Insurance and the rise of the drones

Table of contents

1. Introduction 1

2. Executive summary 1

3. What exactly is a drone? 2

4. A brief history of drones 4

5. Uses for drones 6

6. The law and regulation of drones 15

7. Potential legal issues raised by the use of drones 24

8. Insurance and drones: a myriad of challenges 26

Introduction and Executive summary

By Joseph Colby, Gerald Deneen, Carol Kreiling, Anthony Mormino and Nellie Root1

1. Introduction2
Unmanned aircraft technologies or so-called drones today come in a variety of sizes
and types, from model aircraft for personal use, to large fixed wing aircraft used by the
military. The commercialization of drone technology is just getting started and it
appears to have enormous future potential. Insurance coverage for drone operation is
absolutely essential for that progress to take place. The goal of this white paper is to
explore the development and use of drones and identify the attendant legal and
practical issues to help insurance companies and their clients in the United States and
Canada to accurately assess and underwrite the risks posed by the use of drones.

2. Executive summary
The definition of a drone varies by law, regulation and nature of use. The earliest form
of drone arrived in Europe in the 1800s, and took the form of balloons used in war to
carry bombs to their destinations. Military use has been the primary driver in the
development of drones since then. Today, drones are being highly exploited for
numerous private and commercial applications. These include use of drones for
insurance underwriting and claims, crop management, filmmaking, journalism, disaster
management and a large number of other applications. Both the United States and
Canada have federal rules regulating the use of drones, with the ultimate goal of
normalizing the use of drones in their respective national airspace. Both countries laws
distinguish recreational use of model aircraft from commercial use of drones, with
model aircraft being largely unregulated. Persons seeking to use a drone commercially
must obtain permission from Transport Canada or the US Federal Aviation
Administration (the FAA).

While drone use in Canada has been largely uncontroversial, much attention has been
focused on how the FAA regulates drones in the United States. In recent years, the FAA
has been active in enforcing its drone regulations, primarily seeking to stop commercial
use of drones by operators who havent received its permission. There has been some
doubt, however, as to the breadth of the FAAs authority to regulate drones. In an effort
to bring some clarity to the regulatory situation, the US Congress passed the FAA
Modernization Act of 2012, eliminating the FAAs ability to regulate model aircraft that
meet certain criteria, and mandating that the FAA promulgate regulations for the
commercial use of drones by the end of September 2015. In the meantime, the FAA has
issued guidance confirming its view that it does in fact have the power to regulate
model aircraft that dont meet the criteria set forth in the 2012 Act. Rather than clarify
the regulatory situation, however, it appears the FAAs recent pronouncements have
muddied the waters. As a result, wider commercial use of drones will likely be slow until
the FAA finally issues its regulations in 2015.

1 The authors would like to thank Shawn Rafferty, an aviation and equipment finance lawyer at Troutman
Sanders LLP, for his thorough review, comments and suggestions which contributed to improving the quality
of this publication. Shawn is based in Atlanta, Georgia. Shawn has over 20 years experience representing
aviation clients, including with respect to insurance issues and unique aviation products. Shawns
contributions to this publication are subject to the disclaimer set forth in Footnote 2.
2 Disclaimer: The information contained herein is for informational purposes only, and is not legal advice or a
substitute for legal counsel. Swiss Re takes no position on whether there is coverage for the subject matter of
this paper under any insurance policy wordings. The information and opinions contained in this paper are
provided at the date of the paper and are subject to change without notice. Although the information used to
draft this paper was taken from reliable sources, Swiss Re does not accept any responsibility for the accuracy
or comprehensiveness of the details given. All liability for the accuracy and completeness thereof or for any
damage or loss resulting from the use of the information contained in this paper is expressly disclaimed and
excluded. Under no circumstances shall Swiss Re or its Group companies be liable for any financial or
consequential loss relating to this paper. 2014 Swiss Re. All rights reserved.

Swiss Re 1
What exactly is a drone?

Both recreational and commercial operators face a number of potential legal issues
when they fly their drones. Invasion of privacy is probably the biggest concern, followed
by physical damage and bodily injury in case of, for example, a drone crash. There are
also concerns about drones creating liability arising from trespass, nuisance and
potential abuse by law enforcement. In the US, commercial operators face the prospect
of a monetary fine by the FAA if they dont have an FAA-issued Certificate of Authority.
This type of fine is unlikely to be covered by any type of insurance policy. To date, the
FAA has issued very few Certificates of Authority relative to the number of drones
purchased.

These potential legal issues, combined with the uncertain regulatory atmosphere in the
US, make insurance underwriting for drone liability a challenging endeavor. A wide
range of insurance coverage types may unintentionally be triggered depending on how
an operator uses its drone. This includes drone coverage by property insurance,
commercial general liability insurance, business owners insurance, farm owners
insurance and homeowners insurance among others. Underwriting consideration must
also be given to potential aviation liability, workers compensation, directors and
officers liability and the feasibility of writing stand-alone drone liability insurance
policies. Similarly, insurance agents must be careful when indicating to a policyholder
that it has coverage for drone operation. The agent must engage in proper due diligence
to ensure coverage in fact exists, and confirm that there are no exclusions that could
inadvertently defeat coverage. A mistake could expose the insurance agents own
errors and omissions policy.

Underwriting drones is a very new undertaking for insurance companies. Asking the
right questions, gathering key information and looking closely at the use of this new
technology will be critical to properly assessing and underwriting the risk. In the near
future, as regulation of drone use becomes clearer and insurers become more
comfortable with this unfamiliar territory, its expected that the capacity to underwrite
drone liability will increase.

3. What exactly is a drone?

There are a variety of definitions of the term drone including those found in laws and
regulations, commercial use and recreational use. Sometimes different definitions
reflect how a drone is used or intended to be used.

3.1. Definition
The International Civil Aviation Organization (ICAO) has set a new definition referring to
drones as RPAS, which will soon become the recommended term internationally as
ICAO moves toward developing standards for its members:3

RPAS (Remote Piloted Aircraft Systems) The ICAOs definition intends to highlight
the fact that unmanned flight systems involved arent fully automatic but always have
a pilot in command responsible for the flight. RPAS describes a remotely piloted
aircraft, its associated remote pilot station(s), the required command and control links
and any other components as specified in the design.4

UAVs (Unmanned Air Vehicle) UAV is a power driven aircraft, other than a model
aircraft, that is designed to fly without a human operator on board.5

UAS (Unmanned Air Systems) A UAS is an unmanned aircraft (UA) and all of the
associated support equipment, control station, data links, telemetry, communications
and navigation equipment, etc., necessary to operate the unmanned aircraft.6

3 https://www.priv.gc.ca/information/research-recherche/2013/drones_201303_e.asp.
4 Ibid.
5 Ibid.
6 Ibid.

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What exactly is a drone?

Model Aircraft is an aircraft, the total weight of which doesnt exceed a certain
weight 35 kilos (77.2 pounds) in Canada and 25 kilos (55 pounds) in the United
States thats mechanically driven or launched into flight for recreational (not
commercial) purposes and thats not designed to carry persons or other living
creatures.7 Under both US and Canadian law, model aircraft are generally
unregulated, and for purposes of this paper, wouldnt be considered drones.

While there are some slight differences in their definitions, the terms UAV, UAS and
RPAS can essentially be used interchangeably to refer to unmanned aircraft and the
systems that connect them to their pilots on the ground. Model aircraft on the other
hand, are distinctly different from UAVs in the fact that theyre used for purely
recreational purposes, and thus generally arent covered by the same regulatory
framework as UAVs.

3.2. Drone types

The following categories provide a helpful description of some of the different forms
that a drone can take:

Large fixed-wing aircraft: Examples of a drone in present use: the Predator, the Global
Hawk or the T-Hawk.

The Predator was the first-ever weaponized UAV, and has been used to gather
intelligence and carry out targeted strikes in overseas operations. It can fly up
to 25,000 feet for up to 40 hours. More recently, the Predator has been
adapted for surveillance missions on the US borders, including the US-Canada
border. 8

The Global Hawk is used primarily for surveillance and isnt armed. Its capable
of staying aloft for up to 35 hours, transmitting video to ground stations during
its flight. Its also used by NASA as a Hurricane Hunter. The T-Hawk has the
capacity to hover and stare, inspect from close range and pursue a target.
These types of large fixed-wing drones are the most similar to manned
aircraft. Their size and range of flight enables these UAVs to be configured
with a range of different payloads capable of persistent and highly
sophisticated surveillance.9

Small fixed-wing aircraft: Aircraft such as the Boeing ScanEagle can stay aloft for
more than 24 hours and can fly at 19,500 feet. These types of aircraft are becoming
more popular domestically for use by local law enforcement.10

Micro-UAVs: Sometimes referred to as Backpack craft or mini helicopters, theyre

cheap and portable, designed to be carried and operated by a single person. While
their price range makes them within reach for hobbyists, theyre also often popular
for law enforcement operations. Some examples are the $300 Parrot AR or the
DraganFlyer X6 used by the Royal Canadian Mounted Police.11

Biomimetic UAVs: Drones that imitate naturally occurring animals or plants

(commonly birds, snakes and insects), such as AeroVironments Nano
Hummingbird.12

Blimps or balloons: Although not commonly thought of as drones, unmanned blimps

or balloons can sit up in the sky in one place, observing for long periods of time.
These types of UAVs are currently being tested along the US-Mexico border.13

7 Ibid.
8 Ibid.
9 Ibid.
10 Ibid.
11 Ibid.
12 Ibid.
13 Ibid.
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A brief history of drones

4. A brief history of drones

Most of us know about drones or more accurately, unmanned aircraft following the
prevalent use of these vehicles during various military conflicts over the last 10 years.
What many might be surprised to learn is that variations on these devices actually date
back to the 1800s.

4.1. 1800s: Early UAVs took the form of balloons. One of the first recorded usages of
drones was by Austrians on August 22, 1849. They launched some 200 pilotless
balloons mounted with bombs against the city of Venice.14 In 1861, Thaddeus Lowe
convinced President Lincoln to permit Lowe to use balloons to conduct aerial
reconnaissance of enemy military positions and activities to provide Lincolns troops
with a state of the art military advantage at the time. Fast forward over 20 years to
1898, during the Spanish-American War, and we find the US military fitting a camera to
a kite, producing the first-ever aerial reconnaissance photos.15

4.2. World War I: World War I saw the development and testing of various radio-
controlled unmanned aircraft, but none emerged from the testing phase in time to be
used before the war ended. In the 1930s, the British Royal Navy developed a primitive,
radio-controlled UAV: the Queen Bee. The Queen Bee could be landed for future reuse
and could reach speeds of 100 mph (160 km/h). Instead of being used offensively
though, the Queen Bee primarily served as aerial target practice for British pilots.16

4.3. World War II: At the outset of World War II, Adolf Hitler commissioned a flying
bomb with a chilling mandate: It would be used against non-military targets. Fieseler
Flugzeuhau designed the Fieseler Fi-103, better known as the Vergeltungswaffe
(Revenge weapon)-1, or V-1, to launch via a long catapult-like ramp and fly at 470 mph.
The V-1 UAV was powered by a thrust pulsejet, which produced a signature buzzing
sound. It could carry a 2,000-pound warhead and was pre-programmed to fly 150
miles before it dropped its bomb. First launched against Britain in 1944, V-1s killed
more than 900 civilians and injured more than 35,000 in British cities.17 Similarly, the
German Army in 1942 produced a remote controlled tank killer called the Goliath
Tracked Mine.18 Standing at only 24 inches tall, looking like a tank without a turret and
armed with TNT, the Goliath used a remote human operator tethered by a control cable
and joy stick (or using radio control) to guide and detonate the gasoline-powered device
underneath a full-size enemy tank or other target.19 Though the Goliath saw little use, it
did serve as the precursor of the modern radio-controlled robotic vehicles.20

4.4. Cold War: Flying bombs officially became known as drones during the early
years of the Cold War, and were used as aerial targets to train fighter pilots. The word
drone was used because it denoted the aircrafts limited abilities, giving it a connotation
of being disposable. 21 It was not until the Vietnam War in Southeast Asia that UAV
technology had advanced to allow for a new combat role and a redefinition of the
unmanned concept. Drones were given combat roles to replace manned
reconnaissance flights due to concerns about American pilots being shot down over
enemy territory. As a result, US forces were estimated to have flown more than 5,000
surveillance missions using the plane-launched AQM-34 Ryan Firebee drone. 22 The
Firebee was controlled by a ground operator using a remote control camera and was
able to launch air to ground missiles as well as conventional bombs. The jet-powered
drone could fly at subsonic speeds and accommodate numerous modifications and a

14 Ian G. R. Shaw, (2013), The Rise of the Predator Empire: Tracing the History of U.S. Drones, Understanding
Empire.
15 Ibid.
16 How the MQ-9 Reaper Works, Tom Scheve.
17 PBS NOVA The Rise of Drones.
18 Goliath Tracked Mine: The Beetle That Started the ROV Craze, by Jon Guttman, accessed on September
25, 2014 at http://www.historynet.com/goliath-tracked-mine-the-beetle-that-started-the-rov-craze.htm.
19 Ibid.
20 Ibid; see also Remote Controlled Tank, accessed on September 25, 2014 at https://www.youtube.com/
watch?v=zhK8L0PgPdA.
21 Jeffrey M. Sullivan, Evolution or Revolution? Rise of UAVs, IEEE Technology and Science Magazine 25:3,
(2006): 43-49.
4 Swiss Re 22 Thomas Mahnken, Technology and the War in Vietnam 1963-1975, (Columbia University Press, 2008): 113.
A brief history of drones

variety of payloads. In addition to their reconnaissance and bomb damage assessment

roles, the Firebee was used to bait and reveal North Vietnamese anti-aircraft
installations, and was later used by the CIA to develop electronic countermeasures for
such defenses.23

4.5. 1960s to 1980s: In the 60s and 70s, the United States flew more than 34,000
surveillance flights using the AQM-34 Ryan Firebee, a UAV launched from a host plane
and controlled by operators within that plane.24 The US also employed UAVs called
Lightning Bugs that were released from airborne C-130s for missions over China and
Vietnam.25 Engineers from the manufacturer operated the aircraft with a joystick
control.26

4.6. Late 1970s and 1980s: Israel developed the Scout and the Pioneer, which
represented a shift toward the lighter, glider-type model of UAV in use today. 27 The
Scout was notable for its ability to transmit live video with a 360-degree view of the
terrain.28 The small size of these UAVs made them inexpensive to produce and difficult
to shoot down.29

4.7. Gulf War: The US acquired Pioneer UAVs from Israel and used them in the Gulf
War.30 On at least one occasion, Iraqi soldiers attempted to surrender to one of the
UAVs as it flew overhead.31

4.8. 1990s present day: The US Predator drone was developed in the early 1990s
through a program called the Advanced Technology Demonstrator Program for
reconnaissance and forward observation roles.32 While the pace of development of
UAVs had reflected the pace of technology in general, major improvements in
computing and electronic controlling systems in the 1980s and 90s made modern-day
drones like the Predator possible.33 The invention of Global Positioning System
technology, along with advances in micro-computing, ushered in the possibility of
greatly advanced and automated unmanned flight.34 Due to these developments, it was
in the late 90s that the US Air Force made great strides in the technical aspects of
arming unmanned aircraft with guided missiles.35 Though the tactical usefulness of
armed drones was still unknown, the emergence of network terrorism and their
unconventional tactics soon predicated the need for a platform that could survey and
strike select targets.36

The evolution of UAVs has arisen primarily as a result of military conflicts and they have
advanced in sophistication following the 9/11 attacks and the subsequent invasions
Iraq and Afghanistan. These conflicts drove a substantial uptick in the frequency of use.
The US has deployed more than 11,000 military drones, up from fewer than 200 in
2002.37

