Drone Insurance Guide from Attorney/Flight Instructor

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What happens if you crash your drone into a person, yourself, or something expensive? No, seriously. Think about it. You most likely right now are wondering about how to obtain your drone license, finding jobs, running your drone operation, etc.

But seriously.

Are you protected? Do you have enough money to cover the costs of an accident?

“The prudent sees danger and hides himself, but the simple go on and suffer for it.” Proverbs 27:12

This article is designed to help you understand, drone insurance, drone insurance terminology, bad substitutes for proper drone liability insurance, and the different angles liability can come from so you can make wise decisions to protect your business and your family. This article is helpful for:

  • Commercial drone operators
  • Businesses hiring drone operators for services
  • Recreational flyers.

I did an hour long YouTube video with Terry Miller, an insurance broker at Unmanned Risk, discussing a lot of the issues in this article and some stuff that is NOT in the article.

Why Drone Insurance? 

Let’s go back in time to when kings used to protect themselves with castles.  They had moats, archers, knights, big walls, catapults, a draw bridge, etc.  All of these things were barriers to prevent an invading army from capturing the king.  Likewise, you need to treat yourself, and your family, as the royal family and surround yourself with different types of protections.

Insurance is a way of protecting yourself, your family, and your business from a catastrophic accident. In addition to protection, drone insurance:

  • Shows that you are a serious professional and potentially allows you to access higher end clients who require drone insurance.
  • Is the loving thing to have to make sure your customers, or other people, are protected and made whole if they are injured.
  • Allows you to continue focusing on doing your business while your insurance company handles the claim.
  • Lets you sleep at night or continue focusing on running your business.

Yes, I can hear you now saying, “But Jonathan, I would never fly my drone in an unsafe manner. Why should I buy drone insurance?” You also might say, “I would never let reckless people fly around me or for me.”

I’m not saying you would fly recklessly or allow others but there are situations outside of your knowledge and/or control which would lead to an accident. The Academy of Model Aeronautics insurance report from 2012 says, “The most common cause of injury is ‘lost control of aircraft’; usually without a confirmed cause (vague allegations of frequency interference are common).”

There are things outside of your knowledge and control that can happen which put you at risk of liability.

What is Drone Insurance?

Insurance can simply be boiled down to you trading your risk of liability to the insurance company in exchange for money you pay to them.

You can have liability risk from all sorts of things ranging from aircraft accidents, negligent repairs, negligent instruction, negligent hiring, etc.

Everyone has in their mind the idea of the drone flying into some car or another person, but I don’t want you to think of things so narrowly.

You need to think broadly when it comes to liability.

You should think in terms of the different actions and relationships you might have relative to other individuals.

Below is a table of SOME of the legal liabilities. It is not exhaustive but covers the major points. Each individual or business will have different liabilities which will trigger the need for special insurance products tailored to them. If you are working with a good drone insurance broker or drone attorney, they should be able to help you identify issues. Or perhaps you are large company that needs a drone attorney? Cough cough. Hint hint. Wink wink. Moving on…

Please keep in mind the threshold for getting into a lawsuit is low. Regardless of the likelihood of judgement against you, you will be paying for an attorney to defend you and not be focused on your business.

Drone Insurance Terminology:

Before we can talk further about some of the issues, we need to have an understanding of the terms. Some of these are from Terry Miller’s Transport Risk’s Drone Insurance 101 slides:

  • Premium – This is the amount of money that the person or business must pay for the insurance policy.
  • Deductible – In the event of a claim, this is the amount the person must pay before the insurance company will pay. This is to make sure the named insured has some “skin in the game.”
  • Non-Owned Aircraft Coverage – Protects you from legal obligations that result from the operation of a drone you do not own.
  • Payload Coverage – This covers the payload you own on the drone. For example, let’s say you are a drone cinematography company that can carry different types of cameras. You could insure the Red Dragon differently than the Red Epic.
  • Non-owned Payload Coverage -This covers the payload of the drone you do NOT own. For example, you are a cinematography company that flies an aircraft that can carry different cameras. The production company wants you to use a special type of camera and lens that you do not own. You rent the equipment from a camera rental studio and get non-owned payload coverage on the rented camera and lens.
  • Additional Insured – A person or person other than the original named insured, who is  protected under the terms of a policy.
  • UAS Liability Insurance – Protects insureds from claims by other parties (“third parties”) for bodily injury or death and property damage. The claim has to result from an occurrence related to the operation of the UAS.
  • Hull Insurance – Coverage for physical damage done to the drone. It is not liability coverage and is therefore triggered by a covered event, regardless of the reason for the damage or loss.
  • Subrogation – A doctrine that gives an insurance company the right to attempt to recoup some or all of the money they paid on behalf of insureds. They do this by proving that another party was legally responsible for the loss and the party has the financial ability to reimburse the insurance company.

