Managing Unique Risks Associated with Unmanned Aircraft Systems

SESSION CODE PRM006

Managing Unique Risks Associated with Unmanned Aircraft Systems

SESSION CODE PRM006

Speakers:

• James Van Meter, JD

• Aviation Practice Leader & Head of Unmanned Aircraft Systems

• Allianz Global Corporate & Specialty

• Founding Member of UAS Insurance Association

• Mark Lauderbaugh, CPCU

• Director, Risk Management

• Crown Castle International Corp.

Learning ObjectivesAt the end of this session, you will be familiar with:

• The Potential for this new Technology• Types of UAS, Popular Uses, Size of Industry

• The Current Regulatory Landscape• Commercial Use, Hobby Use

• Risk Management Techniques • Contracts, Insurance and Best Practices

• Integrating UAS into Your Business• Purchase Technology or Contract for Service

UAS, UAV, RPA, Drone? Many names, but all refer to an aircraft that does not carry a human pilot on board.

• For purposes of our discussion – Small UAS - Civilian aircraft that weigh 1 lb to 55 lbs

• UAV’s that are purchased on line to sophisticated industrial aircraft

Introduction to UAS

Introduction to UAS• Civilian Uses: Dull, Dirty, Dangerous and Delivery

• Aircraft range from $500 to $100,000

• Low barrier to entry + ease of use

• Dramatic reduction in human risk exposure

• The FAA has two broad use categories: 1. Closed set film production

2. Aerial data collection

• The FAA foresees two categories for commercial use1. Low End Commercial UAS = $2,500 and below – 90% of demand

2. High End Commercial UAS = $40,000 and above – 10% of demand

• Fixed wing, Rotor Wing, Quad Copters, Multi-copters

• Power plant – Predominantly electric, but larger units gas powered

• Most have automated take-off and landing sequences

• GPS guidance, return to home, automated flight planning, geofencing

• Controlled by RC type controller, tablet or laptop

• Sophisticated cameras and sensors – often most valuable piece

Introduction to UASTypes of UAS

Introduction to UASSize of Industry

2016 2017 2018 2019 2020

Hobby Aircraft (includes Model) 1.9 2.3 2.9 3.5 4.3

Commercial Use Aircraft (non-Model) 0.6 2.5 2.6 2.6 2.7

Total: 2.5 4.8 5.5 6.1 7.0

• 4,223 FAA approved commercial operations (3/25/16) / avg 50 new per week

• 408,000 registered hobby users

Sales Forecast Summary

Million sUAS Units – Annual Sales

Source: FAA Aerospace Forecast FY2016-2036

Insurance, 15%

Real Estate/Aerial Photography,

22%

Industrial Inspection, 42%

Agriculture, 19%

Government, 2%

Source: FAA Aerospace Forecast FY2016-2036

Introduction to UASTop Five sUAS Markets

Regulatory OverviewCurrent Structure

• The FAA Classifications:• Model Aircraft / Hobby

• Commercial Operator - “For commercial benefit”

• Public/Government Entity

Hobby and Recreation

Commercial Benefit or Business

Government or Public Entity

AC91-57 – Model Aircraft Rules

Registration Required

FAA can enforce against “careless & reckless” ops

FAA Authorization needed via Section 333

FAR Part 107 will apply once enacted

Certificate of Authorization (COA)

needed

Regulatory OverviewPart 107 Highlights – The Near Future

• Operations:• UAS under 55 lbs - under 500 feet agl – under 87 knots

• Visual line of sight – “see and avoid” / Daylight only / 3 miles visibility

• No class A, but B,C,D and E with ATC permission. Class G allowed without ATC permission

• Pilot / Operator:• Aeronautical knowledge test

• Small UAS rating / recurrent written test every 24 months

• Accident Reporting to FAA for any BI or PD

• Aircraft Requirements:• No airworthiness cert required

• All aircraft must be registered and display an N#

• No insurance requirements for commercial UAV’s

UAS Insurance CoverageExpertise and Experience Matter

• Robust and Competitive Market for UAS Insurance

• Aviation Specific Products Designed or UAS Operations:• Physical Damage (Hull) – UAV, cameras, sensors, ground station• Liability • Aviation CGL• Aviation Products Liability• Non-Owned Aviation Liability

• High Limits Available:• Hull/Physical Damage up to $1 mil• Liability up to $300 mil

• ISO and Coverage on Standard Market Policies:• ISO forms released June 2015 – exclusions and write backs• Used on standard market forms – very narrow and full of exclusions• Unknowledgeable companies adding UAV cover to regular CGL

policies

Risk Management is CrucialAccidents Happen

UAS Risk Management3 Focus Areas

1. Safe and Responsible Operations:

- Develop training system for all employees – recurrent and constant training

- Make safety number one priority – safety focus in all operations

- Follow regulatory guidance – OSHA, applicable laws and regulations

2. Contractual Transfer of Risk

- Formalize all business dealings with a written agreement/contract

- Contractual limitation of your liability - hold harmless, limit consequential damages