23 Ibid.
24 How the MQ-9 Reaper Works, Tom Scheve.
25 Ibid.
26 Ibid.
27 Ibid.
28 Ibid.
29 Ibid.
30 PBS NOVA The Rise of Drones.
31 Ibid.
32 Christopher A. Jones, Unmanned Aerial Vehicles (UAVs): An Assessment of Historical Operations and
Future Possibilities, Air Command and Staff College, Research Department, (March, 1997), http://www.fas.
org/irp/program/collect/docs/97-0230D.pdf: 3-5.
33 Strategic Significance of Drone Operations for Warfare, Jack Miller, August 19, 2013.
34 Ibid.
35 Christopher A. Jones, Unmanned Aerial Vehicles (UAVs): An Assessment of Historical Operations and
Future Possibilities, Air Command and Staff College, Research Department, (March, 1997), http://www.fas.
org/irp/program/collect/docs/97-0230D.pdf: 3-5.
36 Strategic Significance of Drone Operations for Warfare, Jack Miller, August 19, 2013.
37 John Horgan (2013) The Drones Come Home (National Geographic Magazine).
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Uses of drones

At least 50 other countries have drones, and some, notably China, Israel and Iran, have
their own manufacturers.38 Theres also evidence that some terrorist organizations may
also operate drones.39 Aviation firms as well as university and government researchers
are designing a flock of next-generation aircraft, ranging in size from robotic moths and
hummingbirds to Boeings Phantom Eye, a hydrogen-fueled behemoth with a 150-foot
wingspan that can cruise at 65,000 feet for up to four days.40

5. Uses for drones

The aerial drone market will be dominated by military applications for the foreseeable
future. But commercial uses will begin to take off around 2020.41 The Teal Group has
forecast that annual spending on aerial drones, including civilian and military
applications, will reach $11.6 billion in 2023. Thats up from about $5 billion in annual
spending now (with barely any significant spending on commercial UAVs.). In all, Teal
believes there will be about $89 billion in cumulative spending on UAVs globally over the
next 10 years. Some $8.2 billion of that amount will be spent on commercial and civilian
drone uses.42

As discussed in detail below, the US Congress has asked the Federal Aviation
Administration to draft rules to safely integrate drones into US airspace by September
2015.43 But according to a recent report issued by the Office of Inspector General, the
FAA may not meet this deadline.44 While making some progress, significant
technological, regulatory and management barriers exist to safely integrate UAS into the
national airspace (NAS). 45 Safety risks will persist until the FAA can establish rules
regarding drones. According to the Washington Post, the FAA may relax restrictions in
the coming months for a few industries, like filmmakers, oil-and-gas producers and large-
scale farms.46

Meanwhile, Canada has quietly allowed use of commercial drones since 2007.47
Transport Canada oversees the operation of drones for commercial purposes.48 As
discussed more fully below, according to the Canadian Aviation Regulations, no one may
operate a drone without first obtaining a Special Flight Operation Certificate.49

38 Ibid.
39 CNN, Now ISIS as drones?, August 25, 2014, accessed on September 16, 2014 at http://www.cnn.
com/2014/08/24/opinion/bergen-schneider-drones-isis/, (The terrorist group ISIS uploaded a 14-minute
video to YouTube that shows aerial views of Syrian Army Military Base 93 near Raqqa province in northern
Syria... [and likewise], [a]ccording to Hamas, its military wing, the al-Qassam Brigades, has engineered three
different types of drones: ones for surveillance purposes; ones that can be armed; and ones that can operate
as self-guided missiles a sort of suicide drone).
40 Ibid.
41 Business Intelligence, Drones: Quickly navigating toward commercial application, starting with e-commerce
and retail, Ross Rubin, January 23, 2014.
42 Ibid at 4.
43 The FAA Modernization and Reform Act of 2012 specifies the following UAS target dates for safe UAS
integration into the NAS: August 14, 2014 publish a final rule on small UAS, as required by Section 332(b)(1)
and by September 30, 2015 no later than date for safe integration of civil UAS into the NAS, as required by
Section 332(a)(3).
44 On June 26, 2014, Matthew E. Hampton, Assistant Inspector General for Aviation Audits, shared the results of
the audit in a Memorandum.
45 Governments currently use drones extensively in military, law enforcement, search and rescue as well as
many other uses. We are focusing on commercial use of drones in this white paper.
46 Craig Whitelock, The Washington Post, June 30, 2014. FAA will miss deadline to integrate drones in U.S.
skies, report says.
47 Transport Canada is responsible for the conduct of civil UAVs. UAVs operating in Canada must meet
equivalent levels of safety as manned aircraft. Requirements for operation of UAVs fall under the Canadian
Aviation Regulations (CARs). http://www.tc.gc.ca/eng/civilaviation/standards/general-recavi-uav-2265.htm.
48 http://www.tc.gc.ca/eng/civilaviation/standards/general-recavi-uav-2265.htm.
49 Section 602.41, Canadian Aviation Regulations. http://www.tc.gc.ca/eng/civilaviation/regserv/cars/part6-
standards-623d2-2450.htm.

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Uses of drones

The Royal Canadian Mounted Police have blanket permission to use drones not
unlike government entities in the US. Although Transport Canada issues permits to
commercial drone users, groups in Canada are advocating for more regulations and
standards.50

Once the regulatory and privacy barriers are resolved, the future capabilities of drones
are limited only by our imagination.

5.1. A multitude of uses

The existence of regulations hasnt dampened the appetite of some users and
prospective UAV owners. Theres a ground swell of commercial users looking to get the
regulations softened to permit more daily use. The FAA approval is seen as a first step in
unleashing a potentially multibillion dollar industry that so far has been largely limited to
military and law enforcement applications. In the meantime, dozens of companies are
chomping at the bit for the FAA to certify their own more affordable drones, saying
theres no way farmers and many others can invest in the type of UAVs that received
certification in the past months for the monitoring of pipelines. The following are a
listing of some present day and potential future uses of drones:

5.1.1. Insurance underwriting and claims

One of the industries that could benefit from use of drones is the insurance industry.
After a natural catastrophe, a drone could reach a remote scene much faster than a
claims adjuster. In addition, drones could be deployed to areas unreachable by claims
adjusters, for example, in a flood zone. Besides the speed of deploying resources to
insureds, the cost savings to insurers could be significant. No longer must underwriters
travel in person to inspect the exterior of a building or property. Details of a risk could be
validated without incurring travel costs or costs to make in-person inspections. Claims
departments could also save costs using drones. After a claim is filed, an adjuster could
dispatch a drone to investigate the claim. Instead of climbing a ladder to inspect an icy
patch of a damaged roof, a claims adjuster could dispatch a drone to conduct the
inspection. Drones could certainly save insurance carriers the costs associated with
claims adjusters workers compensation claims. Drones provide underwriters and
claims personnel with a safe, cost-effective alternative to physical inspections.51

5.1.2. Security
For example, aerial reconnaissance, aerial policing and crowd monitoring, aerial traffic
and security watch, border surveillance.52 Note too that the US Department of
Homeland Security (DHS) is at the leading edge of drone deployment in the United
States. Since 2005, DHS has been purchasing Predator UAVs to secure the border.
These unarmed Predator drones are also steadily creeping into local law enforcement,
international drug-interdiction and national security missions including across the
border into the heart of Mexico.

50 According to Charlotte Santry, Block G Privacy and Security Consulting issued a report in November 2013,
entitled, Watching Below: Dimensions of Surveillance-by-UAVs in Canada. Charlotte Santry,
canadianlawyermag.com, February 3, 2014, Droning on. http://www.canadianlawyermag.com/4989/
Droning-on.html.
51 See, eg, USAA wants to use drone technology to expedite insurance claim processes, by the San Antonio
Business Journal, October 2, 2014, accessed on October 7, 2014 at http://www.bizjournals.com/
sanantonio/news/2014/10/02/usaa-wants-to-use-drone-technology-to-assess.html (The San Antonio-
based insurance giant wants to begin testing small, unmanned aircraft systems that can record data over
areas that have been damaged as the result of a natural disaster. A five-pound, slow-speed Precision Hawk
aircraft could be used to capture this data at times when physical access to some areas is restricted. USAA
wants to use the technology to settle insurance claims quicker.).
52 http://www.uavs.org/commercial.

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Uses of drones

5.1.3. Utilities: oil and gas

In addition to granting permission to the oil and gas industry for drone use, the FAA also
approved a special airworthiness certificate for San Diego Gas and Electric. 53 The
permission allows SDG&E to use drones for research, testing and training flights in
sparsely populated airspace in Eastern San Diego County. Dave Geier, SDG&Es vice
president of electric transmission and system engineering said that this versatile
technology would allow us to improve our response to emergency situations such as
fires, as well as complete aerial inspections in remote areas that are otherwise difficult to
access, and locate the cause of power outages faster. 54 The approved areas are
currently uninhabited by either residences or businesses and are inaccessible by road or
helicopters. Drones could also be used for population analysis, including assessment of
humans and wildlife, as well as exploration, oil production, mineral exploration and
geophysical surveys.

In June 2014, the FAA approved the first large-scale commercial drone operation in the
US, along Alaskas northern shore. The drones will collaborate with researchers,
capturing data from British Petroleums remote Prudhoe Bay field and Alaskas North
Slope one of North Americas largest oil fields. BPs goal is to target maintenance
activities on specific roads and infrastructure, which will save time and support safety
and operational reliability goals, while helping to protect the sensitive North Slope
environment.55 Some of the drones that BP will use can stay aloft for a full 24 hours,
while providing real-time data to scientists.56 Venturing where manned aircraft cannot, 57
these drones will also monitor pipelines in harsh weather conditions, producing 3D maps
of the fields pipelines, well pads and surrounding roads.58 A year earlier, the FAA issued
permits to another oil and gas company flying unmanned aircraft over the Arctic
Ocean.59

Transport Canada has given permission to Cenovus Energy to fly its $30,000
commercial drone regularly in northern Alberta.60 Cenovus Energy, an oil sands producer
based in Calgary, plans to expand its fleet and obtain permits to cover its sites in
Southern Alberta as well.

Drones could also be used to map the path of future oil spills. Scientists from the
University of Miami, together with a group of researchers,61 used drones off the Florida
coast in 2013 to track the exchange of material between the inner shelf and the surf
zone. The scientists gathered as much data of wave and current movements as possible,
in order to predict ocean currents. Funded in part by BP, this data will help scientists to
predict the path of future oil spills, in order to protect beaches and coastal ecosystems.62

53 Carleton Universitys Mechanical and Aerospace Engineering department has created applications for drone
use in pipeline monitoring (as well as in geophysical surveys and wildlife conservation and protection, among
others). http://uav.mae.carleton.ca/.
54 Gregory S. McNeal, forbes.com, July 12, 2014, FAA Approves Limited Use Of Drones For Utility Company.
55 FAA Press Release, Surveys Will Check Pipelines, Infrastructure on Alaska North Slope, accessed on
August 11, 2014, http://www.faa.gov/news/press_releases/news_story.cfm?newsId=16354.
56 Clay Dillow, cnbc.com, February 20, 2014. Drones are invading the Arctic!
57 A Minnesota brewery used drones to deliver beer to remote ice fishers in isolated ice shacks on Mille Lacs
Lake. In January, 2014, the FAA issued a cease and desist order against the brewery. Heather Kelly, cnn.com,
February 3, 2014. Beer-delivery drone grounded by FAA.
58 Tim Maverick, wallstreetdaily.com, June 21, 2014, Drone Technology Takes Off in Alaskan Oil Fields.
59 Ibid.
60 Armina Ligaya, business.financialpost.com, June 14, 2014, From toy shelves to the oil sands, drones are
taking off in Canada.
61 Researchers were part of CARTHE, the Consortium for Advanced Research on the Transport of Hydrocarbon
in the Environment, funded by the Gulf of Mexico Research Initiative. www.carthe.org
62 Todd Woody, theatlantic.com, December 2, 2013, How Scientists are Using Drones to Fight the Next Big Oil
Spill.

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Uses of drones

5.1.4. Crop management and agriculture

Drones are being used widely for agriculture in various countries including Japan and
Australia. Its reported that Japan has up to 10,000 UAVs in use for agriculture.63 For
example, drones can be used for studying crop yields, surveying property, tailoring the
use of herbicides, pesticides and fertilizers and other agricultural activities. Drones are
quickly moving from the battlefield to the farmers field on the verge of helping
growers oversee millions of acres throughout rural America and saving them big money
in the process. Brent Johnson, a corn and soybean farmer in Calhoun County in central
Iowa, purchased a drone in 2013 for $30,000 thats already paying dividends on his
900-acre farm.64 Hes used the aircraft, which covers about 80 acres an hour, to study
how yields on his property are affected by changes in topography. Last growing season
he identified some areas where his corn stands werent strong enough, information hes
going to consider in future plantings when he decides whether to replant or avoid the
acreage all together. This year hes going to scout early for any problems and use the
data he collects to help determine when to sell his crops.65

Similarly, McCain Foods and Resson Aerospace of Fredericton, New Brunswick,

Canada are using drone technology for what they hope will be the biggest innovation in
farming in decades. The drones are being flown over potato fields to collect information
that can help farmers reduce spraying and increase yields. A software package was
developed to make the determination of the chemicals required for each particular
crop yield.

Drones are already helping Canadian farmers monitor crops. Agriculture and Agri-Food
Canada has been experimenting in Quebec with a drone that monitors crops by taking
high-resolution images to assess plant health.66 In addition, drones can help farmers
determine the size of their plants, monitor for weed or insect infestations and inspect for
drain issues. A larger drone could water crops or deliver herbicides or pesticides to a
field. One company in Ontario, Canada produces a drone that has helped monitor
salmon populations.67 In the US, until the FAA offers an agricultural exemption,
however, commercial farms may not use drones. As Bill Wiebold, a soybean specialist
and drone enthusiast at the University of Missouri Extension, said at a Precision Aerial
Ag Show in July 2014, Theres so much promise. But its just potential, now.68 Yamaha
Motor has asked the FAA for permission to use its drone for precision crop-spraying.69

5.1.5. Real estate

This includes the real estate industry and commercial photography. Real-estate
photographers are using drones to shoot aerial shots of residential properties despite a
federal ban on the use of unmanned aircraft.70 Using lightweight radio-controlled
helicopters to shoot photos and videos that show homes in context to neighbors, golf
courses and other nearby landmarks, the photographers are finding ways to work
around federal rules.71

63 http://www.forbes.com/sites/kashmirhill/2011/12/13/the-future-of-drones-in-america/.
64 http://www.iowafarmertoday.com/news/crop/backers-say-drones-will-help-farmers/article_3efe94ca-
ba96-11e3-978c-0019bb2963f4.html.
65 Ibid.
66 Margaret Munro, o.canada.com, July 29, 2014, Tiny drones catching up with hummingbirds natures
hovering marvels, http://o.canada.com/news/tiny-drones-catching-up-with-hummingbirds-natures-
hovering-marvels.
67 The Aeryon Scout four-rotor quadcopter, produced by a Waterloo, Ontario company has long been taking
images of forests in British Columbia and assessing train derailments, as well as monitoring salmon
populations. Margaret Munro, o.canada.com, July 29, 2014, Tiny drones catching up with hummingbirds
natures hovering marvels, http://o.canada.com/news/tiny-drones-catching-up-with-hummingbirds-
natures-hovering-marvels.
68 Tim Barker, St. Louis Post-Dispatch, July 27, 2014, Drones hit roadblock on path to become farming tool.
69 According to Yamaha Motor, it is already using drones for agricultural purposes in Japan and Australian.
Martyn Williams, pcworld.com, July 30, 2014, Like Amazon, other firms want permission to fly drones.
70 For example, see below the discussion on the Pirker decision.
71 Crains Chicago Business, A new way to photograph homes for sale: via drone, May 26, 2014, accessed on
August 13, 2014, subscription required to read entire article, http://www.chicagobusiness.com/
article/20140524/ISSUE01/305249990#.

Swiss Re 9
Uses of drones

Realtors in Canada use drones for dramatic marketing efforts. Filming the exterior space
of a large property, Vancouver realtors then fly the drone through the homes grand
entrance.72 One realtor in southwest Florida is using a drone to shoot high-definition
video of homes for sale.73 Drones can capture views from the rooftop to the backyard
to the surrounding community. While realtors in the US are anxious to use this
technology to market their properties, the National Association of Realtors,
recommends abstaining from the use of drones. Until the FAA allows commercial use of
drones, or unless the FAA has granted permission on a particular case, the NAR
recommends keeping drones grounded.74 Home appraisers could also use drones
again, a cost-effective use to inspect a home in lieu of an appraiser physically inspecting
the homes exterior.