Problematic Substitutes for Drone Insurance

Home Owner Insurance Is Not Always Drone Insurance

Some of you might have home owner’s insurance. Here is the problem with using it as drone insurance, most home owners insurance policies have exclusions which state that they specifically do not cover aircraft related liability. Claimsjournal.com repeated this in an article, “Most homeowners’ policies exclude liability for injuries or damages arising out of the ownership, maintenance, operation, use, loading, or unloading of “aircraft.” See, e.g., Id.; Aridas v. Royal Ins. Co. of Am., 462 F. Supp. 2d 76, 77 (D. Me. 2006); Hanover Ins. Co. v. Showalter, 561 N.E.2d 1230, 1231 (Ill. App. Ct. 1990); Tucker v. Allstate Tex. Lloyds Ins. Co., 180 S.W.3d 880, 884 (Tex. App. 2005).”

Some insurance policies might cover recreational drone flying if the definition of “aircraft” in the policy allows for it. The Claimsjournal.com article went on to say, ” Our research reveals that at least some homeowners’ policies define ‘aircraft’ as ‘any device used or designed for flight, except model or hobby aircraft not used or designed to carry people or cargo.’ See, e.g., Tucker, 180 S.W.3d at 884. To the extent a UAS operator’s homeowners’ policy includes this definition, or some similar variation, harm caused by an insured’s UAS is likely covered because a UAS will probably be deemed “a model or hobby aircraft not used or designed to carry people or cargo.”

It is also important to recognize that most homeowners’ policies exclude coverage for business activities.”

Read your policy to see if you are covered. If your home owner or renter’s insurance does NOT cover your drone flying, you should look at getting drone insurance.

AMA Member Drone Insurance Is Not Really Commercial Drone Insurance

Academy of Model Aeronautics’ insurance policy will provide SOME recreational protection, see the fine details of the policy, but the policy says, “The policy does NOT cover business pursuits; that is any activity that generates income for a member beyond reimbursement of expenses, except this business pursuit exclusion does not apply to individual members providing modeling instructions for pay to AMA members.”

Furthermore, “AMA insurance is ‘excess’ to any other applicable coverage, such as homeowner’s” which means your home owners insurances has to pay first and be exhausted before the AMA insurance will kick in.  What does that mean? You will have higher home owner’s insurance premiums in the future. Even after you put that Phantom 4 in the closet.

Relying on Someone Else’s Drone Insurance Policy to Cover You is Problematic.

Yes, you can get listed on another person’s insurance policy as additionally insured. This can provide you SOME protection, but this can be problematic.

Who might want to purchase non-owned drone insurance policies?

  • Companies hiring drone service providers
  • Independent flight instructors or educational institutions providing instruction to people on their own drones

Yes, I can hear you now, “Wait? Say wuuuuttt?!! Jonathan, you are saying I still need to purchase insurance even though I am protected by the other person’s policy?”

Yes, and here is why.

The other person could:

  • Fraudulently photoshop the certificate of insurance. This happened. Read about the case where SeaWorld got scammed by a person who photoshopped the insurance and legal documents in my drone light show article.
  • Have lied on their application and their claims will be denied.
  • Be operating outside the terms and conditions of the insurance coverage.
  • Be flying another drone NOT listed on their policy and they didn’t bother to tell you they crashed the first one.
  • Have cancelled his policy or stopped paying for it. There have been reports of people and/or companies in the drone industry just purchasing an annual policy, sending the potential client a certificate of insurance, and then cancelling the policy after the job is awarded. In this case, the company hiring the drone service provider can separately purchase from the insurance company a notice of cancellation.

Moreover, their insurance policy does NOT protect you from:

What is even more crazy is that the insurance company for the drone company might even come after YOU for your negligence. This is under what is called subrogation. Basically, the insurance company stands in the shoes of the insured.  If you goofed over the person you hired, and that insurance company had to pay out, the insurance company might turn around and come after you for your negligence to recover the money they paid out.  This is why sometimes the hiring company purchases from the insurance company of the drone service provider a waiver of subrogation which prevents the insurance company from pursuing claims against the additionally insured hiring company. Keep in mind that is only for the insurance company. The drone service provider might still come after you.

Drone Insurance Considerations

Insurance Broker or Go Direct to Insurance Company?

