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Lawyers at Pessin Katz Law P.A. in Towson recently created a handbook for the insurance industry on drones. ‘I think it’s still very nascent for insurance companies looking at this from an underwriting perspective, from a liability perspective, from a cyber-liability and invasion of privacy perspective,’ says Talley H-S. Kovacs, one of the handbook’s authors. AP File Photo

Law firm offers primer on insurance issues surrounding drones

While the Federal Aviation Administration is grappling with how to regulate the use of drones, recreational and commercial users of unmanned aircraft might be searching for answers to another question: how to minimize their potential liability as owners or operators of the devices.

Although many law firms and aviation attorneys have already begun to delve into the world of drone law, fewer have explored issues surrounding drone insurance, said Talley H-S. Kovacs, an attorney with Pessin Katz Law P.A. in Towson.

“I think it’s still very nascent for insurance companies looking at this from an underwriting perspective, from a liability perspective, from a cyber-liability and invasion of privacy perspective,” Kovacs said.

Kovacs and Patricia McHugh Lambert, a member at Pessin Katz, recently put together a handbook for insurance professionals that details the dangers of drone use, challenges in underwriting drone insurance policies and differences between insuring drones for commercial and recreational use.

“We are just being proactive — we like to keep an eye on the regulatory space in Maryland and federally and kind of advise and put things on people’s radar,” Kovacs said. “We don’t have any particular cases or matters that are raising these issues, but we like to do it so that companies that are seeing this coming down the road can turn to us and we can have an informed discussion.”

The FAA announced earlier this month that recreational drone operators will be required to register their drones, which commercial drone users are already required to do. A task force will make recommendations for the new recreational user registration process by Nov. 20, according to the agency.

Because there’s so much uncertainty surrounding drone regulations, it’s difficult for insurers to work toward creating drone-specific forms and endorsements for their policies that will help them comply with federal regulations, Kovacs said.

“What companies are doing now is figuring out, how do we manipulate what we can learn from manned air policies and how can we adapt that,” she said. “You need to know a lot about the operator and the intended use of the drone.”

Probing questions

Kara Daly, a videographer at Stevenson University, has used her own drone to shoot aerial footage of the school’s campus. When she crashed it recently, the only damage was to a small piece of the drone itself, which she was able to fix, she said.

“I had looked into insurance a little bit when I got it, but I wasn’t sure if it was something I should go through [the store where she bought it] or some sort of camera company for, or call Geico and see if it’s something they would cover,” Daly said. “I haven’t insured it yet, but I definitely want to, just because it’s very prone to accidents.”

According to Pessin Katz’s drone insurance handbook, other recreational drone users have experienced more severe damage from drones that got out of their control, including a teenager who was killed when his remote-controlled drone struck him in the head.

Because the commercial use of drones is typically more complex than recreational use and more often involves data storage or the shooting of video footage from the air, identifying the insurance needs of commercial drone owners and operators will help inform decisions about coverage for recreational users, Kovacs said.

“With a recreational user, there you’re more concerned about the operator, with potentially unskilled people operating dangerous machines,” she said.

On the commercial end, large corporations like Walmart and Amazon have expressed interest in using drones for package delivery to consumers. But other companies might want to use them on a smaller scale, Kovacs said.

“Say a real estate company has one and wants to get the appropriate insurance — [the insurer] is going to have to look at who’s maintaining it, the hardware itself. The physical machinery is going to have to be examined,” she said. “It’s about 60 to 30, the ratio of issues that are caused by hardware failure versus pilot or operator failure, and there’s so much variation that companies are going to have to know a lot about the equipment.”

In other words, Kovacs said, underwriters are going to have to ask “a lot of probing questions.”

And for drone users, she said, it’s important to answer those questions honestly and stick to using the drone for the purpose you tell your insurer you plan to use it. Otherwise, you’ll have to accept liability if something goes wrong, she said.

“Those statements can come back to haunt you if you’re an insured and you go rogue or you steer away from what your stated purpose was,” she said.

About Lauren Kirkwood

Lauren Kirkwood covers the business of law beat at The Daily Record.