5.1.6. Sports
Currently, the National Football League uses cable-suspended cameras to get aerial
shots during games. Drones could be used for getting select shots over practice fields
or by programs that cannot afford a cable-cam system.75 Ken Norris, UCLAs director of
video operations, has operated a drone during the teams football practices, as have
high school football teams in Texas. Drones could be used in sports in which a cable-
cam system isnt available, for example in polo, golf or at a race track. One company
even promotes using a drone to help analyze athletes performance in track and field.76

Similarly, in addition to providing stunning aerial footage to entertain fans and craft
promotional videos, the Phantom drone is used by the UCLA football team to provide
analytics such as hand placement, foot placement, spacing, according to football
coach Jim Mora. When it hovers above the line of scrimmage, you can get a real clear
perspective of spacing between your offensive linemen, or differences in depth of the
rush lanes of your defensive linemen.77

Drones have even come to one of the worlds oldest team sports polo. The sport of
kings traces its history to 600 BC, but it wasnt until this year that it finally had the
means to measure the accuracy of its officiating.78 US Polo Association umpires are
overseen by Charles Muldoon, who said polo is a difficult sport to officiate because it
involves eight horses and riders competing over a space of about 10 acres. In polo,
horses and players have to line up parallel to the lead player, so its important that
umpires position themselves in a way to best read the location of that imaginary line.79

5.1.7. Journalism
Drones have also been hailed as the future of journalism, with industry insiders
predicting theyll be in common use in tracking traffic, demonstrations, fires and more.
BCE has recently purchased an UAV to assist them in gathering news footage for CTV
Calgary, Alberta, Canada.

72 Vancouver realtors obtain a permit before each drone use. CBC news, Drones getting buzz in Vancouvers
real estate market. January 9, 2014, http://bc.ctvnews.ca/drones-getting-buzz-in-vancouver-s-real-estate-
market-1.1632914.
73 Andrea Stetson, news-press.com, July 11, 2014, Drone takes real estate sales to new heights.
74 Robert Freedman, realtormag.realtor.org, March 2014, Drones in Real Estate: Not so Fast. In a notice
interpreting the special rule governing model aircraft, the FAA explicitly states that a Realtor using a drone to
photography a property he is trying to sell is not engaged in a hobby or recreation.
75 Paula Lavigne, espn.go.com, May 29, 2014, Eyes in the sports sky.
76 Ibid.
77 http://espn.go.com/espn/otl/story/_ /id/10974559/drones-use-ucla-mlb-starting-show-more-sports-
fields-coaches-embrace-technology.
78 Ibid.
79 Ibid.

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Uses of drones

Recently, the Los Angeles Police Department had an uninvited guest hovering over their
back lot. The back lot is visually protected by high fences, and no one is allowed behind
those walls. An unmanned drone, however, flew over the fences and gates, filming the
police lot. The drone operator then posted the film on his website and on YouTube.80
The LAPD has asked the city attorneys office for advice to legally keep out such drones.

Instead of using helicopters, journalists could use drones in addition to being less
expensive, the drones could fly lower and in smaller areas certainly safer and more
helpful when filming a high-speed chase. Drones are becoming an established tool of
photographers and television crews in Germany, although users do need a permit and
must operate within a regulatory framework set forth by Germanys federal aviation
authority.81

5.1.8. Filmmaking and aerial photography

On June 2, 2014, the FAA announced that it was considering an exemption for seven
aerial photo and video production companies [that] have asked for regulatory
exemptions that would allow the film and television industry to use unmanned aircraft
systems with FAA approval for the first time.82 The FAA approved the exemptions on
September 25, 2014.83 The applicants submitted UAS flight manuals with detailed
safety procedures that were a key factor in our approval of their requests, said FAA
Administrator Michael Huerta. We are thoroughly satisfied these operations will not
pose a hazard to other aircraft or to people and property on the ground.84

For the past three years, one Canadian film company has used drones to capture
sweeping panoramic shots.85 Drawn to the versatility, drones are replacing filming with
conventional jib arm cranes or helicopters.86 While bringing breathtaking views to
film, drones drastically reduce production costs. In the US, the Motion Picture
Association of America has petitioned the FAA to loosen rules on commercial drone use
before its 2015 deadline.87 One film shot by a drone has already been awarded an
Oscar in the Science and Engineering category.88 Documentary filmmakers could use a
drone to film wildlife, without disturbing the environment. A drone could be used in
climates unsuitable for humans giving us otherwise unavailable access to the Arctic
or the desert. Until the FAA removes its ban, however, production companies face
$10,000 fines (per offense) for using a drone in the US.89

80 Joseph Serna, latimes.com, August 1, 2014, LAPD seeks to limit civilian drone flights over police stations.
81 Dronelaw.net, January 18, 2014, Drones in Germany: The Legal Framework. Also see, http://www.wbs-
law.de/internetrecht/die-rechtlichen-probleme-des-einsatzes-von-zivilen-drohnen-49854.
82 FAA Press Release, Seven Companies Petition to Fly Unmanned Aircraft before Rulemaking is Complete,
accessed on August 11, 2014, http://www.faa.gov/news/press_releases/news_story.cfm?newsId=16294.
83 Press Release - U.S. Transportation Secretary Foxx Announces FAA Exemptions for Commercial UAS
Movie and TV Production, FAA, accessed on September 25, 2014 at http://www.faa.gov/news/press_
releases/news_story.cfm?newsId=17194.
84 Ibid.
85 Kaspi Films has used drone technology to film Toyota car commercials as well as aerial videos for real estate
companies. May 6, 2014, The Canadian Press, Canadian businesses harness drone technology. http://
www.cbc.ca/news/canada/canadian-businesses-harness-drone-technology-1.2631329.
86 May 6, 2014, The Canadian Press, Canadian businesses harness drone technology. http://www.cbc.ca/
news/canada/canadian-businesses-harness-drone-technology-1.2631329.
87 Paul Guzzo, Tampa Bay Tribune, July 27, 2014. Filmmakers wait for FAA to clear drones for takeoff.
88 Emmanuel Previnaire, Jan Sperling, Etienne Brandt and Tony Postiau received an Oscar in February 2014 for
their development of the Flying-Cam SARAH 3.0 system. http://www.oscars.org/press/
pressreleases/2014/20140108.html.
89 Paul Guzzo, Tampa Bay Tribune, July 27, 2014. Filmmakers wait for FAA to clear drones for takeoff.

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Uses of drones

In addition to legitimate photographers, drones could provide paparazzi with an

unrestricted method to take photos of areas currently off-limits. No tall wall will be able
to keep a paparazzis drone from photographing the backyards of celebrities. Less
regulated in Switzerland, in 2013, paparazzi used drones to film Tina Turners wedding
ceremony on Lake Zurich.90 This privacy threat has spurred legislatures around the
world to enact privacy laws to address the use of drones.91

5.1.9. Science and research

Drones can be employed for civil engineering sites, mapping, waterways and shipping,
forestry (including forest fires), fishery and hunting protection, pollution control and air
sampling, litter on beaches and in parks and weather or hurricane hunting.92 Trimble
Navigation is a company that applied for an exemption. Perhaps best known for GPS
navigation systems, Trimble Navigation seeks permission to fly its drones which take
high-quality images used to build contour maps.93

Meteorologists could use drones to give them detailed information about a storms
internal structure. In the fall of 2014, two special NASA drones will survey the Atlantic
Ocean for hurricanes.94 The drones special sensing equipment will measure wind,
precipitation, temperature, humidity and air pressure inside the storms. Researchers
plan to expand the project to monitor storms in the Pacific Ocean as well. Drones could
provide vital information enabling forecasters to better predict typhoons.

One gold prospector from the Yukon Territory uses drones to survey huge stretches of
land for mineral deposits.95 Drones leave less of an environmental footprint in the
process and are also significantly less expensive than previous methods. The Yukon
territorial government is working closely with the prospectors crew. Other mining
operations have begun to use these methods as well.96

Other scientific uses for drones include geography and archaeology. Carleton
Universitys Mechanical and Aerospace Engineering department at the forefront of
drone study in Canada has created a number of drone applications, including a
geophysical survey application.97 The University of Wisconsin at Eau Claire has begun a
Geospatial Initiative, creating a geospatial major. GIS, or Geospatial Information
Systems is an umbrella term for surveying, data collection and analysis tools.98 An
anthropology professor at the University of Arkansas used a drone to reveal a buried
prehistoric Puebloan community in New Mexico.99 While archaeologists have used
aerial thermal imaging since the 1970s, drones can map areas more quickly. In addition,
archaeologists can time the flights more exactly without regard for weather
conditions. Archaeologists foresee using drones to conduct research around the world.

90 Swiss police ordered the photojournalist to land the drone and confiscated his memory card. (Paparazzi
flying in a conventional small plane did manage to photograph the private wedding.) Martin U. Muller and
Andreas Ulrich, Spiegel.de, August 1, 2013. Snapping Tinas Wedding: Paparazzi Turn to Drones.
91 Australian lawmakers have recently released a report calling for new laws to protect Australians privacy
from malicious drone use. Rob Taylor, online.wsj.com, July 14, 2014, Australian Lawmakers Seek Limits on
Domestic Drone Use.
92 http://www.uavs.org/commercial.
93 Martyn Williams, pcworld.com, July 30, 2014, Like Amazon, other firms want permission to fly drones.
94 Brooke Jarvis, pbs.org, June 25, 2014, Drones Are Helping Meteorologists Decipher Tropical Cyclones.
95 Shawn Ryan is a gold prospector who has used drone technology for years. CBC News, September 4, 2013,
Drones help Yukon prospectors find new gold deposits. http://www.cbc.ca/news/canada/north/drones-
help-yukon-prospectors-find-new-gold-deposits-1.1386299.
96 Alexcos silver mines in Keno City, Yukon, have used drones as well. CBC News, September 4, 2013,
Drones help Yukon prospectors find new gold deposits. http://www.cbc.ca/news/canada/north/drones-
help-yukon-prospectors-find-new-gold-deposits-1.1386299.
97 Carleton UAV Research, Carleton University, http://uav.mae.carleton.ca/, August 9, 2014.
98 Rob Hanson, Chippewa.com, July 28, 2014, UW-Eau Claire climbs on to growing field of geospatial
information systems.
99 Roger Sollenberger, 3drobotics.com, April 18, 2014. Drones in Archaeology: UAV Reveals Ancient,
Invisible History.

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Uses of drones

The Peruvian Ministry of Culture plans to buy more drones for archaeological projects to
study pre-Inca ruins around the Andes and Amazon. Drones can create 3D models of
archaeological sites and locate ruins not easily seen from the ground.100

The land surveying industry could use drones to take detailed survey information,
creating highly accurate maps and provide valuable data to companies. The survey
industry could use drones to create highly accurate, high-definition maps in a fraction of
the time once required. Drones could access difficult locations safely and then convey
information instantly via a server to its customer.101 Drones could also be used in the
construction industry. Currently, the Welsh government is using drones in a
Construction & Demolition waste reduction project. Drones are used throughout the
project to take aerial photos to identify areas to cut construction waste.102 In Canada,
one company uses drones to inspect old bridges.103

5.1.10. Disaster management and search and rescue

Including maritime and mountain search and rescue, life raft deployment, rescue point
marking, disaster effects management, supervision of clean up.104 Firefighting is yet
another use in which drones can help both from a cost savings as well as a safety
perspective.105 In a recent industrial fire, a firefighter sent in his personal drone to see
how close the fire was to the chemicals. The drones camera showed the fire was far
from dynamite and explosives stored in the facility, so the firefighters were able to enter
the building safely and fight the fire.106 Firefighters have already used drones to help
with forest fires.107 The California National Guard Predator drone gave the firefighters
immediate views of the fire in an effort to help contain it. Drones can be used in search
and rescue missions as well as in missions related to communication crew, safety and
night ops,108 flying in small spaces where helicopters cannot. In 2013, the Royal
Canadian Mounted Police used a drone to locate a man who was injured in a rollover
crash the first person whose life was saved by a drone.109

For humanitarian efforts, Matternet110 is one company which is developing drones to

access remote and hazardous areas to deliver medical supplies to parts of the
undeveloped world inaccessible by road. According to Matternet, 85% of the roads in
sub-Saharan Africa are inaccessible during the wet season.111 Using drones that can
transport small items, like medical supplies, could provide life-saving medicine to
children in need.

100 W. Alejandro Sanchez, peruthisweek.com, July 21, 2014, Peru uses drones for archaeological projects.
101 July 1, 2014, landpoint.net/blog, How Drones will Revolutionize Land Surveying Services.
102 Ben Messenger, waste-management-world.com, June 25, 2014, New project uses drones to cut
construction waste and increase reuse and recycling in Wales.
103 Chris Brown, cbc.ca, May 19, 2014, Drones have regulators, hobbyists on collision course. http://www.
cbc.ca/news/technology/drones-have-regulators-hobbyists-on-collision-course-1.2644232.
104 Ibid.
105 In light of the 19 firefighters who were killed in 2013 while fighting a fire in Arizona, drones offer hope to
fight fires more safely. In Australia, the Melbourne Metropolitan Fire Brigade already uses drones.
106 Kelsey D. Atherton, popsci.com, February 4, 2014, Connecticut Fire Department Gets Help From A Drone.
107 Brian Skoloff and Tracie Cone, huffingtonpost.com, August 28, 2013, Firefighters Use Drones To Battle
Yosemite Rim Fire.
108 Brian Smith, emergencymgmt.com, July 1, 2014, Are Drones the Future of Firefighting?
109 The injured man was disoriented, walking three kilometres from his vehicle before collapsing in a field. John
Weidlich, CBC News, May 9, 2013, Aerial drone locates Sask. man injured in rollover crash. http://www.
cbc.ca/news/canada/saskatchewan/aerial-drone-locates-sask-man-injured-in-rollover-crash-1.1398942.
110 Founded by Andreas Raptopoulos, Matternet is a start-up network for transporting matter. Shane Hickey,
theguardian.com, March 30, 2014, Humanitarian drones to deliver medical supplies to roadless areas.
111 Shane Hickey, theguardian.com, March 30, 2014, Humanitarian drones to deliver medical supplies to
roadless areas.

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Uses of drones

5.1.11. Retail
Amazon.com Inc. made headlines when it petitioned the FAA to use drones to deliver
packages. Over just two months in 2014, over 14 other companies petitioned the FAA
to fly drones for commercial purposes.112 Dominos pizza did something similar testing
its DomiCopter for home drone delivery of a pizza.113

Drones can serve as tour guides. Currently, at Massachusetts Institute of Technology,

drones help students navigate their way through unfamiliar buildings to their
classroom.114 Students download an app on their phone and when they need guidance,
they call the robot which tracks their location via GPS. MITs drone has built-in sonars
to make sure it doesnt crash into obstacles. And if the student cant keep up, the drone
waits for them just like a human tour guide might. MITs researchers hope this drone
can be developed into a city guide for tourists, a device to monitor road rage or even a
robotic bartender.115

Big data companies see potential in drones for gathering information from the air.
Facebooks Mark Zuckerberg recently acquired Titan Aerospace, a maker of solar-
powered drones. These drones can reportedly stay airborne for five years and would act
as movable wireless access points.116

5.1.12. Personal use

The FAA requires that model aircraft should be flown below 400 feet above the surface
to avoid other aircraft in flight, and it expects that hobbyists will operate these
recreational model aircraft within visual line-of-sight. With all of the publicity and
discussion in the media about military drones, there has been an heightened interest in
drone technology for personal use. Drones may be purchased at very reasonable prices
making it very attractive to individual hobbyists and enthusiasts. Small quadcopters,
about the size of an adult hand, can be purchased for approximately $30, and have a
range of up to 50 feet.117 Camera-equipped quadcopters, approximately 18 inches in
diameter, can be purchased for as low as $150 while more sophisticated models can be
of larger diameter and cost up to $3,000.118 Depending on the type of model and price,
quadcopters can have a range of up to two miles and potentially reach altitudes of
several hundred feet. Currently, theres no training or licenses required to operate
personal quadcopters. These factors, and the ease of take-offs and landings, which is
posed by the conventional model aircraft has seen the quadcopters gaining in
popularity in the recreational sector. One of the larger manufacturers of small
quadcopters, DJI, is believed to sell approximately 10,000 units weekly.119

5.1.13. Next steps

While entrepreneurs wait for the FAA to announce its regulations regarding integrating
commercial drones in US airspace, other countries have already enacted regulations. As
discussed, Canada already allows commercial drone use by permit. Germany, Australia
and France currently have 100 licensed drone pilots.120 Despite the ban in the US,
commercial drone startup companies are springing up in record numbers. San
Francisco has small shops that build the drones as well as software firms that create
electronic systems for the drones.121 As noted, one commentator reports that the drone

112 Martyn Williams, pcworld.com, July 30, 2014, Like Amazon, other firms want permission to fly drones.
113 CNN Money, Dominos tests drone pizza delivery, June 4, 2013, accessed on August 13, 2014, http://
money.cnn.com/2013/06/04/technology/innovation/dominos-pizza-drone/.
114 Sheena McKenzie, cnn.com, November 27, 2013, SkyCall: The drone thats your personal tour guide.
115 Ibid.
116 Joseph Dussault, boston.com, March 14, 2014, 7 commercial uses for drones.
117 http://evidentiarymatters.com/?p=227.
118 Ibid.
119 Ibid.
120 Patrick May, mercurynews.com, March 1, 2014, Look up: The commercial drone market is about to take
off.
121 Ibid.