  • Drone Liability Insurance Broker
    • A broker is interested in selling you the best product for your needs.
    • May or may NOT cost you more. The agent makes his money from selling you an insurance policy which typically means more expensive policies. However, he can also shop around to find you the best “bang for the buck” which might come out lower.
    • The agent will be there to help answer your questions and identify future needs. You might need a special 1 time high limit insurance policy for a job that broker can help you with.
    • Help to identify the correct hull valuation which is important if a claim is made. For example, if you overestimate your aircraft’s worth and the damage does not numerically get high enough to the overestimate to be declared a total loss, you end up getting your drone repaired when it should have just been replaced. Terry Miller made some good points in this article,  “Consider the dangers of over-insuring your UAS. Over-insuring your UAS comes with unwanted consequences:
      • Paying higher premiums for coverage under the policy
      • Likely that physical damage premium will be fully-earned
      • Deductible costs are out of pocke
      • Repair of a UAS that should be totaled
      • Ownership of a UAS with damage history and thus lower resale value
      • Questionable safety of the repaired UAS
  • Direct to Drone Insurance Company
    • Insurance companies are interested in selling you the products their company sells. In other words, if they are a “hammer” selling company, all of your problems look like “nails.”
    • Insurance company can sometimes charge lower prices because there is no broker commissions to pay. However, this means you might waste a lot of time trying to read through all the material to find out what is best for you when an independent broker could have answered your questions quickly.

Annual vs. Hourly Drone Insurance

Annual insurance is fixed while hourly insurance is….well…hourly.  This means that if you fly too much, hourly will be MORE expensive than annual insurance. Here is how to figure out if you might need annual instead of hourly drone insurance.

  1. Figure out how many hours you plan on flying for a month. Yes, this might be hard to figure out at the very beginning. You could do hourly insurance for 1-2 months and then use the number of hours you flew in those 1-2 months as a basis to estimate the upcoming months. You could also call over to companies in the area and ask them.
  2. Determine how many months realistically you will be able to fly. Consider how weather will affect your flying and/or customers. For example, you can do business year-round in Florida or Southern California but only some of the year in New England. If you go to my drone sightings page, you’ll see a graph of drone sightings activity by month and also by city. This can give you rough idea of the months for your area.
  3. Find out the cost of an annual premium.
  4. Divide that by the number of months you think you will be flying.
  5. This will arrive at the cost per month for the annual insurance policy. You can then see if it will be more costly to fly using hourly insurance or if it will be cheaper.

Also keep in mind that it is not annual OR hourly insurance. You might purchase both. Why?  Let’s say you have a Phantom 4 you fly a ton, but you have an Inspire 2 which you don’t fly frequently. You might purchase annual for the Phantom 4 and then get hourly for the Inspire 2 you rarely fly. You might be able to add the additional Inspire 2 to your annual policy for not that much more money but that would be dependent upon you knowing or expecting it. If you can’t expect flying it, you might just do hourly as a backup in a moments notice.

If you are a startup and are slowly testing the waters, you might want to keep your operating costs low and use hourly insurance for the first 1-2 months.

Do you have enough?

For example, if you cause an accident which takes down electrical power to an area, that could be costly because (1) you have to pay to repair the line, (2) the electric company lost revenue, (3) there might be some lawsuits for destroyed food caused by lack of refrigeration due to power failure, (4) car accident because the traffic light went out, etc.

How to Choose a Drone Insurance Broker

Helpful Questions:

  • How long they have been an aviation insurance broker? Is that important?
  • Do they have any special training? (College degree in insurance or aviation, etc.)
  • Have they worked for an aviation insurance company? In other words, have they worked on the “other side?”
  • Do they sell aviation insurance products for manned aircraft also?
  • Does anyone else in the drone industry use them?
  • Do they have support staff to help you in case the broker is out?
  • Do they have access to other types of insurance that an aviation insurance broker might not have access to?

Once you find one, call only that broker. Don’t call around to get competitive quotes. Keep reading to find out why.

Frequently Asked Questions:

Is drone insurance legally required?

In the United States, according to the Federal Aviation Regulations, you do not need drone insurance; however, state and local laws might require it or other types of insurance associated with your operations (e.g. commercial operations might need worker’s compensation insurance). See an aviation attorney in your state.

Can I get drone insurance for just one job?

Yes, drone insurance can be purchased hourly, per job, per day, or on an annual basis.

Is it a good idea to call around to different insurance brokers to get competitive bids?

No, here is why.  There are only a small number of UAS insurance companies that do business in the US. As a rule, an insurance company will work only with one broker at a time based on the order they come in.  In other words, you won’t have two competitive bids because the insurance company will be dealing with only ONE broker, the first one to contact them, representing you.

How many different insurance products are out there for those in the drone industry?

There are all sorts of other different types of insurance products that some in drone industry might need:

  • Worker’s comp
  • UAS repair and servicing
  • Manufacturing
  • Flight instructing (negligent instruction)
  • Agriculture spraying operations
  • Premises liability, and much more.

Great Drone Crash Videos to Make You Start Seeing the Drone Insurance Issues

Sometimes Reckless People Might Be Flying Over the Event You Are Hosting