Mark C. Phillips | Kramer, de Boer & Keane, LLP
Unmanned Aerial Vehicles (“UAVs”) or Unmanned Aerial Systems (“UASs”), better known as drones, are becoming more common in the workplace. Amazon grabbed headlines in 2015 when it announced that it plans to deliver packages via drones. Military applications for drones are well-known too. One of the newest uses of drones is in the construction field. But who insures construction drones? Therein lies a potential trap for the unwary owner, builder, or contractor who unwittingly may be conducting an uninsured operation.
Construction Drones Are a Reality
Drones can provide a host of services whether the project involves building something great or small. Construction of the new downtown stadium for the Sacramento (California) Kings, for example, is being supervised by drones that take video footage of as-built conditions. The footage is converted into three dimensional pictures which are fed into software that compares the as-built conditions with computerized architectural plans for compliance.1 This new technology does not replace the need for on-site foremen and superintendents, but it helps to take the guesswork out of their review when threatened with post-construction litigation.
Drones can perform such other diverse construction-related tasks as surveying the undersides of bridges, counting the number of stripes on newly-painted roads, and detecting the presence of early metal corrosion or other defective conditions during the course of construction.2 Nor is this a uniquely American phenomenon. Construction drones are being used in such diverse places as Japan, Australia, Belgium, and North Africa. Despite regulatory issues, drones are quickly becoming a stable service item in commercial construction projects world-wide. But one problem that every construction drone-user faces still faces is how to insure their use.
Drone Coverage Issues in Typical CGL Policies
Many owners, builders and contractors carry commercial general liability insurance written on Insurance Services Office, Inc. (“ISO”)-drafted coverage forms and endorsements. A typical ISO-drafted commercial general liability coverage form contains a standardized exclusion for liability for “‘bodily injury’ or ‘property damage’ arising out of the ownership, maintenance, use or entrustment to others of any aircraft . . . owned or operated by or rented or loaned to any insured.”3 A similarly-worded exclusion is found in the ISO Business Owners Form4 and the ISO Commercial Umbrella Form.5
Consider the hypothetical situation where a city inspector asserts a bodily injury claim against a builder whose construction drone struck her while walking on an I-beam, causing her to fall 50 feet and suffer significant injuries. Should the builder’s commercial general liability policy cover her claim if the only coverage defense is the aircraft exclusion?
California courts make every effort to construe an insurance policy according to its plain meaning. In this hypothetical, the court’s analysis probably would turn on whether the drone constitutes an aircraft for purposes of the exclusion. The ISO coverage forms cited above do not define the term “aircraft,” so the court cannot refer to any policy language for guidance. Instead, the court might turn to a dictionary definition in order to determine what the average layperson understands a drone to be. The Merriam-Webster Dictionary defines a drone, among other things, as “an unmanned aircraft or ship guided by remote control or onboard computers.”6
This definition, plus the fact that many construction drones operate with a camera, causes the International Risk Management Institute to contend that a drone should qualify as an aircraft,7 i.e., the aircraft exclusion should preclude coverage for this hypothetical claim. (Please note that this is likely more of a commercial lines issue than a personal lines issue, because ISO-drafted homeowner policies define an aircraft as “any contrivance used or designed for flight except model or hobby aircraft not used or designed to carry people or cargo.”)
The result might be different if the hypothetical were changed. Suppose the claim is that a construction drone’s software is hacked and the drone is diverted away from the project and into a residential neighborhood. The drone swoops into private backyards, thereby creating both an unauthorized trespass and a nuisance, and takes video footage of subjects that allegedly constitute invasions of privacy.
Such “personal injury” claims fall within Coverage B of the typical ISO-drafted coverage form. Unlike Coverage A, there is no comparable aircraft exclusion for Coverage B claims. Hence, in the absence of other applicable coverage defenses, a court may well find that claims of trespass, nuisance and invasion of privacy caused by the errant drone are covered by the builder’s commercial general liability policy.
