Do your commercial drone insurance policies have adequate cover?
22 May 2017
Incidents involving drones can be minor, slightly humorous, or have extremely dire consequences. From a kiss-cam drone cutting off a piece of a person’s nose or a drone spying through the president’s bedroom window, to extreme cases such as an engineering drone flying into a crane operator who knocks down a portion of an under-construction building, or a drone dropping weapons or bombs into a prison or flying into the propeller of a 500-passenger airliner. In addition, automated drones which have entered the market bring in a new type of risk. Automated drones are currently typically used to follow and record action sports, such as windsurfing or mountain biking, without the control of the sportsperson.
The new drone regulations, which came into effect on 1 July 2015 and form part of the Civil Aviation Regulations, place an obligation on those with commercial drone licences to obtain third party liability insurance. The risks associated with drones are significant and can lead to far-reaching monetary claims beyond the anticipation of both pilot and insurers. Accordingly, pilots need to insure, and insurers need to underwrite and provide adequate exclusions to limit their exposure.
Does the insurance policy provided aim to merely cover the pilot for physical damage caused to third parties and their property, or does the policy also aim to cover any consequential damages? Depending on the wording of the policy, protection can be much wider than intended (in relation to the insurer) or much narrower than intended (in relation to the pilot).
There are numerous types of risks that will need to be taken into consideration when underwriting or taking out insurance for a drone.
Third party liability
Damage to property
The pilot could be liable across the spectrum from an event such as colliding with a vehicle’s windscreen and having to replace it, to grounding a plane by flying into its propeller. For example, when grounding a plane, beyond obvious massive property damage, the insured could also face personal injury claims from the passengers (if they survive) or loss of support claims from their families (if they don’t survive), as discussed below.
The pilot could potentially be held liable for any physical or mental injuries which a person may suffer as a result of a drone incident. Resulting from such injuries could be claims under various heads of damages such as loss of income or earning capacity, general damages, and past and future hospital and other medical expenses. Depending on the type of injury, the quantum of such claims could be crippling. If a drone incident causes death, there may be loss of support claims from the deceased’s dependents that must be taken into consideration.
Invasion of privacy
Data protection in South Africa is currently regulated by the common law, the Constitution of the Republic of South Africa, the Protection of Personal Information Act (the POPI Act) and the Electronic Communications and Transactions Act.
In terms of the common law and the Constitution, the right to privacy is a fundamental right that is protected both generally in terms of South Africa’s common law as well as by section 14 of the Constitution. Section 14 of the Constitution provides individuals with the right to have their private or personal information protected against disclosure by other persons. This protection to privacy will be extended further when the POPI Act has come into force, which strictly regulates how information is to be collected, processed, stored and shared. Currently the POPI Act has no effective date announced yet, but it is expected to be announced soon now that the office bearers of the “Information Regulator”, the regulator created by the POPI Act, have been appointed, with effect from 1 December 2016.
It is possible for drones to be flown into areas that allow them to take pictures or videos of private events and occurrences. An obvious example is flying a drone to the window of the president’s bedroom and producing a video recording. Celebrities or people of stature also have image rights, which may be violated depending on how the recordings, photographs or information are used.
There are numerous ways in which a drone could potentially invade the privacy rights of individuals (both in terms of common law and the POPI Act, when it comes into force) which could lead to civil claims against the pilot.
There are numerous unforeseen criminal sanctions which pilots may face, depending on how their drones are used.
When looking at the numerous criminal charges which can be brought against a pilot, it will become vital for the pilot to consider whether the insurance policy covers the pilot’s defence costs and the possible fine; and similar to many third party liability insurance policies, whether the insurer retains the right to determine the way forward in criminal proceedings.
National Key Points or Critical Infrastructure
The Apartheid-era National Key Points Act (the NKP Act) provides that any person who “furnishes in any manner whatsoever” information regarding security measures at a “National Key Point” without being legally obliged to do so, is guilty of an offence. This could lead to a fine up of up to ZAR 10,000 or imprisonment of no more than 3 years, or both.
One should further consider the draft Critical Infrastructure Bill (the CI Bill), which will repeal the NKP Act. The CI Bill has the same prohibition as discussed above, as well as numerous other prohibitions such as the prohibition on photographs and videos of “Critical Infrastructure”. The penalty for such offences is imprisonment of up to 20 years, or a fine, or both. There is currently no maximum amount determined for the fine. As the CI Bill is currently drafted, all current National Key Points will be deemed to have been declared as Critical Infrastructure.
The reality of the NKP Act and the CI Bill is that one can take a photo with a drone of President Jacob Zuma’s residence, and have to pay a fine of ZAR 10,000 in terms of the NKP Act, or a higher fine in terms of the CI Bill. On the other hand, these restrictions are justified if one considers, for example, the possibility of a drone dropping weapons or bombs into a prison.
Civil Aviation Act
Non-compliance with the licensing and other requirements in the Civil Aviation Act and the Civil Aviation Regulations, specifically the new drone regulations (part 101), may also occur. Depending on the type of offence and the number of transgressions, pilots who commit an offence can face a fine of between ZAR 5,000 and ZAR 32,000 and organisations can face a fine of between ZAR 10,000 to ZAR 160,000. Offences range from failing to have a first aid kit or fire-extinguisher nearby, flying in weather conditions obstructing other air users’ view of the drone, to something as severe as failing to give a manned aircraft right of way.
The POPI Act
Further to third party liability in terms of the POPI Act, there are administrative fines which the “Information Regulator” may implement if a responsible party commits an offence in terms of the POPI Act. A fine in terms of the POPI Act may go up to an exorbitant ZAR 10 million, in addition to the possibility of imprisonment for certain offences.
Importantly, there are two issues that must be considered:
- Has the pilot taken sufficient steps to insure all of the risks to which he may be exposed?
- Has the insurer considered the far-reaching risks and limited its liability accordingly?
When the pilot and insurer agree on a policy, there needs to be a clear understanding on the manner in which the pilot intends to use the drone so that relevant restrictions regarding use and location can be agreed upon. This will ensure that the pilot is not underinsured and that the intended use is not restricted (unless deemed necessary in the eyes of the insurer, depending on the nature and extent of the risk).
With the above approach in mind, pilots can ensure that they are adequately covered for all the risks that could possibly occur within the ambit of their intended commercial use of their drone. Insurers should take sufficient, proactive steps to understand the business of the pilots and the intended use of their drone. This will ensure that insurers provide adequate cover and do not leave themselves open to endless liability due to a lack of foresight of the possible risks, for both minor (kiss-cam drone) and exorbitant (plane crash) incidents.