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The law and regulation of drones

industry could grow to an $11 billion industry in the next 10 years.122 While some argue
drones will kill jobs, the Association for Unmanned Vehicle Systems International
maintains commercial drones will create 70,000 new jobs in the US.123

In order to meet the expected demand for drone operators, several universities have
begun to offer undergraduate degrees specific to drones from piloting a drone to
becoming an aerial drone photographer or drone systems engineer.124 The Canadian
Centre for Unmanned Vehicle Systems is opening its first training center in North
America for UAV operators later this year.125 Law firms are launching practice groups
specializing in drones.126 Currently, in the US, the majority of these law firms clients are
government contractors or public entities, such as police departments and universities.
Once commercial drones are allowed, these law firms anticipate their client base will
rapidly expand.127 Until then, lawyers specializing in drone technology will defend those
fined by the FAA.

Unparalleled accessibility and vast cost savings those are the common themes for
drone advocates across the various disciplines. While the sky could be the limit with
respect to commercial drone use, 128 regulators must weigh public safety and privacy
concerns against commercial use no matter how convenient or revolutionary.

6. The law and regulation of drones

In both Canada and the United States, theres generally a single regulator of national
airspace and aircraft that fly within them. In the United States this is the Federal Aviation
Administration, and in Canada, Transport Canada. In both countries, theres also airspace
used for military purposes. The primary focus here is on the civil and commercial use of
drones, as well as the use of drones by government for non-military purposes.

6.1. The FAA is the primary regulator of US airspace

The US federal government established its control over US airspace early in the history of
flight. It started with the Air Commerce Act of 1926.129 That law ordered the US
Secretary of Commerce to foster air commerce; designate and establish airways;
establish, operate and maintain aids to air navigation (but not airports); arrange for
research and development to improve such aids; license pilots; issue airworthiness
certificates for aircraft and major aircraft components; and investigate accidents.130

Subsequently, Congress enacted the Civil Aeronautics Act of 1938 (CAA), making clear
its intention that federal law and the federal government were the primary regulators of
US airspace. A number of Supreme Court cases followed that supported that extension
of the governments power. For example, the Court ruled in US v. Causby that airspace
above land was in the public domain, and flights over private land are not a government

122 Elizabeth Palermo, livescience.com, July 29, 2014, Drones Could Grow to $11 Billion Industry by 2024.
123 Dominic Basulto, washingtonpost.com, May 13, 2014, Graduates with drone skills are going to be in demand
soon. Heres why.
124 Carleton University offers undergraduate and graduate studies in UAV theory and applications. The
Unmanned Vehicle University in Phoenix, Arizona, Embry-Riddle Aeronautical University, the University of
North Dakota and Kansas State University are a few of the academic programs offered to study drones
in the US.
125 May 6, 2014, The Canadian Press, Canadian businesses harness drone technology. http://www.cbc.ca/
news/canada/canadian-businesses-harness-drone-technology-1.2631329.
126 Jared Council, insidebiz.com, June 20, 2014, Law firms launch drone practice groups.
127 Ibid.
128 Or at least 400 feet of sky could be the limit.
129 FAA, Unmanned Aircraft System Regulation Review, DOT/FAA/AR-09/7, September 2009, http://www.
tc.faa.gov/its/worldpac/techrpt/ar097.pdf.
130 FAA Historical Chronology 1926-1996 by the Federal Aviation Administration, accessed on August 1, 2014,
https://www.faa.gov/about/media/b-chron.pdf.

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The law and regulation of drones

taking of that land.131 Indeed, based on the original CAA and subsequent similar
regulations, the Supreme Court established unassailable precedents which gave Congress
exclusive jurisdiction over air flight, and over any incident applicable to air flight. Such all-
encompassing precedents seemed to have completely resolved any issues of control over
the new technology [of aviation].132

Congress then created the Federal Aviation Administration (FAA) in 1958 as the federal
regulator of air travel and aircraft in the United States.133 The FAA was initially concerned
primarily with making and enforcing rules involving traditional fixed wing and helicopter
aircraft. The FAA requires that such aircraft be operated without risking the safety of
persons and property on land, and that in congested areas that they operate at least
1,000 feet above the highest obstacle and within a radius of 2,000 feet.134 Over other
than congested areas, the FAA mandates that aircraft fly at an altitude of 500 feet above
the surface, except over open water or sparsely populated areas. In those cases, the
aircraft may not be operated closer than 500 feet to any person, vessel, vehicle or
structure.135 Regardless, according to the FAA, [t]here are no shades of gray in FAA
regulations. Anyone who wants to fly an aircraft manned or unmanned in US airspace
needs some level of FAA approval.136

6.2. Transport Canada is the primary regulator of Canadian airspace

Initially, Transport Canada, and its predecessors, built, maintained and operated most of
Canadas airports and airways.137 The Department was established in 1936 as a
consolidation of the Department of Railways and Canals, the Department of Marine and
the Civil Aviation Branch of the Department of National Defense.138 In 1997, as part of a
governmental reorganization, Transport Canada divested its ownership of Canadian
airports and air systems. Today its stated mission is promotion of a safe and secure,
efficient and environmentally responsible transportation system in Canada.139

6.3. Regulations relevant to drones

In both Canada and the United States, aviation rules generally distinguish between model
aircraft and unmanned aircraft or drones. Commonly, the FAA and Transport Canada dont
regulate the use of model aircraft but they do regulate the use of drones.

131 United States v. Causby, 328 U.S. 256 (1946); this ruling and its progeny should foreclose any argument that
legally sanctioned flying of government drones over private land is a taking in the Constitutional sense.
132 Ann Thornton Field and Frances K. Davis, Can the Legal Eagles Use the Ageless Preemption Doctrine to Keep
American Aviators Soaring Above the Clouds and into the Twenty-First Century?, 62 J. Air L. & Com. 315, 328
(1996).
133 Federal Aviation Act of 1958, 49 U.S.C.A. ss 1307-1542 (West 1973).
134 14 C.F.R. 91.119.
135 Ibid.
136 FAA, Busting Myths about the FAA and Unmanned Aircraft, March 7, 2014, accessed on August 13, 2014,
http://www.faa.gov/news/updates/?newsId=76240. The FAA continued: Private sector (civil) users can
obtain an experimental airworthiness certificate to conduct research and development, training and flight
demonstrations. Commercial UAS operations are limited and require the operator to have certified aircraft and
pilots, as well as operating approval. To date, only two UAS models (the Scan Eagle and Aerovironments Puma)
have been certified, and they can only fly in the Arctic. Public entities (federal, state and local governments and
public universities) may apply for a Certificate of Waiver or Authorization (COA)...Flying model aircraft solely for
hobby or recreational reasons does not require FAA approval.
137 http://www.thecanadianencyclopedia.ca/en/article/transportation/.
138 http://www.thecanadianencyclopedia.ca/en/article/transport-canada/.
139 http://www.tc.gc.ca/eng/aboutus-department-overview.htm.

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The law and regulation of drones

6.3.1. Model aircraft

In 1981, the FAA issued guidelines for the use of model aircraft. Those guidelines are
referred to as FAA Advisory Circular 91-57 (also known as a for aircraft AC 91-57).140
While adherence to the Advisory Circular is expressly voluntary, it provides that model
aircraft shouldnt be flown more than 400 feet above the ground, away from air traffic,
and within line of sight. AC 91-57 was, however, not the last word that the FAA or
Congress would have on the operation of model aircraft, as discussed below.

In Canada, Section 101.01 of the Canadian Aviation Regulations (CARs) states that an
Unmanned Air Vehicle means a power driven aircraft, other than a model aircraft, that
is operated without a flight crew member on board.141 The CARs also define a model
aircraft as an aircraft, the total weight of which does not exceed 35 kilos (77.2 pounds),
that is mechanically driven or launched into flight for recreational purposes and that is
not designed to carry persons or other living creatures.142 Although some micro
unmanned air vehicles may weigh less than 35 kilos, they are operated by research
institutions and other organizations for non-recreational purposes.143 With minor
exceptions, the CARs otherwise exclude the regulation of model aircraft from their
scope.144

6.3.2. The FAAs regulations relevant to drones

In 2005, [i]n response to...growing demand for public use unmanned aircraft
operations, the FAA developed guidance in a Memorandum titled Unmanned Aircraft
Systems Operations in the US National Airspace SystemInterim Operational Approval
Guidance (UAS Policy 0501). 145 The latter guidance set out a process for operators of
UAS to apply for and receive permission to operate UAS in the national airspace. The
policy provides guidance to FAA personnel when evaluating each application for a
Certificate of Waiver or Authorization (COA). 146 Under this policy, the only way the
public may operate civil UAS is to obtain a Special Airworthiness Certificate in the
experimental category, and such UAS may not be used for compensation or hire.147
According to the FAAs website theres a total of 545 active COAs as of December 4,
2013.148 Public entities including law enforcement that wish to fly UAS must also seek
the FAAs permission to do so.149 On March 13, 2008, the FAA issued Interim
Operational Approval Guidance 08-01 to replace Policy Memorandum 05-01.150

140 FAA Advisory Circular 91-57, Model Aircraft Operating Standards, http://www.faa.gov/documentLibrary/
media/Advisory_Circular/91-57.pdf.
141 Canadian Aviation Regulations, SOR/96-433, Section 101.01 (emphasis added).
142 Ibid (emphasis added).
143 Transport Canada, accessed August 5, 2014 http://tc.gc.ca/eng/civilaviation/standards/general-recavi-
brochures-uav-2270.htm.
144 CARs Section 102.01 provide that These Regulations do not apply in respect of...(c) model aircraft, rockets,
hovercraft or wing-inground-effect machines, unless otherwise indicated in the Regulations. The only other
provision in the CARs on model aircraft is Section 602.45: No person shall fly a model aircraft or a kite or
launch a model rocket or a rocket of a type used in a fireworks display into cloud or in a manner that is or is
likely to be hazardous to aviation safety.
145 FAA, Unmanned Aircraft Operations in the National Airspace System, 72 Fed. Reg. 6689 (Feb. 13, 2007),
FAA Notice 0701, http://www.faa.gov/uas/.
146 AFS-400 UAS POLICY 05-01, http://www.eoss.org/faa/AFS_400_UAS_POLICY_05_01.pdf.
147 FAA, Unmanned Aircraft Operations in the National Airspace System, 72 Fed. Reg. 6689 (Feb. 13, 2007),
FAA Notice 0701, http://www.faa.gov/uas/.
148 http://www.faa.gov/regulations_policies/.
149 http://www.faa.gov/uas/.
150 FAA Interim Operational Approval Guidance 08-01, March 13, 2008 (providing policy guidance when
evaluating each application for a Certificate of Waiver or Authorization (COA) and special airworthiness
certificates (normally issued in an experimental category for UAS), available at http://www.faa.gov/about/
office_org/headquarters_offices/ato/service_units/systemops/aaim/organizations/uas/coa/faq/media/
uas_guidance08-01.pdf.

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The law and regulation of drones

According to a 2007 clarification of its 2005 policy statement on UAS (FAA Notice
No. 0701, 72 FR 6689), the FAA stated that:

The current FAA policy for UAS operations is that no person may operate a UAS
in the National Airspace System without specific authority. For UAS operating
as public aircraft the authority is the [Certificate(s) of Waiver or Authorization],
for UAS operating as civil aircraft the authority is special airworthiness
certificates, and for model aircraft the authority is AC 9157. The FAA
recognizes that people and companies other than modelers might be flying UAS
with the mistaken understanding that they are legally operating under the
authority of AC 9157. AC 9157 only applies to modelers, and thus specifically
excludes its use by persons or companies for business purposes.151

Ostensibly based in part on UAS Policy 0501, its replacement UAS Policy 08-01, and
FAA Notice No. 0701, the FAA has issued cease and desist orders152, and in one case,
attempted to impose civil penalties on a commercial operator of a model aircraft. In the
recently decided case of Huerta v. Pirker, an administrative judge for the National
Transportation Safety Board (NTSB) ruled that the FAA has no authority to regulate
model aircraft even when used for commercial purposes.153 The ruling had the initial
effect of invalidating the FAAs guidance and policies in UAS Policy 0501, its
replacement UAS Policy 08-01 and FAA Notice 0701 as to operators of model
aircraft.

In 2011 the University of Virginia paid an advertising firm that hired Raphael Pirker to fly
a model airplane equipped with a camera to take video and photos of its campus. The
FAA subsequently levied on Mr. Pirker a $10,000 fine in an Order of Assessment for
irresponsibly operating what it referred to as an aircraft and referred to as a UAS in
particular by flying too close to the ground near people and buildings. The FAA
asserted that Mr. Pirker had violated an FAA regulation prohibiting the careless or
reckless operation of an aircraft.154 It stated that Mr. Pirker also impermissibly operated
the airplane for compensation.155 Mr. Pirker appealed the FAAs Order of Assessment to
an administrative judge of the NTSB.

The FAA essentially contended that the Federal Aviation Regulations (FARs) applicable
to traditional manned aircraft applied to all forms of aircraft, including model aircraft,
and Mr. Pirker violated those FARs. Mr. Pirker argued that at the time, there existed no
enforceable FARs concerning the operation of a model aircraft, whether for commercial
purposes or otherwise.

The administrative law judge hearing the matter agreed with Mr. Pirker. Among other
things, the judge held that: 1) the FARs definition of an aircraft didnt include model

151 Unmanned Aircraft Operations in the National Airspace System FAA, Docket No. FAA200625714;
Notice No. 0701, February 13, 2007 (providing that This document clarifies the FAAs current policy
concerning operations of unmanned aircraft in the National Airspace System.), accessed on
August 1, 2014. http://www.gpo.gov/fdsys/pkg/FR-2007-02-13/pdf/E7-2402.pdf.
152 See eg, Crains Chicago Business, http://www.chicagobusiness.com/article/20140529/
NEWS07/140529748/faa-to-drone-photographer-cease-and-perhaps-desist?r=7222E9632801I2B ,
Larry Malvin, a North Shore real estate photographer who uses a remoted-controlled model-aircraft drone
to photograph houses, on May 27 received an email from a Federal Aviation Administration official that, in
essence, told him that what hes doing is prohibited.
153 Huerta v. Pirker, Decisional Order, National Transportation Safety Board, Docket No. CP-217, March 6, 2014,
http://www.ntsb.gov/legal/pirker/Pirker-CP-217.pdf.
154 Attachment 1, Order of Assessment, Huerta v. Pirker, Decisional Order, National Transportation Safety
Board, Docket No. CP-217, March 6, 2014, http://www.ntsb.gov/legal/pirker/Pirker-CP-217.pdf. citing 14
C.F.R. (FAR) 91.13(a) (No person may operate an aircraft in a careless or reckless manner so as to endanger
the life or property of another).
155 Ibid, Attachment 1, Order of Assessment, Huerta v. Pirker.

