' Drones, Damages, and Risk Allocation | MTLR

Drones, Damages, and Risk Allocation

The concept of Unmanned Aerial Vehicles (UAVs) has been a traditional favorite of science fiction art and literature, but the prevalence of these vehicles is quickly becoming our modern reality. From photography, to delivering packages, and even assisting in disaster relief, UAVs present an opportunity for a wide array of beneficial uses. However, as the uses and sophistication of UAVs continue to rapidly advance, the insurance and legal markets struggle to keep up. And this is not an industry to be ignored. According to Teal Group, an aerospace and defense consulting company, annual spending on UAVs is set to reach over $11.6 billion by 2023. There are many areas where the regulation of drones still needs to be worked out, but one of the largest problems is with the insurance market—or lack thereof—for drone technology.

Much like automobiles, UAVs have the potential to get into accidents, cause property damage, and commit torts, particularly in the areas of trespassing and privacy invasion. Unlike automobiles, though, there are very limited laws on UAV insurance requirements.  This means that if a UAV were to cause large property damage, there is no guarantee that the owner would have the ability to pay for it. This has only resulted in minor issues in the past, where most UAVs are relatively small and are flown by hobbyists. However, as the commercial UAV market expands, these vehicles will almost certainly become bigger, more complicated, and more widely used, which creates a need for standardized nationwide insurance requirements for these aircraft.

According to the National Association of Insurance Commissioners, commercial UAVs would likely need liability, property, personal injury, invasion of privacy and cyber risk insurance, among other types, in order to be adequately covered for day to day activities. The current problem with this is that there are only a handful of insurance providers that even offer insurance coverage for drones, and even fewer that offer the kinds of comprehensive coverage that would be required in an economy that utilizes commercial drones for day-to-day operations. An increase in regulatory requirements for insurance coverage would expand this market, making access to the product easier in the first place.

Another major issue in the insurance market for UAVs is illegality. Most traditional insurance policies exclude coverage for illegal acts. The problem is that many UAV accidents occur when an operator was violating either federal or local law through trespass or privacy infringements. Traditional liability coverage won’t apply in these instances, so the traditional insurance regulations used for other vehicles cannot just be transferred to UAVs.

This potential illegality problem is made even more difficult by confusion between the Federal Aviation Administration (FAA) and local regulations. Under Title 49, the United States federal government has exclusive sovereignty over the airspace of the United States. This was specifically applied to UAVs in the FAA Modernization and Reform Act, which gave the FAA specific authority to regulate drones. Federal law nearly always preempts state and local law dealing with airspace, but state and local government still has authority over things such as property and privacy laws. This creates a confusing net of often conflicting regulations. Recent district court cases have found that federal law preempts these local laws, even when the local law doesn’t directly contradict the federal law. However, given the small amount of caselaw, the issue is far from settled. The confusion around illegality makes it nearly impossible to apply traditional liability insurance to UAVs.

In conclusion, the legal market needs to get ahead of the UAV market and create standardized insurance requirements for UAV usage before the UAV market expands further. With drones becoming larger and more technologically advanced, the potential for large damages and unmanageable torts suits is becoming much greater. While the need for insurance is growing, insurers will not create a new category of insurance policies without the proper guarantee of an increase in customers. Insurance standards and requirements for UAVs over a certain size can provide this incentive to create a nationwide insurance market for UAVs and allow potential liabilities to be much more easily absorbed.

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