For reasons like this, an industry trend is to exclude coverage in commercial general liability insurance policies for all aircraft-related claims. A new exclusionary endorsement form has been drafted specifically to address drones, and operates to preclude coverage both for Coverage A (bodily injury and property damage) and Coverage B (personal injury but not advertising injury). It provides as follows:
When this endorsement is attached to your policy, coverage is excluded with respect to bodily injury and property damage arising out of the ownership, maintenance, use or entrustment to others of any unmanned aircraft. The attachment of this endorsement will result in a reduction in coverage under Coverage A – Bodily Injury And Property Damage Liability to the extent that:
1. An exposure exists with respect to unmanned aircraft that are not owned or operated by or rented or loaned to any insured; or
2. Liability is assumed under any insured contract for the ownership, maintenance or use of unmanned aircraft.
In addition, this endorsement excludes coverage with respect to personal and advertising injury arising out of the ownership, maintenance, use or entrustment to others of any unmanned aircraft, with certain exceptions. The attachment of this endorsement will result in a reduction in coverage under Coverage B – Personal And Advertising Injury Liability, to the extent that an exposure exists with respect to unmanned aircraft. However, the attachment of this endorsement would not result in a reduction of coverage with respect to the use of another’s advertising idea in your advertisement or to infringing upon another’s copyright, trade dress or slogan in your advertisement. 8
Significantly, unlike the standard commercial general liability policy coverage form, ISO provides the definition of a drone in the Definitions section of this endorsement. It states:
“Unmanned aircraft” means an aircraft that is not:
1. Designed;
2. Manufactured; or
3. Modified after manufacture; to be controlled directly by a person from within or on the aircraft.
Similar new exclusionary endorsements allocate the scope of this exclusion between Coverage A and Coverage B. The first exclusion pertains to bodily injury and property damage claims:
When this endorsement is attached to your policy, coverage is excluded with respect to bodily injury and property damage arising out of the ownership, maintenance, use or entrustment to others of any unmanned aircraft. The attachment of this endorsement will result in a reduction in coverage under Coverage A – Bodily Injury And Property Damage Liability to the extent that:
1. An exposure exists with respect to unmanned aircraft that are not owned or operated by or rented or loaned to any insured; or
2. Liability is assumed under any insured contract for the ownership, maintenance or use of unmanned aircraft. 9
The second exclusion pertains to personal injury claims, while excepting (and therefore preserving coverage for) certain advertising injury claims, as follows:
When this endorsement is attached to your policy, coverage is excluded with respect to personal and advertising injury arising out of the ownership, maintenance, use or entrustment to others of any unmanned aircraft, with certain exceptions. The attachment of this endorsement will result in a reduction in coverage under Coverage B – Personal And Advertising Injury Liability, to the extent that an exposure exists with respect to unmanned aircraft. However, the attachment of this endorsement would not result in a reduction of coverage with respect to the use of another’s advertising idea in your advertisement or to infringing upon another’s copyright, trade dress or slogan in your advertisement. 10
Drone Insurance Issues for Wrap Policies
Owner Controlled Insurance Programs (“OCIPs”) and Contractor Controlled Insurance Programs (“CCIPs”) have their own drone insurance issues. There is an ISO form which precludes coverage for dronerelated claims and which can be attached to a wrap policy. 11
Recourses for the Insurance-Needy Owner, Builder or Contractor
What is the insurance-needy policyholder to do? One California court told a policyholder that separate insurance must be purchased to cover auto-related risks which are precluded by the auto portion of the aircraft exclusion.12 The same comment is probably appropriate here: aircraft exclusions has been upheld in coverage lawsuits where the emphasis is on whether the insured operated or otherwise used the aircraft, regardless of whether there were other extenuating circumstances.13 In such cases, the policyholder should go in search of drone insurance.
All is not hopeless. It is very helpful to select a broker who is knowledgeable about drone insurance, because it does exist. There are several commercial general liability insurers who write this type of product on a manuscripted basis.
Also, there are several new ISO-drafted endorsements effective June 1, 2015 which afford drone coverage notwithstanding other policy provisions, although these endorsements come with a price. One such endorsement affords limited coverage for claims arising out of drone use, but only for drones which are listed on a specific schedule and only for specific operations or projects listed in that same schedule. It provides as follows:
When this endorsement is attached to your policy, coverage is excluded with respect to bodily injury and property damage arising out of the ownership, maintenance, use or entrustment to others of any unmanned aircraft, with the exception of unmanned aircraft that are designated in the Schedule of the endorsement, but only related to operations or projects that are also designated in the Schedule.
The attachment of this endorsement will result in a broadening of coverage under Coverage A – Bodily Injury And Property Damage Liability with respect to designated unmanned aircraft that are owned or operated by or rented or loaned to any insured, but only with respect to designated operations or projects.