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The law and regulation of drones

aircraft156; 2) model aircraft are subject only to AC 91-57, an FAA safety guideline that
by its terms requires only voluntary compliance; 3) the FAAs UAS Policy Notices 05-01
and its replacement UAS Policy 08-01 were intended for internal FAA guidance only
and dont provide a basis for application of FARs to model aircraft; 4) Policy Notice 07-
01 likewise didnt provide a basis for application of FARs to model aircraft, and in any
event, it was an invalid attempt at rulemaking; and 5) in sum, there was no enforceable
FAA rule or FAR regulation applicable to model aircraft or for classifying model aircraft
as an UAS.157 Ostensibly, the Pirker decision removed the FAAs authority for the public
to use model aircraft for any use, including commercial use.

The FAA appealed the Pirker decision to the full National Transportation Safety Board
(NTSB).158 The administrative law judge ruled that the FARs definition of an aircraft
didnt include model aircraft. This was one of the reasons Pirker effectively ruled that
the FAA had no authority to regulate the operation of any model aircraft. The NTSB
ruled on November 18, 2014, that the regulations that gave FAA authority over aircraft
did not expressly exclude model aircraft. Therefore, the FAA can enforce the prohibition
on careless and reckless operation of an aircraft as outlined in 14 C.F.R. 91.13(a) to
operation of a model aircraft. However, the NTSB did not rule whether the FAA has
issued valid regulations as respects commercial use of model aircraft. Whether this
means the FAA has no authority to regulate the safe operation of model aircraft used for
commercial purposes until the FAAs June 2014 guidance document (see section
6.4.1.) completes the administrative rule-making process remains to be seen. Until a
court of law states otherwise, were assuming that the FAA will assert that they have
such authority effectively grounding commercial use of model aircraft for the time
being.159

6.3.3. Transport Canadas regulations relevant to drones

Transport Canadas ultimate goal is to normalize UAV operations within civil airspace,
[but admits that] the industry technology isnt mature enough, and the regulatory
structure isnt in place [in Canada], to support routine operations.160 Nonetheless, the
Canadian Aviation Regulations (CARs), Section 602.41, provides that No person shall
operate an unmanned air vehicle in flight except in accordance with a special flight
operations certificate [(SFOC)] or an air operator certificate. As noted above, the CARs
exclude model aircraft (as defined therein) from regulation as an unmanned air vehicle
(a UAV). Section 623.65 outlines information that should be submitted when making
an application for a SFOC.161 According to Transport Canada, an SFOC applicant must
be able to demonstrate the predictability and reliability of the unmanned air vehicle
essentially that it has the ability to perform in the desired environment. The requirement
for a SFOC is intended to ensure the safety of the public and protection of other users of
the airspace during the operation of the unmanned air vehicle.162 According to the
Canadian transportation and airspace regulator, applications for special flight operation
certificates have tripled since last year.163

156 The judge stated that the FAAs definition of aircraft in this matter was overly broad, in fact, so broad, that
it would absurdly include paper aircraft or a toy balsa wood glider. Huerta v. Pirker, Ibid at 3.
157 Huerta v. Pirker, Decisional Order, National Transportation Safety Board, Docket No. CP-217, March 6, 2014,
http://www.ntsb.gov/legal/pirker/Pirker-CP-217.pdf, at 7-8.
158 FAA Press Release (March 7, 2014) , available at http://www.faa.gov/news/press_releases/news_story.
cfm?newsId=15894&cid=TW209.
159 NTSB Order No. EA-5730 found at http://www.ntsb.gov/legal/pirker/5730.pdf.
160 http://tc.gc.ca/eng/civilaviation/standards/general-recavi-brochures-uav-2270.htm, date modified,
May 3, 2010.
161 Ibid.
162 Ibid.
163 In 2013, 945 Special Flight Operations Certificates for drones were issued. In 2012, 345 were issued, and
in 2011, only 155 were issued. Armina Ligaya, business.financialpost.com, June 14, 2014, From toy shelves
to the oil sands, drones are taking off in Canada. http://business.financialpost.com/2014/06/14/from-toy-
shelves-to-the-oil-sands-drones-are-catching-on-in-canada/?__lsa=24b5-92c1.

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The law and regulation of drones

6.4. The FAA Modernization and Reform Act of 2012

In 2012, Congress provided specific guidance to the FAA as regard the regulation of
drones. In the FAA Modernization and Reform Act of 2012 (FMRA), Congress defined a
drone as an unmanned aircraft system or UAS, stating that a UAS is an unmanned
aircraft and associated elements (including communication links and the components
that control the unmanned aircraft) that are required for the pilot in command to operate
safely and efficiently in the national airspace system.164 Furthermore, Congress
instructed the FAA to develop a comprehensive plan to safely accelerate the integration
of civil unmanned aircraft systems into the national airspace system...[no] later than
September 30, 2015165 This prospective plan will likely have a giant impact on the
public and private use of drones in the United States.

Importantly, in Section 336(a) of the FMRA, Congress instructed the FAA that it may not
issue regulations that affect the operation of model aircraft, ie, that the FAA:

[m]ay not promulgate any rule or regulation regarding a model aircraft, or an

aircraft being developed as a model aircraft, if 1) the aircraft is flown strictly for
hobby or recreational use; 2) the aircraft is operated in accordance with a
community-based set of safety guidelines...; 3) the aircraft is limited to not more
than 55 pounds...; 4) the aircraft is operated in a manner that doesnt interfere
with and gives way to any manned aircraft; and 5) when flown within five miles
of an airport, the operator of the aircraft provides the airport operator and the
airport air traffic control tower (when an air traffic facility is located at the airport)
with prior notice of the operation[.]166

Thus Section 336 of the FMRA along with AC 91-57 set forth rules for model aircraft
along with the Pirker decision discussed above that put model aircraft generally and
ostensibly outside the regulatory reach of the FAA. Congress also provided, however,
that [n]othing in this section shall be construed to limit the authority of the Administrator
to pursue enforcement action against persons operating model aircraft who endanger
the safety of the national airspace system.167 In Section 336(c) of the FMRA, Congress
also defined a model aircraft as an unmanned aircraft that is 1) capable of sustained
flight in the atmosphere; 2) flown within visual line of sight of the person operating the
aircraft; and 3) flown for hobby or recreational purposes.168

6.4.1. The FAAs authority over drones confirmed

Despite a direct admonition from Congress in the FMRA that the FAA may not
promulgate any rule or regulation regarding a model aircraft, in June 2014, the FAA
issued for comment a guidance document169 that took the view that its enforcement
authority over model aircraft [was] affirmed by the wording of Section 336 of the
FMRA,170 and specifically that model aircraft [are] aircraft that fall within the statutory

164 P.L. 112-95 331(9).

165 P.L. 112-95 332(a)(1); Note that in 2009 the FAA commissioned a comprehensive review of US federal
laws and rules relating to the operation of UAS. The FAA report concluded that the enormous number of laws
and rules may require the FAA to go through and amend each one to resolve ambiguity as to whether and how
they apply to UAS, or essentially start over and create an entirely new subpart of the Code of Federal
Regulations dealing with UAS. FAA, Unmanned Aircraft System Regulation Review, DOT/FAA/AR-09/7,
September 2009, http://www.tc.faa.gov/its/worldpac/techrpt/ar097.pdf.
166 P.L. 112-95 336(a).
167 P.L. 112-95 336(b).
168 P.L. 112-95 336(c).
169 Model aircraft interests immediately challenged the FAAs June 2014 guidance document: Boston Globe,
Lawsuits challenge FAA drone, model aircraft rules, August 23, 2014, accessed on September 16, 2014 at
http://www.bostonglobe.com/news/nation/2014/08/22/lawsuits-challenge-faa-drone-model-aircraft-
rules/IuUxfH0tSt56ePRCwapMSK/story.html (Model aircraft hobbyists, research universities, and
commercial drone interests filed lawsuits Friday [August 22, 2014] challenging a government directive that
they say imposes tough new limits on the use of model aircraft and broadens the agencys ban on commercial
drone flights. The three lawsuits asked the US Court of Appeals for the District of Columbia to review the
validity of the directive, which the Federal Aviation Administration issued in June.)
170 FAA, Interpretation of the Special Rule for Model Aircraft, Docket No. FAA-2014-0396, June 18, 2014 at
p. 3, accessed on September 16, 2014 at http://www.faa.gov/uas/media/model_aircraft_spec_rule.pdf;
http://www.faa.gov/news/press_releases/news_story.cfm?newsId=16474.
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The law and regulation of drones

and regulatory definitions of an aircraft. 171 Furthermore, the FAA concluded in its June
2014 guidance that [o]perations that meet the section [336(c)] definition of model
aircraft must also meet the five additional criteria for model aircraft established in
section 336(a) to be exempt from future rule making regarding model aircraft.172

Thus according to the FAA the new definition of model aircraft is a combination of the
criteria set out in FMRA Sections 336(a) and (c), ie, 1) one that is capable of sustained
flight; 2) flown within visual line of sight; 3) flown strictly for hobby or recreational
purposes173; 4) operated pursuant to guidelines of a membership association that
represents the aeromodeling community in the United States; 5) weighs 55 pounds or
less; 6) is operated in a way that doesnt interfere with manned aircraft; 7) and when
operated within five miles of an airport that it notifies the airport first and airport
officials dont object and provides specific authorization.174 [I]f a model aircraft is
operated consistently with the terms of section 336(a) and (c), then it would not be
subject to future FAA regulations regarding model aircraft.175 Model aircraft that do
not meet these statutory requirements are nonetheless unmanned aircraft, and as
such, are subject to all existing FAA regulations, as well as future rulemaking action,
and the FAA intends to apply its regulations to such unmanned aircraft.176

The FAAs June 2014 guidance document spends several pages explaining its strict
interpretation of the meaning of hobby or recreational use. Any operation not
conducted strictly for hobby or recreation purposes could not be operated under the
special rule for model aircraft...likewise, flights that are in furtherance of a business, or
incidental to a persons business, would not be a hobby or recreation flight.177 Thus the
FAA continues to assert regulatory control over model aircraft that do not meet the
criteria of Section 336 of the FMRA, especially when it comes to model aircraft (or
UAS or drones) used for non-hobby or non-recreational purposes.

The upshot is that, according to the FAAs June 2014 guidance document, a realtor
using model aircraft to photograph a property that hes trying to sell, delivering
packages to people for a fee or determining whether crops need to be watered that are
grown as part of a commercial farming operation,178 among other even remotely
commercial uses, will likely need to obtain a Certificate of Waiver or Authorization
(COA) from the FAA179 and a Special Airworthiness Certificate in the experimental
category for their drone or model aircraft.180

6.4.2. FMRA and test ranges

The FMRA instructed the FAA to establish a program to integrate unmanned aircraft
systems into the national airspace system at six test ranges.181 The stated goal of the
test range program was to safely designate airspace for drone operation, develop
drone certification standards and air traffic requirements, address both civil and public
drone systems and other purposes.182

171 Ibid at 4 (emphasis added) (Historically, the FAA has considered model aircraft to be aircraft that fall
within the statutory and regulatory definitions of an aircraft, as they are contrivances or devices that are
invented, used, or designed to navigate, or fly in, the air.).
172 Ibid at 11 (emphasis added); see also FAA, What Can I Do With My Model Aircraft? Hobby/Recreational
Flying, accessed August 12, 2014, http://www.faa.gov/uas/publications/model_aircraft_operators/.
173 The hobby requirement is repeated in both Sections 336(a) and (c).
174 FAA, Interpretation of the Special Rule for Model Aircraft, supra at 17.
175 Ibid at 14.
176 Ibid at 7.
177 FAA, Interpretation of the Special Rule for Model Aircraft, supra at 10; see also eg, supra, Crains Chicago
Business, where a real estate photographer used drone to photograph houses, he received an email from
the FAA indicating such use was prohibited by law.
178 Ibid at 11.
179 AFS-400 UAS POLICY 05-01, http://www.eoss.org/faa/AFS_400_UAS_POLICY_05_01.pdf.
180 FAA, Unmanned Aircraft Operations in the National Airspace System, 72 Fed. Reg. 6689 (Feb. 13,
2007), FAA Notice 0701, http://www.faa.gov/uas/. (Under FAA policy, operators who wish to fly an
unmanned aircraft for civil use obtain an FAA airworthiness certificate the same as any other type aircraft.)
at page 6689-6690.
181 P.L. 112-95 332(b)(1).
182 Ibid.
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The law and regulation of drones

On December 30, 2013, the FAA announced the names of the operators of the six test
ranges: University of Alaska, the State of Nevada, New Yorks Griffiss International
Airport, North Dakota Department of Commerce, Texas A&M University Corpus Christi
and Virginia Polytechnic Institute and State University.183 The FAA stated that [t]hese
congressionally-mandated test sites will conduct critical research into the certification
and operational requirements necessary to safely integrate UAS into the national
airspace over the next several years.184

The FAAs announcement also stated that while its mission does not include regulating
privacy,185 it has established requirements for each test site that will help protect
privacy...[a]mong other requirements, test site operators will be required to comply with
federal, state and other laws protecting an individuals right to privacy; have publicly
available privacy policies and a written plan for data use and retention; and conduct an
annual review of privacy practices that allows for public comment.186

6.5. Privacy concerns

Individual citizens privacy is one the principal concerns with the private and public use
of drones in national airspace. As a general matter, in the United States, the states have
taken the lead in regulating privacy regarding drones187, while in Canada the federal
government has taken the lead on regulating privacy as to drones.

6.5.1. US privacy concerns

The Fourth Amendment to the US Constitution provides that [t]he right of the people to
be secure in their persons, houses, papers and effects, against unreasonable searches
and seizures, shall not be violated, and no warrants shall issue, but upon probable cause,
supported by oath or affirmation, and particularly describing the place to be searched,
and the persons or things to be seized. A court in a criminal prosecution may throw out
evidence seized by law enforcement in violation of the Fourth Amendment.188 In fact, the
first US citizen to be arrested with the help of a drone claimed his constitutional rights
under the Fourth Amendment were violated.189 Some states have also enacted or
proposed laws requiring that law enforcement must obtain a probable cause warrant in
order to use a drone to gather evidence in a criminal investigation.190 Note, however, that
the Fourth Amendment generally only applies to governmental action, so as a practical
matter we can expect the Fourth Amendment to be implicated for insurance purposes
only where the insureds are governmental or quasi-governmental bodies.

