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With Amazon and Walmart drones soaring to the sky, it is important for commercial policyholders to have a strategy to protect against drone-related risk and maximize their recovery in the event of a loss INSURANCE

Walmart announced this week that it is testing a pilot program in North Carolina for the delivery of food and household items using automated drones and is joining other retailers looking to improve their drone delivery business. In a similar development, the Federal Aviation Administration (FAA) designated Amazon Prime Air as an “air carrier” last week. This is an important step in Amazon’s journey into the drone delivery arena. Amazon joins Wing, the subsidiary of Alphabet Inc., and UPS as companies that have received FAA approval to operate unmanned aircraft systems (ie, Drones) according to federal regulations. With the rapid rise in the commercial use of drones, companies have understandably become concerned that their drone technologies will expose them to new risks, including damage to the drone itself and third party claims for property or personal injury caused by a company-operated or proprietary drone ( and other third party claims such as invasion of privacy). Given these risks, it is important that companies using drones obtain the insurance coverage necessary to protect themselves from such risks and that they consider all coverage options in the event that a drone loss occurs to maximize their chances of insurance recovery .

The rise of drone use has led to a new type of industry-specific insurance: “drone insurance”. While there is no “standard” form for “drone insurance”, such an insurance policy can provide primary insurance cover for damage to the (often very expensive) drone aircraft and related equipment. In addition, “drone insurance policies” can cover third party claims for property damage or personal injury caused by the drone.

Importantly, coverage for drone-related losses is also found in other types of “traditional” policies. For example, under the standard CGL guidelines, liability for “bodily harm” or “property damage” is covered when the “bodily harm” or “property damage” is due to an “incident”. Most CGL guidelines define an “incident” as an “accident”. Drones can of course cause accidents. However, CGL guidelines often exclude damage from the use of an “airplane” (and courts have ruled that while drones are unmanned and remotely controlled, they are still “airplanes”). The FAA designation as an “air carrier” can make coverage even more difficult by possibly implying additional coverage and exclusions. Even so, CGL endorsements are available that can increase drone coverage.

Similarly, D&O policies can cover claims by third parties, as these policies generally protect against suspected “illegal acts” by directors and officers (and sometimes the company) who may cover actions that result from practices that lead to Property or property causes bodily harm or invasion of people’s privacy. In addition, companies can also review their E&O policies, which cover claims related to the improper provision of “professional services”, including drone operations. Likewise, EPL guidelines could provide coverage for employee-related claims arising from the use of drones by an employer to monitor the activities and work performance of employees.

Drones are evolving into ubiquitous commercial tools beyond their military origins. The FAA reports that over 1.6 million drones were registered in the US as of July 2020. According to Goldman Sachs Research, drones are expected to quickly become a more than $ 100 billion industry. Drones are already monitoring war zones, patrolling across national borders, generating climate data, recording previously inaccessible topographies, analyzing the health of crops and cattle and looking for defects in pipelines that are kilometers long. Ironically, insurers also use drones to customize insurance claims. With companies like Amazon, Walmart and UPS fighting for a market advantage in the ever-growing parcel shipping space, drone deliveries could soon become normal. Therefore, it is crucial for policyholders to understand how to deal with the risks associated with their drones and have a plan to maximize their coverage options in the event of a drone loss.

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