However, the attachment of this endorsement will result in a reduction in coverage under Coverage A to the extent that:
• An exposure exists with respect to unmanned aircraft that are not owned or operated by or rented or loaned to any insured; or
• Liability is assumed under any insured contract for the ownership, maintenance or use of unmanned aircraft; with respect to unmanned aircraft that are:
• Not designated in the Schedule of the endorsement; or
• Designated in the Schedule of the endorsement, with respect to operations or projects that are not designated in the Schedule of the endorsement.
In addition, this endorsement excludes coverage with respect to personal and advertising injury arising out of the ownership, maintenance, use or entrustment to others of any unmanned aircraft, with certain exceptions. The attachment of this endorsement will result in a reduction in coverage under Coverage B – Personal And Advertising Injury Liability, to the extent that an exposure exists with respect to unmanned aircraft, but only if such unmanned aircraft are:
• Not designated in the Schedule of the endorsement; or
• Designated in the Schedule of the endorsement, with respect to operations or projects that are not designated in the Schedule of the endorsement. However, the attachment of this endorsement would not result in a reduction of coverage with respect to the use of another’s advertising idea in your advertisement or to infringing upon another’s copyright, trade dress or slogan in your advertisement.
This endorsement contains an optional Unmanned Aircraft Liability Aggregate Limit. If a limit is shown in the Schedule, any coverage provided under the endorsement is subject to that aggregate limit. The Unmanned Aircraft Liability Aggregate Limit will be subject to the General Aggregate Limit or the Products-Completed Operations Aggregate Limit, whichever applies. All other limits continue to apply if and to the extent that the Unmanned Aircraft Liability Aggregate Limit has not been used up.14
Similarly-worded endorsements are also available which pertain specifically only to Coverage A and to Coverage B,15 and for ISO commercial umbrella policy forms.16
Conclusion
The insurance industry has a good track record of evaluating potential risks and creating policy forms which address those risks. Drone insurance is no exception, and drones are a good example of an emerging technology that appears to be with us for the foreseeable future. Drones are no stranger to the insurance industry. Some insurance underwriters use drones already to remotely view structural conditions which are otherwise often difficult to observe, and some insurance claims departments use drones for quick and efficient claims handling.
What a liability policy covers in a given fact pattern is often the rub, one that can give the policyholder an unpleasant surprise after a claim arises. Owners, builders and contractors who use construction drones are strongly encouraged to read their liability policies before any claims arise and ensure that they have the best possible coverages that match their needs.
1 Will Knight, “Robotics: New Boss on Construction Sites is a Drone,” MIT Technology Review (August 26, 2015): https://www. technologyreview.com/s/540836/new-boss-on-construction-sites-is-a-drone/; Tessa Berenson, “Construction Workers Are Now Being Monitored By Drones,” Time (August 31, 2015): http://time.com/4013714/drone-monitoring-construction-workers/.
2 Wayne Grayson, “Eyes in the Sky: How Drones and UAVs Are Already Affecting Construction Jobsites,” Equipment World (September 15, 2014): http://www.equipmentworld.com/drones/; Alex Espenson, “How Drones are Already Affecting Construction Sites,” Tech.Co (January 9, 2016): http://tech.co/drones-already-affecting-construction-sites-2016-01.
3 See, e.g., ISO form CG 00 01 04 13, Section I, Coverage A, exclusion (g).
4 See, e.g., ISO form BP 00 03 01 10 exclusion (g).
5 See, e.g., ISO form CU 00 01 12 07, exclusion (j).
6 “Drone,” Merriam-Webster Dictionary, Merrian-Webster.com, n.d.
7 Sharon D. Stuart and Deborah Allen Smith, “The Limits to the Sky: Insurance Issues Related to Unmanned Aerial Systems,” Christian & Small ((April 24, 2015): http://csattorneys.com/the-limits-to-the-sky-insurance-issues-related-to-unmanned-aerialsystems-part-iii/
8 ISO form CG 21 09.
9 ISO form CG 21
10. 10 ISO form CG 21 11.
11 ISO form CG 20 60.
12 Essex Insurance Company v. City of Bakersfield, 154 Cal.App.4th 696, 710 (2007).
13 See, e.g., Hartford Fire Insurance Company v. Superior Court, 142 Cal.App.3d 406, 415-416 (1983); contra Northbrook Excess & Surplus Insurance Company v. Coastal Rescue Systems Corporation, 182 Cal.App.3d 763, 767-770 (1996).
14 ISO form CG 24 50. 15 ISO forms CG 24 51 and CG 24 52. 16 ISO form CU 21 24.