Placing prohibitions on private and commercial use of drones vis--vis privacy, however,
has been left to the various US state legislatures, resulting in an evolving patchwork of
legislation varying from state to state. Consequently, [c]iting privacy concerns,
legislators throughout the country are increasingly passing laws to restrict the use of
domestic drones over private land, found an analysis by the American Civil Liberties
Union. 191 According to the ACLU, as of June 2014, 13 states have enacted some form

183 http://www.faa.gov/news/press_releases/news_story.cfm?newsid=15576.
184 Ibid.
185 Unmanned Aircraft System Test Site Program (Notice of availability of final privacy requirements for the
unmanned aircraft system (UAS) test site program), http://www.faa.gov/about/initiatives/uas/media/
UAS_privacy_requirements.pdf.
186 http://www.faa.gov/news/press_releases/news_story.cfm?newsid=15576.
187 In March 2013, the US House of Representatives introduced the Drone Aircraft Privacy and Transparency
Act. The proposed law would have amended the FAA Modernization and Reform Act of 2012 to direct the
Secretary of Transportation (DOT) to study and identify any potential threats to privacy protections posed by
the integration of unmanned aircraft (drone) systems into the national airspace system, including any potential
violations of privacy principles. The bill died in committee. Accessed on September 17, 2014 at https://beta.
congress.gov/bill/113th-congress/house-bill/1262.
188 Mapp v. Ohio, 367 U.S. 643, 655 (1961) (We hold that all evidence obtained by searches and seizures in
violation of the [4th Amendment to the] Constitution is, by that same authority, inadmissible in a state court).
189 In January 2014, Rodney Brossart was sentenced to three years in prison, with all but six months of the
sentence suspended. Michael Peck, forbes.com, January 27, 2014, Predator Drone Sends North Dakota Man
to Jail.
190 The Year of the Drone: An Analysis of State Legislation Passed This Year, ACLU, November 7, 2013, accessed
on August 1, 2014 https://www.aclu.org/print/blog/technology-and-liberty/year-drone-roundup-legislation-
passed-year.
191 States restrict drone use because of privacy concerns, Midwest Center for Investigative Reporting,
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March 21, 2014, accessed on August 1, 2014, http://investigatemidwest.org/2014/03/21/states-restrict-
drone-use-because-of-privacy-concerns/# .
The law and regulation of drones

of legislation that prohibits the use of drones over private property without the consent of
the owner, and 36 other states have introduced similar legislation.192 A number of these
laws provide a private cause of action for an aggrieved property owner.193 In Texas, for
example, a person commits an offense if the person uses an unmanned aircraft to capture
an image of an individual or privately owned real property in [Texas] with the intent to
conduct surveillance on the individual or property captured in the image.194 Idaho and
Missouri explicitly provide special protections from aerial surveillance.195

In the meantime, the White House has confirmed an inter-agency process underway
regarding drafting privacy guidelines for commercial drone use.196 Media outlets report
that the president is planning to order the National Telecommunications and Information
Administration, an arm of the US Commerce Department, to draw up these privacy
guidelines. The plans are to bring consumer groups and corporations together to draft
rules.197

6.5.2. Canadian law and privacy concerns

According to the Office of the Privacy Commissioner of Canada, Canadas privacy laws
will apply to UAVs deployed by public or private sector organizations to collect and/or use
personal information. Essentially, drone operations that involve the surveillance of
Canadians or the collection of personal information are subject to the same privacy law
requirements as with any other data collection practice.198 A UAV used for commercial
purposes would be subject to Canadas Personal Information Protection Electronic
Documents Act (PIPEDA).199 For example, PIPEDA requires the permission of an individual
to take his or her photograph or video.200

Similarly, under Canadas Privacy Act201, where the federal government undertakes any
program that might impact citizens privacy, there is an expectation that organizations
carefully evaluate, and demonstrate, that the initiative is necessary to achieve a specific
and legitimate purpose, that it is likely to be effective in achieving that purpose, that the
intrusion on privacy is proportional to the benefit to be derived and that no other less
privacy intrusive alternative would achieve the same purpose.202

Section 8 of the Canadian Charter of Rights and Freedoms provides that [e]veryone has
the right to be secured against unreasonable search or seizure [and]...[w]here...a court
concludes that evidence was obtained in a manner that infringed or denied any rights or
freedoms guaranteed by this Charter, the evidence shall be excluded if its established
that, having regard to all the circumstances, the admission of it in the proceedings would
bring the administration of justice into disrepute. 203

192 Status of 2014 Domestic Drone Legislation in the States, ACLU, June 30, 2014, accessed August 1, 2014
https://www.aclu.org/blog/technology-and-liberty/status-2014-domestic-drone-legislation-states.
193 See eg, Texas House Bill No. 912, effective September 1, 2013, accessed on August 1, 2014 http://www.legis.
state.tx.us/tlodocs/83R/billtext/html/HB00912F.htm.
194 See supra, States restrict drone use because of privacy concerns, Midwest Center for Investigative Reporting,
March 21, 2014.
195 Drone Legislation: Whats Being Proposed in the States?, ACLU, March 6, 2013, accessed on August 1, 2014,
https://www.aclu.org/blog/technology-and-liberty-national-security/drone-legislation-whats-being-
proposed-states.
196 Rachel Brody, usnews.com, July 25, 2014, Should Obama Take Executive Action on Drone Privacy?
197 Ibid.
198 Drones in Canada: Will the proliferation of domestic drone use in Canada raise new concerns for privacy?,
Office of the Privacy Commissioner of Canada, March 2013 at 15, http://www.priv.gc.ca/information/
research-recherche/2013/drones_201303_e.pdf.
199 Ibid. For the text of PIPEDA, see http://www.priv.gc.ca/leg_c/leg_c_p_e.asp.
200 Ibid. See also Guidelines for the Use of Video Surveillance of Public Places by Police and Law Enforcement
Authorities, Office of the Privacy Commissioner of Canada, March 2006, https://www.priv.gc.ca/information/
guide/vs_060301_e.asp.
201 https://www.priv.gc.ca/leg_c/leg_c_a_e.asp.
202 Ibid at 16.
203 Constitution Act (Canada), 1982, Part 1, Canadian Charter of Rights and Freedoms, Section 8 & 24(2),
available at http://laws-lois.justice.gc.ca/eng/const/page-15.html (emphasis added).

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Potential legal issues raised by the use of drones

7. Potential legal issues raised by the use of drones

There are a number of potential legal issues involving use of drones that could trigger
civil or even criminal liability for a drones operator:

7.1. Physical damage and bodily injury: What if your drone crashes into property or
people on the ground? It could also crash into another drone, or worse yet, into another
aircraft.204 [E]xisting tort laws, which vary from state to state [and which are set forth in
Canadian common law], generally dictate how much the injured party should be
compensated...Tort laws would apply to any kind of conduct that is negligent or
reckless, regardless of the device theyre using...Thats the framework that weve had in
place for decades with regard to model aircraft operation.205

7.2. FAA rules: While the FAA unsuccessfully attempted only once (in the Pirker case)
to levy a fine against a model airplane/drone operator, the FAA appealed that decision
to the full National Transportation Safety Board (NTSB) and won. However, because the
NTSB decision didnt address all aspects of the Pirker decision, some aspects of the
administrative law judges decision are still intact. The result is that commercial flights of
model aircraft are effectively grounded.206 Whats more, the full NTSB could eventually
reverse the complete ruling of the administrative law judge, thus enhancing the FAAs
enforcement powers. Also, as per Section 336 of the FMRA, Congress gave the FAA
the power to regulate the use of drones larger than 55 pounds, thus the operator of a
drone larger than 55 pounds who doesnt have the FAAs permission in the form of a
Special Airworthiness Certificate could be subject to an FAA enforcement action or
fines. Likewise, taking its cue from Section 336 of the FMRA, FAA publicly stated in
June 2014 its belief that it has the power to prohibit the use of model airplanes or
drones for commercial use. Finally, operation of a model aircraft or drone in a dangerous
fashion could lead to sanctions by the FAA.

7.3. Transport Canada rules: Similar to the FARs, under the CARs, an unregulated
model aircraft is 35 kilos (77.2 pounds), is mechanically driven, used recreationally and
doesnt carry living creatures. A UAV that exceeds the foregoing weight and doesnt
meet the other standards requires a specific permission from Transport Canada in the
form of an SFOC. Ostensibly, failure to obtain an SFOC when required could lead to an
enforcement action by Transport Canada. Finally, operation of a model aircraft or drone
in a dangerous fashion could lead to sanctions by Transport Canada.

7.4. Trespass: As noted above, a number of states have enacted laws that prohibit the
use of drones over private property without the consent of the owner. In some cases the
property owner may have a private cause of action to sue the drone operator for
trespass, and in other cases the state might prosecute the operator for use of a drone in
contravention of state law. Canadian common law also provides a similar cause of
action for trespass.

7.5. Nuisance: A nuisance is an activity which arises from unreasonable, unwarranted

or unlawful use by a person of his own property, working obstruction or injury to the
right of another, or to the public, and producing such material annoyance,
inconvenience and discomfort that law will presume resulting damage.207 Depending
upon the size of a drone, consistent use of it on ones own property could make enough
noise to disturb neighboring property owners in the quiet enjoyment of their own
property, bringing a potential lawsuit for nuisance. Similarly, a powerful enough drone
could kick up enough dust and dirt, and blow it over to a neighbors property. If this
occurs regularly, it may potentially interfere with the neighbors use of his or her
property to the point where the neighbor sues to stop the intrusion. Canadian common
law also provides a similar cause of action.
204 Aircraft are tested for bird strikes on a regular basis and the industry is highly regulated and safe....But they
are not tested for a 70 pound (35 kilogram) carbon-fibre drone flying into the engine or the windscreen[.]
Drones have regulators, hobbyists on collision course, May 19, 2014, accessed on August 8, 2014, http://
www.cbc.ca/news/technology/drones-have-regulators-hobbyists-on-collision-course-1.2644232.
205 Drone law: Flying into a legal twilight zone, Aviva Rutkin, May 15, 2014, accessed on August 4, 2014,
http://www.newscientist.com/article/mg22229694.400-drone-law-flying-into-a-legal-twilight-zone.html.
206 FAA Press Release (March 7, 2014), available at http://www.faa.gov/news/press_releases/news_story.
24 Swiss Re cfm?newsId=15894&cid=TW209.
207 Blacks Law Dictionary (West 1990), at 1065.
Potential legal issues raised by the use of drones

7.6. Privacy: As noted, some states have passed laws or may soon do so that prohibit
photography or recording by drones. This type of prohibition may, however, raise First
Amendment free speech questions, eg, for reporters gathering news information.208
Nonetheless, where an individual has a reasonable expectation of privacy, eg, inside a
home, a drone operator that invades that privacy and publishes the result may be
subject to a lawsuit for the invasion under state law. Similarly, in Canada, a drone
operator may face a legal attack under PIPEDA where he or she takes photos or videos
of an individual in a private setting and without consent.

7.7. Stalking and harassment: Traditional crimes such as stalking, harassment,

voyeurism and wiretapping may all be committed through the operation of a drone. As
drones are further introduced into the national airspace, courts will have to work this
new form of technology into their jurisprudence, and legislatures might amend...various
statutes to expressly include crimes committed with a drone.209

7.8. Wiretap laws: Under the US federal wiretap statute, it is unlawful to intentionally
intercept an oral communication by a person exhibiting an expectation that such
communication is not subject to interception under circumstances justifying such
expectation...Currently, commercial microphones can record sounds upwards of 300
feet. Use of such a microphone on a drone to record private conversations could
implicate the US federal wiretap statute.210 Similarly, pursuant to the Criminal Code of
Canada, Everyone who, by means of any electro-magnetic, acoustic, mechanical or
other device, willfully intercepts a private communication is guilty of an indictable
offence and liable to imprisonment for a term not exceeding five years, except where
the person intercepting has the consent of originator of the private communication.211

7.9. Abuse by law enforcement: In the United States, the constitutionality of

domestic drone surveillance may depend upon the context in which such surveillance
takes place...[and] the sophistication of the technology used by law enforcement and
the duration of the surveillance. Both of these factors will likely inform a reviewing
courts reasoning as to whether the governments surveillance constitutes an
unreasonable search in violation of the Fourth Amendment.212 An additional factor will
be whether the law enforcement agency in question has obtained a valid search
warrant in advance of the drone surveillance. Its reasonable that a Canadian court
would entertain the same issues when considering the admissibility of evidence under
Sections 8 and 24 of the Canadian Charter of Rights and Freedoms (see infra). Likewise,
as explored above, a number of states have enacted or will enact laws mandating that
law enforcement obtain a search warrant before using a drone for surveillance in a
criminal matter. Failure to obtain the warrant could result in loss of evidence and
possible civil liability for damages for the law enforcement or government agency, owed
to the subject of unreasonable or warrantless drone surveillance.

The use of drones in the United States and Canada in a variety of contexts is
progressing at a dizzying pace.213 As drones become more commonplace, the
foregoing legal issues and other potential and unanticipated uses and problems will
certainly arise. As a result, the law in the United States and Canada, and novel forms of
liability will have to adapt to this new technology.

208 Integration of Drones into Domestic Airspace: Selected Legal Issues, Dolan and Thompson, Congressional
Research Service, April 4, 2013 at 17.
209 Integration of Drones into Domestic Airspace: Selected Legal Issues, supra at 29.
210 Ibid.
211 Criminal Code of Canada (R.S.C., 1985, c. C-46), Section 184(1)-(2), available at http://laws-lois.justice.gc.
ca/eng/acts/C-46/page-90.html#h-63.
212 Drones in Domestic Surveillance Operations: Fourth Amendment Implications and Legislative Responses,
Thompson, Congressional Research Service, April 3, 2013 at 12.
213 Unmanned Aircraft Operations in the National Airspace System FAA, Docket No. FAA200625714;
Notice No. 0701, supra at 1 (stating that drones numbers and uses are growing dramatically. In the United
States alone, approximately 50 companies, universities, and government organizations are developing and
producing some 155 unmanned aircraft designs).

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Insurance and drones: a myriad of challenges

8. Insurance and drones: a myriad of challenges

Technology is marching at a breakneck pace, creating new emerging insurance
coverage issues that were not contemplated when policy language was originally
drafted. Its up to the insurance industry to keep up. There are a myriad of complex
liability and coverage issueswhich are further complicated by complex operational,
procedural and technological challenges. The potential commercial usage of drones in
the skies have sent the regulatory bodies such as the FAA in the US and Transport
Canada scrambling as the commercial market is chomping at the bit to launch their
respective businesses.

In sync with the regulators, some insurance carriers may be looking to develop policies
to cover insurance exposures presented by these small unmanned aircraft, yet there is
little clarity or guidance in this area. For example, very few commercial farmers have
obtained a Certificate of Authority to fly drones, yet it appears current US laws and
regulations managed by the FAA would require FAA permission for such non-
recreational use of drones. Nonetheless, toward the end of 2013, for example, certain
insurance carriers began writing coverage for customers utilizing a drone. Coverage is
endorsed onto an existing P&C policy. Most of the drones are valued at less than $5,000
and coverage is for general liability only.214 This is a bold move by the insurer because
theyre really stepping out onto a ledge and making a leap of faith, recognizing that
theres a need and want by the farmers for insurance coverage.

8.1. Underwriting challenges

Present policy wordings may not, however, address the issue of drones. Whether
intended or not, insurers may find that they will be under challenge to pay for a myriad of
losses that they, the insurer, believed were not covered under their policies. They may
find that they will face legal challenges under their present day, general liability,
businessowners, commercial umbrella, homeowners, farmowners and personal
umbrella policy wordings. Umbrella policies typically provide personal injury or personal
and advertising injury coverage without an endorsement attached. As mentioned in
Section 7 of this paper, drone operators without any nefarious intent may be exposed to
suits for trespass, nuisance and privacy. These innocent insureds who operate drones
may expect to have insurance coverage for these offenses in the event of a suit against
them. That said, some drone operators may not be so innocent. Drones may have a
camera attached. It could be expected that some drone operation may be used for
voyeurism, stalking, harassment, blackmail or to provide evidence to law enforcement
against a neighbor whose relationship with the insured can only be described as
adversarial. Insurers certainly wouldnt want to cover intentionally illegal activity. Insurers
thus face the following underwriting challenges:

Applicable laws: In making underwriting decisions, it will be important to identify the

specific torts, state and federal laws that could generate lawsuits or fines against a
drone operator. As mentioned in Section 6.4, Congress instructed the FAA to develop
a comprehensive plan to safely accelerate the integration of civil unmanned aircraft
systems into the national airspace system...[no] later than September 30, 2015.
Insurers have to decide whether they want to design insurance policy forms and
endorsements, design an application, develop underwriting guidelines and manuals,
develop and file rates and rules based on current applicable drone law (and thats very
uncertain) only to have to revamp it again when the FAA issues their new regulations
effective October 1, 2015.

Uninsurable lawsuits: Identifying the types of suits that an insurer believes is

uninsurable. For example, a drone with a camera can be a basis for an invasion of
privacy lawsuit virtually any time it flies regardless of the operators intent. The
commercial use of a drone will often involve a camera.215

214 Agribusiness Recognizes Drone Insurance Gap, by the Drone Report, January 15, 2014, accessed on
September 30, 2014 at http://www.droneport.com/agribusiness-recognizes-drone-insurance-gap/.
215 There will of course be other commercial uses for drones that dont involve a camera, eg, the use of UAVs as
mobile Wi-Fi hotspots in remote areas. See Darpa Turns Aging Surveillance Drones Into Wi-Fi Hotspots, by
Wired, April 15, 2014, accessed on October 21, 2014 at http://www.wired.com/2014/04/drones-mobile-
26 Swiss Re
hotspots/.
Insurance and drones: a myriad of challenges

Clarity in coverage language: If insurers desire to cover the innocent use of a

drone, but not the ill-intended use of a drone, then insurers need to create effective
policy language in order to do so. Creating this language may prove to be
challenging. Because an insured may dispute that his or her activity was criminal,
insurers may have no choice but to defend a civil lawsuit arising out of what they
believe is obvious illicit activity until a criminal charge is adjudicated.

