems International (AUVSI) website published an economic report showing that in the first three years of integration more than 70,000 jobs will be created in the U.S., which will generate an economic footprint of more than $13.6 billion. The report continues with expectation that the benefits will continue to grow through 2025, creating more than 100,000 new jobs while generating an economic impact of $82 billion (www.auvsi.org/econreport). These numbers are significant and bear some thought.

If your county is considering using UAVs in your operations, such is in law enforcement, emergency response, correction facility security, or even building inspections, it is important to note doing so currently requires a Certificate of Authorization or Waiver (COA) from the Federal Aviation Administration (FAA) to operate a drone. Doing so is further complicated by the fact that traditional general liability and law enforcement liability insurance policy language has always specifically excluded liability extending to and for the operation of “aircraft.” This was clarified, at least temporality, last November when the National Transportation Safety Board (NTSB ) ruled that drones are in fact aircraft and reversed a prior ruling that drones were NOT aircraft. This reversal creates potential coverage problems in property/casualty coverage forms.

This dispute arose after an individual piloted a drone in a series of maneuvers around the University of Virginia campus in Charlottesville, Va., in October 2011. He was later was fined $10,000 by the FAA for “alleged careless or reckless operation of an unmanned aircraft.” The litigation and later appeal results in our current position of if a drone is being used for a “commercial” purpose, it is considered an “aircraft” and falls under the authority of the FAA, requiring a Certificate of Authorization or Waiver to be in compliance.
Much has been recently written on this subject. A good starting point is to Google “NTSB rules drones are aircraft” for more detail. It is important to also note that the FAA is working on developing small UAV rules/regulations, and these may change or evolve further over time. A summary of the FAA Small Unmanned Aircraft System proposed rulemaking can be found here: www.faa.gov/regulations_policies/rulemaking/media/021515_suas_summary.pdf.

So what to do if you have either already purchased or are planning on purchasing/using drones? This is the primary takeaway from this article, especially for members of the NCACC Liability and Property Pool – in order to have liability coverage for the operation of drones you must first have a Certificate of Authorization or Waiver (COA) from the FAA and report it to your underwriter, giving details through a supplementary application that outlines the specifics for each UAV your county owns and operates. Failure to do so will result in liability coverage for the operation of drones to be excluded, i.e. NOT COVERED, since UAVs are defined when used commercially as an “aircraft” and such aircraft liability is not covered without endorsement. There is a nominal liability charge per UAV, and coverage can be added by specific endorsement once the necessary information is returned.
If you are not in the NCACC Liability & Property Governmental Risk Pool, then most likely the only way to be able to get this coverage is by purchasing a separate Aircraft Insurance Policy through specialty insurance markets such as American International Group, Allianz, and Starr International, where it will be a standalone insurance policy with its own limits, deductibles and coverage language.

It is obvious that Drones are here to stay, and it is a safe assumption that they will be utilized in an ever increasing manner and will eventually become as innocuous as videos taken with a cell phone. As your county’s risk manager, thinking ahead and making the necessary changes to your insurance program is an important part of your work process. Do your homework – and plan accordingly.