Drones and Risk Management: Everything Old is New Again T. Patrick Byrnes Matthew J. Kalas ACIC 27 th Annual General Counsel Seminar July 28, 2016
Why Talk About Drones? Rapidly expanding market Multiple risk management concerns Regulatory Issues Safety Issues Privacy Issues Legal Issues Insurance Issues 2
Drones 101 Terminology still varies Drones, UAV, UAS, RPAS What are the drone platforms everyone is talking about? Micro UAS Small UAS Large UAS 3
Drones 101 4
Drones 101 5
Drones 101 6
Market Data Goldman Sachs: $100 billion total addressable market over next five years Approximately $1 billion in VC money last year alone FAA: more registered drones than traditional manned aircraft Drone registration only opened in December 2015! AUVSI estimates $82 billion for U.S. economy and 100,000 new jobs over 10 years 7
Who is Using these Platforms? Widespread Recreational Use Hobbyists Amateur photographers Dronies (Drone + Selfie) Drone racing Drone fishing Anything else you can dream up Educational Uses High Schools and Universities 8
Who is Using these Platforms? 9
Who is Using these Platforms? Industries Using or Seeking to Use Drones Insurance Energy Construction Telecommunications Real Estate Transportation Media Agriculture Tourism 10
Who is Using these Platforms? Government Uses Customs & Border Patrol Homeland Security Police Search and rescue / disaster response Crime / accident scene documentation 11
Regulation of Platforms There largely are none (as to airworthiness) Lack of regulation leads to wide divergence in quality of platforms Increases difficulty in rating risks appropriately 12
Regulation of Operators Depends on Use No regulations for recreational or hobby users meeting criteria set by FAA Commercial users are subject to the new 14 C.F.R. Part 107 Announced June 2016 Effective August 2016 Public users (law enforcement, etc.) require COA or Part 107 compliance 13
14 C.F.R. Part 107 Drone weighs less than 55 lbs Must be registered with FAA Remote Pilot-in-Command (RPIC) certificate RPIC must confirm UAS in condition for safe operation before each flight Visual line-of-sight restriction 14
14 C.F.R. Part 107 Daylight or civil twilight with anti-collision lighting Maximum of 400 AGL or within 400 of structure Limitation on flying over persons External load operations permitted Accident reporting requirement Many requirements can be waived by FAA 15
What s not allowed 14 C.F.R. Part 107 Package delivery of any real significance Beyond visual line-of-sight Night operations Operations over crowds 16
What Other Laws May Apply? State and municipal privacy laws existing and new State and municipal aviation laws old and new How do they interact with federal law? Consider the case of William Meredith the Drone Slayer 17
What Other Laws May Apply? 18
Potential Liability Exposures 19
Potential Liability Exposures Personal injury / property damage / BI claims Trespass Invasion of privacy Nuisance Cybersecurity 20
Insurance Industry Response Significant movement into specialized drone coverage Modification of existing coverages to include drone operations New exclusionary language to attempt to strengthen exclusions State Insurance Department comments Will the aviation/aircraft exclusions apply given FAA interpretations? 21
Issues for Insurers to Consider Very little loss history Unregulated equipment manufacturers Fraudulent hull claims Companies with no prior aviation experience Low barriers to entry = increased risk for losses 22
Issues for Insurers to Consider Interplay of illegal acts exclusions and operating requirements under Part 107 Does an insured s existing aviation insurance cover hull / liability claims? Does the insured have separate cyber coverage, and if so, will it apply? 23
Conclusion/Q&A T. Patrick Byrnes pbyrnes@lockelord.com/ 312.443.0286 Matthew J. Kalas mkalas@lockelord.com / 312.443.0458 24