What types of claims to cover: Insurers have to decide what type of claims that
arise out of drone use are those that they want to cover. In particular, drone operators
may be exposed to fines by the FAA. Fines of this sort are typically not covered under
insurance policies. Do insurers want to cover those fines? A drone operator may want
coverage for such fines.

Covering drone operation without an FAA COA: Do insurers want to cover drones
where the operator doesnt have a certificate of authority when required by the FAA?
Insurers probably dont want to be in the uncomfortable position where they can be
accused by law enforcement or a regulatory agency for fostering or aiding and
abetting illegal operation of a drone. If insurance is going to pay for a fine levied
because the operator didnt obtain an FAA certificate of authority and a lawsuit
arising out of the operation of a drone, what incentive does a drone operator have to
obtain one or to follow other FAA regulations?216 As was discussed in depth in
Sections 6 and 7 of this paper, the FAA believes that any commercial use of a drone
requires an FAA certificate of authority to do so, but what actual authority the FAA
has over drone activity will ultimately be decided by the judicial system and future
legislation. As was pointed out in sections 6.3.2 above, as of December 4, 2013,
there were only 545 active COAs issued by the FAA. As long as commercial drone
operators purchase drones before they receive a COA, they will want insurance on it
without having a certificate of authority. We dont know how many drones are
currently being used for commercial use, but were sure its increasing rapidly and
that its in multiples of 545. Whether to insure commercial use of drones where the
operator doesnt have an FAA certificate is probably the most difficult decision that
insurers will have to make.

Expectation of privacy. If someone is out in public and a UAV uses a camera to

photograph a person, and that image is then posted on the web or otherwise
published, the person photographed could sue in certain circumstances. A person
generally doesnt have a reasonable expectation of privacy in a public place.
However, there are meaningful exceptions to this doctrine. For example, if a persons
likeness is misappropriated for commercial purposes, the person may have a cause
of action under common law or statutes. The cause of action may be for
misappropriation of likeness or the similar cause of action of right to publicity, being a
persons right to control and profit from a third partys commercial use of their
identity217. Drones complicate the matter further, since they provide access that
people may not reasonably expect. For example, if one is on the balcony on the 19th
floor of a condominium building or in their backyard thats isolated with a high fence,
one may have a reasonable expectation of privacy. Even if the drone operator
innocently views such person in the midst of a legitimate business activity, the
subject of the photo or video may believe his or her privacy was unjustly invaded and
might file suit. Drones greatly enable the violation of this kind of expectation of
privacy. Depending on how one uses a UAV, a drone operator could be sued for
invasion of privacy nearly every time the drone is in operation. Insurers have to ask
themselves if this is an insurable exposure. If not, insureds have to ask themselves,
Why am I buying this policy if it doesnt cover me for this exposure?

216 That said, the risk of potential policy cancellation or increased premiums may give an operator incentive to
obtain a COA.
217 See http://www.dmlp.org/legal-guide/using-name-or-likeness-another.

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Insurance and drones: a myriad of challenges

Its clear that this fast-emerging technology will have to be addressed in the near future,
and all facets of insurance will have to be considered and re-crafted in order to provide
meaningful coverage for the consuming public. The balance of this section of this paper
explores specific insurance issues to contemplate when considering whether to cover or
exclude insurance coverage for drones.

8.2. Insurance policy types and coverage for liability arising from drone use
Below we discuss questions of coverage regarding drone use pursuant to ISO issued
policies. Any coverage issue or claim must be decided on the actual facts of the claim
and the actual policy language in question. In some cases, the actual policy language in
question may not be one issued by ISO, however, reference to an ISO policy may be
instructive.

8.2.1. Commercial drone usage

Some of the current insurance policies may be used to provide coverage for this new
industry. Insurance carriers may wish to limit their existing policies and tailor new
policies with drone ownership, use and operations in mind. The scope of coverage may
be crafted to accommodate the particular insureds needs. The following general types of
coverage may be needed for the use of drones and ancillary business activities:

Property insurance including machinery breakdown, and business interruption

Commercial general liability for non-aviation (non-airborne) liability exposures
Personal injury, which may or may not include coverage for invasion of privacy and
may be written in conjunction with the commercial general liability policy or on a
stand-alone basis.
Aviation liability bodily injury, property damage and loss of revenue as the result of
an accident caused by or involving a RPAS.
Non-owned aviation liability vicarious liability for bodily injury or property damage
as the result of an accident involving RPAS.
Professional liability
Workers compensation (in the US)
D&O liability
Umbrella liability

8.2.2. Property insurance

For manufacturers of drones and/or their component parts, property coverage should
apply to the production, assembly and wholesaling process, the parts being assembled,
the finished product sitting in a warehouse, the production machinery and business
interruption extra expense as well. Property underwriters are more than familiar with the
type of covers required for this type of manufacturing operation. Some attention will no
doubt have to be paid to the damageability and availability of certain computer/
electronic components and microprocessors which may affect business interruption
along with contingent business interruption and supply chain covers. Drone production
is truly a hybrid where the conventional manufacturing industry collides with the high-
tech manufacturing industry.

Hull aircraft coverage on the drone itself for the drone owner we believe will evolve.
Prices of drones vary considerably. What kind of deductibles, percentage of value of the
drone or a flat dollar amount, may vary from company to company. What perils would be
covered? What exclusions apply? Is there coverage that results from crashes from take-
offs or landings? How will insurers develop rates and how credible will be such rates?
These are all questions that we believe will evolve as insurers analyze claims and their
loss statistics become more numerous and credible.

28 Swiss Re
Insurance and drones: a myriad of challenges

8.2.3. Commercial general liability

Most companies use ISO policy language or some variant thereof. Coverage is usually
limited to those sums that the insured becomes legally obligated to pay as damages
because of bodily injury or property damage and personal and advertising injury.
Terms in italics are defined in the policy. ISOs CG 00 01 04 13 policy defines personal
and advertising injury as:
injury, including consequential bodily injury, arising out of one or more of the
following offenses:

a. False arrest, detention or imprisonment;

b. Malicious prosecution;
c. The wrongful eviction from, wrongful entry into or invasion of the right of
private occupancy of a room, dwelling or premises that a person occupies,
committed by or on behalf of its owner, landlord or lessor;
d. Oral or written publication, in any manner, of material that slanders or libels a
person or organization or disparages a persons or organizations goods, products
or services;
e. Oral or written publication, in any manner, of material that violates a persons
right of privacy;
f. The use of anothers advertising idea in your advertisement; or
g. Infringing upon anothers copyright, trade dress or slogan in your
advertisement.

There is no aircraft exclusion that applies to covered personal and advertising injury
offenses under ISOs CG 00 01 04 13. If liability arising of an aircraft or a drone218 isnt
excluded in the policy, coverage could be invoked for invasion of the right to private
occupancy of a room, dwelling or premises that person occupies, committed by or on
behalf of its owner, landlord or lessor. Only suits by tenants of the insured landlord would
be covered. Suits by other persons or organizations who are not tenants of the insured
landlord who sue for invasion of privacy because of drone use would not be covered
because they would not qualify as a covered offense. An insured who uses a drone with
a camera may post the video or camera shots on the Internet with or without any harmful
motive. Any suits filed against the insured arising out of such posting would likely be
covered because a covered offense is:

d. Oral or written publication, in any manner, of material that violates a persons

right of privacy219

Any Internet posting of photos or video would also be subject to the following exclusion
found in all ISO policies that provide coverage for personal and advertising injury and
personal injury coverage:

Caused by or at the direction of the insured with the knowledge that the act
would violate the rights of another and would inflict personal injury or
advertising injury (some policies it is personal and advertising injury).

If insurers do not want to cover these offenses they would have to develop proprietary
exclusions unless the underwriter wants to eliminate all personal and advertising injury
coverage with ISOs CG 21 38 11 85 Exclusion Personal and Advertising Injury
endorsement.

218 Note that the FAA considers even model aircraft, when not used strictly for hobby or recreational use, to be
an aircraft subject to its regulatory authority., Docket No. FAA-2014-0396, June 18, 2014 at p. 4
(Historically, the FAA has considered model aircraft to be aircraft that fall within the statutory
and regulatory definitions of an aircraft, as they are contrivances or devices that are invented, used, or
designed to navigate, or fly in, the air.).
219 CG 00 01 04 13, Personal and Advertising Injury, Definition, subsection (d).

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Insurance and drones: a myriad of challenges

ISOs CG 00 01 04 13 contains the following aircraft liability exclusion that applies to

bodily injury and property damage liability claims:

Bodily injury or property damage arising out of the ownership, maintenance,

use or entrustment to others of any aircraft, auto or watercraft owned or
operated by or rented or loaned to any insured. Use includes operation and
loading or unloading.

This exclusion applies even if the claims against any insured allege negligence or
other wrongdoing in the supervision, hiring, employment, training or monitoring
of others by that insured, if the occurrence which caused the bodily injury or
property damage involved the ownership, maintenance, use or entrustment to
others of any aircraft, auto or watercraft that is owned or operated by or rented
or loaned to any insured.

This exclusion doesnt apply to liability assumed under any insured contract for
the ownership, maintenance or use of aircraft or watercraft.

Theres no definition of aircraft in ISOs CG 00 01 04 13. It would be up to a judicial

interpretation to determine if, for insurance purposes, a drone qualifies as an aircraft
under ISO CG 00 01 04 13. We think most courts would rule that they do in fact qualify.
Wed assume that theres no coverage under ISO CG 00 01 04 13 for bodily injury
liability or property damage liability claims that arise out of a drone accident unless such
liability is assumed under a contract.

For example, assume an insured is a surveyor that uses a drone to perform surveying
operations on behalf of an owner. Prior to using the drone, assume the surveyor entered
into a contract where it assumed all liability that the owner incurs that arises out of the
surveyors work while the surveyor is performing work for the owner. While the surveyor
was surveying the property, the drone accidentally hit a curious pedestrian. The injury
that resulted from this accident caused severe brain damage to the pedestrian. The
pedestrian sues the owner for damages. The owner tenders the suit to the surveyor. This
type of suit would be covered because it would represent liability assumed by the
surveyor under an insured contract. There would be no coverage under the owners
CG 00 01 04 13 for this suit because of the cited aircraft exclusion.

8.2.4. Businessowners
ISOs Businessowners Policy (BOP) BP 00 03 04 13 has the same aircraft exclusion that
is contained in ISOs CG 00 01 04 13 policy form. The definition of personal and
advertising injury is the same in both policies. Theres no aircraft exclusion that applies
to covered personal and advertising injury offenses. As such, coverage of drone
exposure would be the same for personal and advertising injury and bodily injury and
property damage liability injury claims as described in ISO CG 00 01 04 13.

8.2.5. Commercial umbrella

Similar to ISOs Commercial General Liability Coverage Form, ISOs CU 00 01 04 13
Commercial Umbrella Liability Coverage Form has two separate coverage parts: one for
coverage of bodily injury and property damage and the other for coverage of personal
and advertising injury. The bodily injury and property damage coverage section contains
the following aircraft exclusion:

Bodily injury or property damage arising out of the ownership, maintenance,

use or entrustment to others of any aircraft or watercraft owned or operated by or
rented or loaned to any insured. Use includes operation and loading or
unloading.

30 Swiss Re
Insurance and drones: a myriad of challenges

This exclusion applies even if the claims against any insured allege negligence
or other wrongdoing in the supervision, hiring, employment, training or
monitoring of others by that insured, if the occurrence which caused the
bodily injury or property damage involved the ownership, maintenance, use
or entrustment to others of any aircraft or watercraft that is owned or operated
by or rented or loaned to any insured.

This exclusion does not apply to:

3) Liability assumed under any insured contract for the ownership,

maintenance or use of aircraft or watercraft;

4) The extent that valid underlying insurance for the aircraft or watercraft
liability risks described above exists or would have existed but for the
exhaustion of underlying limits for bodily injury or property damage. To the
extent this exclusion does not apply, the insurance provided under this Coverage
Part for the aircraft or watercraft risks described above will follow the same
provisions, exclusions and limitations that are contained in the underlying
insurance, unless otherwise directed by this insurance; or

5) Aircraft that is:

a. Chartered by, loaned to or hired by you with a paid crew; and
b. Not owned by any insured.220

A bodily injury liability or property damage liability claim arising out of use of a drone is
not covered by ISOs CU 00 01 04 13 unless its covered by an underlying policy. If the
insureds underlying policy is ISOs CG 00 01 04 13 or BP 00 03 04 13, a bodily injury
liability or property damage liability claim arising out of use of a drone wouldnt be
covered under ISOs CU 00 01 04 13.

ISO CU 00 01 04 13s definition of personal and advertising injury is the same as ISO
CG 00 01 04 13. As such, coverage of personal and advertising injury claims under
CU 00 01 04 13 is the same as described in CG 00 01 04 13.

If an insured hires a drone operator to perform work for the insured, or the neighbor
operates, for no remuneration, the neighbors drone to perform work for the insured, will
courts classify those operators as paid crew for purposes of invoking the exception to
the exclusion? While thats an open question, it would appear that if an insured operates
a neighbors drone for the insureds benefit, then the non-owned aircraft exception to
this exclusion should apply. The coverage granted by these exceptions would be a
source of an umbrella drop-down claim.

8.2.6. Farmowners
ISOs Farmowners Liability Coverage Form, FL 00 20 10 06, has two separate
coverage parts: one for coverage of bodily injury and property damage and the other for
personal injury and advertising injury. The following aircraft exclusion does not apply to:

Bodily injury or property damage:

1) Arising out of ownership, maintenance, use or entrustment to others of any

aircraft, motor vehicle, motorized bicycle or tricycle owned or operated by or
rented or loaned to any insured. Use includes operation and loading or
unloading; or

220 CU 00 01 04 13, Exclusions.

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Insurance and drones: a myriad of challenges

2) Giving rise to vicarious liability, whether or not imposed by law, for the actions
of a child or minor involving any aircraft, motor vehicle, motorized bicycle or
tricycle.

This exclusion applies even if the claims against any insured allege negligence
or other wrongdoing in the supervision, hiring, employment, training or
monitoring of others by that insured, if the occurrence that caused the bodily
injury or property damage involved the ownership, maintenance, use, or
entrustment to others of any aircraft, motor vehicle, motorized bicycle or tricycle
that is owned or operated by or rented or loaned to any insured.

This exclusion does not apply to:

a. An aircraft that causes bodily injury or property damage to a residence

employee who is not operating or maintaining it.

Aircraft is not a defined term under FL 00 20 10 06. Whether a drone is considered an

aircraft under this policy will probably be up to judicial interpretation.221 If drones qualify,
then theres no coverage because the aircraft exclusion applies. The personal injury
offenses that are covered under FL 00 20 10 06 that could be a source of a future drone
claim are the same offenses, offenses c and e, discussed in CG 00 01 04 13. In addition
FL 00 20 10 06 has the following condition in order for personal injury to apply:

b. This insurance applies to personal injury only if caused by an offense:

2) Arising out of personal activities or out of operations usual or incidental to

farming.222

This exclusion should prevent coverage for claims that arise out of the posting of photos
or videos from a drones web camera that arent farming related, eg, posting with the
sole intent to harm someone elses reputation.

Weve reviewed ISOs Farm Property Farm Personal Property Coverage Form FP 00 13
09 03. Its our opinion that the coverage form is clear that all aircraft are not covered.
There are no exceptions for model or hobby aircraft or model or hobby aircraft not used
or designed to carry people or cargo.

8.2.7. Homeowners
ISOs Homeowners 3 Special Form HO 00 03 05 11 doesnt provide coverage for
personal and advertising injury. Unendorsed, ISOs homeowners policies dont provide
coverage for either personal injury or personal and advertising injury as defined in ISOs
umbrella policies. As such, non-bodily injury or non-property damage liability claims
arising out of use of a drone wouldnt be covered under ISOs HO 00 03 05 11. This form
contains the following aircraft liability exclusion that applies to claims for bodily injury
and property damage liability:

This policy doesnt cover aircraft liability. The aircraft liability exclusion doesnt
apply to bodily injury to a residence employee arising out of and in the course
of the residence employees employment by an insured.

