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Civilian use of unmanned aerial systems, or drones, is transforming certain industries but current aviation regulations don't effectively address the technology, says Jonathan S. Ziss of law firm Goldberg Segalla L.L.P. Once regulations are in place, a liability framework should emerge that will lead to an increased need for insurance.
Arguably for the first time in the history of the Federal Aviation Administration — that prime example of regulatory purpose and productivity — the agency has slipped.
Technology and innovation, in the form of unmanned aerial systems (UAS or drones, in the vernacular), has vaulted far ahead of the FAA's rules and regulations. The skies are beginning to buzz with low-cost, high-performance craft capable of gathering and transmitting data, delivering goods and so much more. From pipeline surveys to residential real estate photography and filmmaking, drones literally have taken off in the past few years, offering a truly transformative technology with enormous efficiency and eye-popping returns on investment.
The only problem is that they're currently illegal in the United States. Civilian and industrial drone operations are less restricted in Canada and in the European Union, but widespread use is still inhibited there, as here, by an uncertain regulatory environment.
For decades, there have been unmanned aircraft in military service and in law enforcement, but little public adaptation aside from noisy, doomed model aircraft. (Sorry, hobbyists.) In fact, the only public contemplation of drone flights to be found in the regulatory literature was precisely that: model aircraft. The FAA, which governs the National Airspace System, had no need to consider the integration of unmanned aircraft into the nation's airspace system. Model craft were flown at low altitude, and always within line of sight of their radio controllers, who had little ambition beyond the pure joy of flight itself.
Enter the GoPro® camera, digital wireless controls and some quantum leaps in power plant performance that allowed for lightweight and nearly silent motors, and anyone with a few hundred dollars can become a ground-based pilot-in-command, soaring above previously inaccessible vistas. More than that, they can become entrepreneurs — and, currently, outlaws. Still, they don't seem to mind.
FAA regulations prohibit commercial use of drones. With the exception of a very limited number of certificates of waiver or authorization — granted on a case-by-case basis — the entire civilian drone enterprise is an unwelcome user of the airspace system.
Safety is the FAA's primary focus, and the lack of systemwide safeguards against collisions involving drones (“see and avoid,” in aviation parlance) poses an enormous challenge, as does coordination and tracking of drone traffic overall. Air traffic control has managed the skies since the 1930s. There needs to be a new sheriff in town to manage all drone traffic. At present, a sizable number of enforcement actions are in varying stages, as the FAA issues cease-and-desist letters, mainly to commercial drone operators. At least one case is being litigated that involves an aerial video camera operator fined for hazardous operation over a college campus. But the FAA understands that litigation is ultimately not the route to safe skies.
In fact, the FAA is under pressure from Congress to comprehensively adapt the NAS to drones. Congress has mandated the development of a comprehensive plan or safely integrating unmanned aerial systems into the NAS by late 2015. This is a daunting and complex task. Likely, integration will occur in phases, and as such will remain a source of frustration and complaints over stalling development of an industry some estimate will grow to $13 billion within the first three years, according to a December 2013 USA Today article.
Experts see it as likely that federal regulation will include minimum insurance requirements, at least for liability coverage. With little experiential data — and even precious little anecdotal information — to apply, the chore of underwriting commercial drone operations will resemble the Wild West in its early days. New technology (quad-copters and octo-copters), operating in a new environment (flying low and slow in skies over populated territory), doing new things (inspecting roofs, gathering news, delivering pizza and beer), makes for a challenge to the insurance industry basically without precedent.
General liability insurance is only a part of the story, of course. Many camera-equipped drones will have broadcast communication capability, or at least will be linked to such a system. Media liability risk will be a constant in-flight companion. The aircraft themselves, as well as their computer-based control systems on the ground, will be as vulnerable to hacking, virus transmission, software and hardware defects, and other system corruption threats as any other terrestrial cyber system. The drone hulls will need to be covered as well.
In this sense, drones combine attributes of motor vehicles, aircraft, satellites, and computers. Unlike aircraft and satellites, which can cost tens or hundreds of millions of dollars, drones will be available — in fact, are available — for a few hundred dollars and will perform many low-cost, low-margin tasks. One has to wonder what sort of appetite U.S. businesses will have for anything above federally mandated minimum insurance coverage limits.
In addition to the drone owner/operators, there will be a need for product liability and personal injury/property damage coverage for manufacturers, distributors, data/avionics companies, consultants, and customers entering the UAS market.
With much about the coming Age of Drones still up in the air, if you will, the business community and insurance markets have little choice but to wait on Washington for additional cues. This could take several years, as is widely predicted. However, not unlike Hemingway's observation about a man going broke (it happened gradually, then suddenly), the FAA, spurred by Congress and by the lure of unleashing fantastic innovation, may rise to the challenge.
When regulations are in place, this industry will suddenly flourish. For the insurance markets that are in position, and the brokers that are able to handle the learning curve, the sky will be the limit.
Jonathan S. Ziss is a partner in the aviation litigation practice group at the law firm Goldberg Segalla L.L.P. in Philadelphia. He represents regional, national and international air carriers, and other public and private entities in the aviation sector, in property and casualty liability litigation. He can be reached at (267) 519-6820 and email@example.com.
It would be a big missed opportunity if the final agreement of the Transatlantic Trade and Investment Partnership excludes a sector as significant as financial services, says Steve Simchak, director of international affairs at the American Insurance Association. Doing so could leave U.S. insurers in a neutral or even worse position than they are in now. In the months ahead, financial services issues should be included.