- Contractual protection from other parties – indemnification, AI, waiver of rights

- Require other party to carry adequate insurance

3. Insurance

- Backstop if the first 2 steps break down

- Transfer of foreseen and unforeseen risks

- Locate and work with the right brokers and underwriters – expertise matters

- Purchase adequate limits to protect what matters most

UAS Risk ManagementThe UAS Owner and Operator

1. Safe and Responsible Operations:

- FAA Approval to operate

- Factory training from UAS manufacturer

- Use of checklists and standard operating procedures

2. Contractual Transfer of Risk

- Maybe difficult to obtain if you are UAS operator or service provider

- Negotiate to limit liability to greatest extent possible – no consequential damages,

value of contract, limited to insurance available, etc

3. Insurance

- Find a knowledgeable broker with UAS insurance expertise

- Purchase aviation specific UAS coverage – No aviation exclusions

- Hull & liability coverage and/or General liability coverage

- Purchase adequate limits for exposure and type of operation

UAS Risk ManagementHiring a UAS Operator or Service Provider

1. Safe and Responsible Operations:

- Require a copy of their FAA approval documents

- Ask about their safety record – accidents, claims, etc.

- Ask about the experience level of their pilots – hours, training, accidents, etc.

2. Contractual Transfer of Risk

- Require the UAS operator to carry insurance from a recognized aviation insurer

- Require high limits of liability that match the exposure

- Require full indemnity and hold harmless

- Require a certificate of insurance with AI, Primary, Severability of Interest

3. Insurance

- Purchase Non-Owned UAV coverage

- Provides you with your own coverage excess of the operator

- Provides you with your own defense

- Manned aircraft exposure can be added to fully cover non-owned aviation

exposure

Unmanned Aircraft Systems(UAS)

Commercial Usage

Integrating UAS into your Business

Challenges

Technology

Best practices

Unmanned Aircraft Systems(UAS)

Commercial Usage

Purchase Technology or

Contract for Services

• 1.6 million drones were sold in 2015

• An estimated 600,000 will be sold this

year for commercial use

• Aircraft and payload technology advancing at breakneck speeds

• FAA requires that they be operated by a license pilot

• Determining what system is needed

− How safe is it?

− Will it be flown over vacant land or over people?

• Operator training

− Many manufacturers will not allow the product to leave their factory without the operator

completing specific training

− Many centers around the country are popping up offering training

• Visual observer

− Current 333 Exemption requires a visual observer of the UAS flight

• Indoor Use?

− Not governed by FAA jurisdiction

− More likely to collide with other property or bystanders

− Signals can fail or be blocked

− GPS location services are almost impossible

to obtain

− Creating physical barriers between the flight

of the aircraft and people (netting)

Challenges

• Geofencing

− Parameters are set to prevent the UAS from straying beyond

predetermined boundaries, especially useful in limiting exposures

to claims for invasion of privacy

• Electronic Log Book (black box)

− Able to log with pinpoint accuracy the location of the drone at any

given time

• SOP

− An electronic or paper manual/document listing procedures to be

followed before, during and following every flight

Technology

• Do we purchase or contract for services?

• Carefully define your mission

− What data do you intend to capture?

− How does collected data need to be presented?

• UAS operation requires one of the following licenses

− Air transport: Pilot for a scheduled airline

− Private: Can fly day or night most single engine planes for pleasure or personal business

− Recreational: May fly aircraft up to 180 hp and 4 seats in daytime for pleasure only

− Sport: Only fly light sport aircraft during daylight hours

− Commercial: With some restrictions may fly for hire

− Appropriate medical certificate is required

*

*

• Exemption 333 verification required from FAA

− Certificate of Authorization (COA) defines the specific activity

− Insurance covering damage to the aircraft and

legal liability

− Registration of the individual aircraft (tail #)

− Non-Owned Aviation Liability Insurance

− Insurance Limitations: Insurance only applies when

a specified pilot is in command

− Reporting of Accidents: FAA requires that all accidents involving aircraft be

reported to the National Transportation Safety Board (NTSB)

− Contract: When engaging a vendor, use a contract to define obligations and

specify services to be provided.

It should contain an indemnity clause in favor of the Contracting Party. It

should also contain the insurance requirements which should include

additional

insured coverage.

Questions

Thank You!

Additional Questions:

James Van Meter, JD Mark Lauderbaugh, CPCU

Allianz Global Corp & Specialty Crown Castle International Corp

jvanmeter@aic-allianz.com mark.lauderbaugh@crowncastle.com

Additional Resources:

- https://www.faa.gov/uas/

- http://knowbeforeyoufly.org/

- https://www.modelaircraft.org

- http://www.auvsi.org/home