Aircraft liability is defined as:

a. Liability for bodily injury or property damage arising out of the:

221 Note that the FAA considers even model aircraft, when not used strictly for hobby or recreational use, to be
an aircraft subject to its regulatory authority. See supra FAA, Interpretation of the Special Rule for Model
Aircraft, Docket No. FAA-2014-0396, June 18, 2014 at p. 4 (Historically, the FAA has considered model
aircraft to be aircraft that fall within the statutory and regulatory definitions of an aircraft, as they are
contrivances or devices that are invented, used, or designed to navigate, or fly in, the air.).
222 CG 00 01 04 13, subsection (b).
32 Swiss Re
Insurance and drones: a myriad of challenges

1) Ownership of such vehicle or craft by an insured;

2) Maintenance, occupancy, operation, use, loading or unloading of such

vehicle or craft by any person;

3) Entrustment of such vehicle or craft by an insured to any person;

4) Failure to supervise or negligent supervision of any person involving such

vehicle or craft by an insured; or

5) Vicarious liability, whether or not imposed by law, for the actions of a child
or minor involving such vehicle or craft.

b. For the purpose of this definition:

1) Aircraft means any contrivance used or designed for flight except model or
hobby aircraft not used or designed to carry people or cargo;

As discussed in Sections 6 and 7 of this paper, model and hobby aircraft that is,
model aircraft used for recreational and non-commercial purposes are generally
exempt from FAA and Transport Canada regulations. What qualifies as model or hobby
aircraft under these regulations is not settled.223 As such, we would expect what
qualifies as model or hobby aircraft under this exclusion is probably unsettled. Cargo
is an undefined term in the policy. The Merriam-Websters online dictionary defines
cargo as the goods or merchandise conveyed in a ship, airplane, or vehicle.224
Whether a drone designed to carry only a video camera qualifies as designed to carry
cargo could be a source of future coverage disputes if it hasnt been already.225 If it
qualifies, then the exclusion applies to a drone designed to carry a video camera.

Also, a great majority of homeowner policies offer personal liability coverage that
parallels the ISO/IBC homeowners and/or tenants liability coverage. Theres no
coverage for the ownership use or operation of any aircraft or premises used as an
airport landing strip and all necessary or incidental operations. Having said that, ISO
defines aircraft as any contrivance used or designed for flight except model or hobby
aircraft not used or designed to carry people. A contrivance doesnt have to have a
motor to be an aircraft. A hang glider or a parasail or parachutes are aircraft since they
are designed to carry people. As long as a model or hobby aircraft isnt used for
commercial purposes its not considered aircraft, and unless its designed or used to
carry people or cargo, theres liability coverage for this exposure. There are no size
restrictions on model aircraft (but there are weight restrictions), so Big Bird model
aircraft liability exposures would be covered. Big Bird model aircraft have a wingspan of
80 inches or larger or are one-quarter scale aircraft.226

In order for liability coverage to be triggered under most homeowners insurance

policies there is a bodily injury or property damage requirement. As a result, there may
not be coverage for liability that arises from personal use of a drone that involves
trespassing, stalking, harassment and other criminal laws that dont implicate bodily
injury or property damage.

223 See supra Section 6.4.1., The FAAs Authority Over Model Aircraft Confirmed, for a discussion of the FAAs
June 2014 definition of a model aircraft based on Section 336 of the FAA Modernization and Reform Act
of 2012; and see supra Section 6.3.1., Model Aircraft, for the definition of a model aircraft under the
Canadian Aviation Regulations.
224 Merriam-Webster, definition of cargo retrieved on September 30, 2014 at http://www.merriam-webster.
com/dictionary/cargo.
225 If, however, a video camera is an operative part of a UAV, it might not be considered to be cargo, but instead
either part of the UAV or an accessory to the UAV.
226 http://www.deandraper.com/blog/bid/33966/Personal-Liability-Exposures-and-the-Homeowner-Policy.

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Insurance and drones: a myriad of challenges

8.2.8. Personal umbrella

ISOs personal umbrella (PU) policy DL 98 01 10 06 provides coverage for bodily injury,
property damage and personal injury. ISOs DL 98 01 10 06 has the same aircraft
liability exclusion as HO 03 05 11 described above except that it doesnt contain the
exception for bodily injury to a residence employee arising out of and in the course of
the residence employees employment by an insured. The personal injury offenses
that are covered under ISOs DL 98 01 10 06 are the same as the offenses set forth in
ISOs CG 00 01 04 13 and described above in this paper in Section 8.2.3, commercial
general liability. The two exclusions described in CG 00 01 04 13 that could apply to a
personal and advertising injury claim are also contained in DL 98 01 10 06. As such,
coverage for bodily injury and property damage for liability arising out of a drone will be
the same as described in ISOs HO 00 03 05 11 above. Coverage for personal and
advertising injury should be as described in ISOs CG 00 01 04 13 above.

Its our observation that ISOs personal umbrella form isnt as widespread in the industry
as their other forms. Each policy needs to be scrutinized to determine how liability arising
out of a drone is covered.

8.2.9. Farm umbrella

It appears that ISOs commercial umbrella form (discussed above in Section 8.2.5) is to
apply when the farm policy isnt issued to an individual. When issued to an individual it
appears that ISO recommends its FB 04 01 10 06 farm premises and personal umbrella
liability be endorsed to its Commercial Umbrella Coverage Form. We believe ISOs intent
with this endorsement is to provide the insured coverage for liability arising out of the
insureds personal and non-business activities. The term personal or non-business
activities under this endorsement doesnt include any farming activity. This
endorsement provides both bodily injury and property damage liability coverage and
personal injury coverage.

As respects coverage for bodily injury and property damage, the following aircraft
exclusion applies:
This insurance does not apply to bodily injury or property damage:

a. Arising out of ownership, maintenance, use or entrustment to others of any

aircraft owned or operated by or rented or loaned to any insured. Use includes
operation and loading or unloading; or

b. Giving rise to vicarious liability, whether or not imposed by law, for the actions
of a child or minor involving any aircraft.

The foregoing exclusion applies even if the claims against any insured allege negligence
or other wrongdoing in the supervision, hiring, employment, training or monitoring of
others by that insured, if the occurrence that caused the bodily injury or property
damage involved the ownership, maintenance, use or entrustment to others of any
aircraft thats owned or operated by or rented or loaned to any insured. Furthermore, the
same exclusion does not apply to:

a. Model or hobby aircraft unless used or designed to carry an operator(s), any

other person(s) or cargo; and

b. The extent that valid underlying insurance for the aircraft liability risks
described above exists or would have existed but for the exhaustion of underlying
limits for bodily injury or property damage. Coverage provided will follow the
provisions, exclusions and limitations of the underlying insurance; aircraft is an
undefined term.

34 Swiss Re
Insurance and drones: a myriad of challenges

The issues surrounding cargo and a camera discussed above in Section 8.2.7,
Homeowners, in the other personal lines forms are the same here. It would likely be up
to judicial interpretation to determine whether ISOs aircraft exclusion would provide
coverage if the underlying insurance excluded all aircraft liability (including all model
or hobby aircraft), but the drone transported a camera. As respects personal injury
coverage, the definition and exclusions that apply to personal injury are the same as in
DL 98 01 10 06.

8.2.10. Personal property insurance

Since personal use (non-commercial use) drones arent regulated by the FAA or
Transport Canada, they may be insured under a conventional personal property policy
as long as theres no intended commercial use of the equipment. ISOs HO 00 03 05 11
contains the following verbiage for property not covered:

We do not cover:

d. Aircraft, meaning any contrivance used or designed for flight, including any
parts whether or not attached to the aircraft. We do cover model or hobby
aircraft not used or designed to carry people or cargo[.]227

If a drone designed to carry a video camera is considered (perhaps by a court) to be

designed to carry cargo then there would be no property coverage under ISOs HO 00
03 05 11 in the event the drone is otherwise covered for the cause of loss in question.
If a court concludes that a drone designed to carry a video camera isnt carrying
cargo, the following Special Limit of Liability may apply:

j. $1,500 on portable electronic equipment that:

1) Reproduces, receives or transmits audio, visual or data signals;

2) Is designed to be operated by more than one power source, one of which
is a motor vehicles electrical system; and
3) Is in or upon a motor vehicle.228

The use of the word and in 2) means its likely that a court will rule that the drone
would have to be in or upon a motor vehicle in order for the $1,500 Special Limit of
Liability to apply. If the Special Limit of Liability doesnt apply, coverage for model
aircraft could be subject to Coverage C Personal Property Limit. Coverage for
personal property is also subject to all the other terms and conditions such as
exclusions and the list of perils insured against for Coverage C Personal Property.

8.3. Additional insurance underwriting considerations

8.3.1. Aviation liability

While conventional insurance coverage will definitely be needed, aircraft underwriters
will have to explore how to write such policies for drones, given that theyre going to be
significantly smaller than standard aircraft, with some as little model kit types. Some of
their underwriting and coverage approach will no doubt be governed by the regulatory
agencies and commercial usage of these aircraft.

227 HO 00 03 05 11, subsection (d).

228 HO 00 03 05 11, subseqction (j).

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Insurance and drones: a myriad of challenges

8.3.2. Non-owned aviation liability

Like the conventional aviation liability, there may be certain clients that will not own
their own drones or drone fleets. They may in fact lease or contract the usage of drones
for their use. Although the aviation carrier will no doubt be charged to insure this
exposure, there may be vicarious liability which could arise from the leasing of drones,
and coverage may be required for this exposure much the same as in conventional
aviation liability. Customers of lessors of drones or drone fleets (or contractors allowing
third party use of drones) may also require that the lessor (or contractor) provide
insurance on behalf of the operators of the equipment especially if the operators use
is occasional.

8.3.3. Workers compensation

In the US, coverage is necessary to protect the people who are working for and in the
facilities of drone-related businesses.

8.3.4. Directors & officers liability

Many businesses using drones are going to be entrepreneurial start-ups funded by
investors; theres a risk of financial loss due to operational mismanagement. Therefore,
exploring directors and officers liability insurance might be a prudent option under the
circumstances.

8.3.5. Professional liability

Some of the drone entrepreneurs may be advising some of their respective clients about
the potential uses for their technology and may be using data that theyve collected and
collated from the ownership, use or operations of their drones. There may also be a
design/build element involved should customization be required for drones or services
of the drones. A new form of professional insurance may have to be drafted for this new
industry or existing professional liability forms may have to be adapted for drone
professionals.

8.3.6. Drone hull and liability insurance policies

These policies are currently in their infancy so its impossible to make any credible
generalizations about the coverage provided. See section 8.1 about the underwriting
challenges for such policies. The very few drone liability policies weve reviewed dont
provide coverage if the insured hasnt been issued a Certificate of Authority or Special
Airworthiness Certificate by the FAA. Coverage appears to be limited to bodily injury
and property damage liability. There doesnt appear to be coverage for invasion of
privacy, nuisance or trespass claims. Fines by the FAA dont appear to be covered as
well. Based on the few policies weve reviewed, there appears to be a significant
coverage gap between what we believe are the exposures arising from drone use and
the insurance coverage that can be purchased to cover these exposures.
Drone values have an incredibly large range: from under $1,000 to $1,000,000. There
are no standard industry rates or loss costs or even perils insured against. These two
items are big challenges for the insurance industry while insurers are in the early stages
of insuring drones for hull coverage.

8.3.7. Insurance agents errors & omissions coverage

At least in the United States, the FAAs regulation of drones will be in a state of flux until
it issues mandated regulations on the use of drones in 2015. Similarly, providing
coverage for the use of drones is a very new endeavor. Thus, insurance agents seeking
to provide coverage at the request of their insureds for use of drones may have a difficult
job concluding what kind of coverage theyre actually offering to clients.

36 Swiss Re
Insurance and drones: a myriad of challenges

If a client expressly seeks coverage for drone use, it will be incumbent on the agent to
engage in proper due diligence to ensure coverage in fact exists and that there are no
exclusions that could inadvertently defeat coverage. Application questions should be
designed to alert both the consumer and the agent to potential liabilities arising out of
drone use that arent covered by the drone policy in question. Questions that an
application might ask include the following:

1) Is the drone in question going to be used in the applicants business in any

manner whatsoever?
2) Has the FAA has issued a Certificate of Authority and/or Special Airworthiness
certificate for the drone in question?
3) Does the applicant desire insurance coverage for any monetary fines levied
against them by the FAA or any other governmental agency arising out of the use
of a drone?
4) Does the applicant desire coverage for invasion of privacy claims?
5) Does the applicant desire coverage for nuisance claims?
6) Does the applicant desire coverage for trespass claims?

These types of questions should alert the agent to exposures that may not be covered by
the drone policy. The agent can then advise or warn the insured in writing which
exposures arising out of drone use that will not be covered. These application questions,
and the agents response to them, should mitigate the agents E&O exposure. Should the
agent erroneously indicate to the insured that coverage exists for certain exposures, and
an insured finds out when its too late, the agent may face a lawsuit over the uncovered
liability that its policyholder faces, potentially triggering its agents E&O insurance.

8.3.8. Cyber liability

If private information is being collected and stored, insurers may have to consider
coverage against possible data breach.

8.3.9. Recreational drone usage

Although personal use of drones seems to be an area that has generated less discussion,
there needs to be awareness within the personal insurance landscape. Drones have
generated interest with hobbyists and personal aviation enthusiasts. Theyre in a lot of
ways simpler to use and land and have over the years come down in price, making them
more accessible to the average person. It may be incumbent upon the insurance carrier
to obtain additional information, much like one would get for pleasure watercraft.

While aviation authorities such as the FAA and Transport Canada are focused on
developing rules for the operation of small drones, model aircraft may actually be left
entirely unregulated despite the fact they can often operate in much the same way as
drones operating for commercial or other purposes such as surveillance.229

8.4. Possible underwriting strategies for the future

Given that the use of drones is completely new ground for the insurance industry, it will
be incumbent to partner with agents and brokers to ensure that all the right questions
are asked. There needs to be a meeting of the minds with the insurance buyers/insureds,
taking a deep dive and looking at all aspects of this emerging technology.

229 Drones in Canada: Will the proliferation of domestic drone use in Canada raise new concerns for privacy? by
the Office of the Privacy Commissioner of Canada, March 2013, accessed on September 30, 2014 at https://
www.priv.gc.ca/information/research-recherche/2013/drones_201303_e.asp#heading-003-1.

Swiss Re 37
 Key underwriting information should include information pertaining to: data collection,
storage and usage policies, as well as a drones particular purpose and other physical
specifications, as this is information that must be presented to an underwriter. Nothing
should be left to the imagination.

Currently, there are about 21 insurance companies in the US that underwrite aircraft
products liability policies, whereas in previous years, there were only about nine.230

Insurance is about the collective and spread of risk. As carriers become increasingly
more comfortable with this unfamiliar territory, just as they did with insuring certain
employment practices or cyber liability, the capacity to underwrite such policies will
most likely increase.

While insurance coverage for commercial drones in the US and Canada is as they say
up in the air, theres no question that the drone market is a key growth area for all
facets of commercial business, including manufacturing, wholesaling, retailing,
aviation, education and insurance. If thoughtfully managed this may be a tremendous
opportunity for insurance companies to grow with this rapidly expanding field.

230 Rise of the Drones, by Risk and Insurance, March 3, 2014, last accessed on September 30, 2014 at
http://www.riskandinsurance.com/rise-drones/.

38 Swiss Re
 2014
Swiss Reinsurance Company

Title:
Insurance and the rise of the drones

Authors:
Joseph Colby
Gerald Deneen
Carol Kreiling
Anthony Mormino
Nellie Root

Editor:
Jennifer Themel

Graphic design and production:

Juan Pertuz
Media Production/Corporate Real Estate & Logistics

publications@swissre.com

Swiss Re publications can also be downloaded

from www.swissre.com

Disclaimer
Any legal information contained in this white paper is
for informational purposes only. As such, no legal relati-
onship is established by the information contained in
this white paper. Its expressly understood that none of
the information contained in this white paper is to be
considered legal advice by Swiss Re or the authors.
Although we believe all the information used was taken
from reliable sources, Swiss Re does not accept any
responsibility for the accuracy or comprehensiveness
of the details given. All liability for the accuracy and
completeness thereof or for any damage resulting from
the use of the information contained in this white paper
is expressly excluded. Under no circumstances shall
Swiss Re or its Group companies be liable for any
financial and/or consequential loss relating to this
white paper.

12/14, en - USA

Swiss Re 39
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