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The liability arising from negligent contracting or hiring of commercial UAS operators is very real as is the potential of employees operating their own UAS while on company business, whether authorized by the employer or not, and exposing their employer to non-owned UAS liability.
Being an Additional Insured under the operator’s policy, if they have one, only covers you for “Liability of the Named Insured” or operator. It does not cover you for your own negligence or liability arising from the hiring of that operator. Nor does it extend coverage or pay your defense costs or other losses for which you may be held liable such as lost revenue, lost earnings or wages, property damage or bodily injury caused by your hired operator to third parties.
Non-Owned UAS hull and liability insurance
Corporate non-owned UAS liability insurance provides coverage to companies or individuals that use UAS that they do not own and that are operated by third parties such as hired commercial operators. These exposures are primarily contingent liabilities where the user does not employ the crew and is not directly involved with the operation and maintenance of the UAS.
Who needs non-owned UAS liability protection?
Any organization that hires or arranges for the use of a UAS that they do not own, even if they are only a passive customer, should consider carrying non-owned UAS liability insurance.
What is contingent on-owned liability?
Contingent liability exposure arises when coverage provided under the primary UAS policy is denied, invalidated or is not adequate to cover all parties resulting from dilution of limits.
Nearly all UAS insurance policies contain warranties such as “approved pilots, “approved uses” and “approved territories”. If the operator breaches any of those policy warranties, coverage could be denied under the policy, not only to the operator, but also to the additionally insured party hiring them. Because an organization has no idea of the terms, conditions and warranties contained in a hired UAS operator’s insurance policy, they have no way of knowing or controlling whether the operator is conducting operations within the policy terms, conditions or warranties. Non-owned UAS liability coverage would respond to cover an organization in the event of a breach of warranty or denial of coverage under the primary policy by the operator.
Another area of exposure is the dilution of limits. If a UAS operator carries $1,000,000 of third party legal liability coverage, the limit is shared by all parties. If a loss occurs and the operator is sued along with the organization hiring them, both parties would share that same limit and when the policy limit is exhausted, no more coverage exists to any party. Non-owned UAS liability coverage would respond to cover an organization in the event that the primary policy limit is exhausted as excess over the primary limit.
Is the UAS being used by the operator, actually insured?
UAS insurance policies require that each aircraft be identified and scheduled to the policy. Each aircraft carries its own limit and its own coverage’s much like a multiple automobile policy where each car must be insured. Before a commercial UAS operator begins working, you must ensure that the aircraft they are using is actually insured under the policy.
Just because an organization is holding a certificate of insurance does not guarantee that the UAS the operator is using is actually insured under the policy. If the UAS is insured through Transport Risk Management, Inc./Unmanned Risk Management, you will be able to confirm the TRMnumber on the data plate affixed to the UAS. For example, if the insurance certificate shows that 2015 DJI Inspire, TRM1062, is an insured aircraft under the policy, there will be a data plate affixed to the UAS showing TRM1062. The data plate will also provide a phone number that can be used to verify coverage if there are any additional concerns. If that data plate is not affixed to the aircraft, then the aircraft being used is not insured under the policy. Non-owned UAS insurance will respond to cover an organization in the event that the operator is using an uninsured aircraft without provided no prior knowledge or permission.
How likely is it that there will be protection under the owner’s insurance policy for a “non-owner” permissive user or customer?
It depends on the organization’s connection to the UAS owner, whether there are adequate limits and what the owner’s policy says about protecting the hiring party. Is the organization responsible for hiring the UAS flight? If you are responsible for arranging or operating the flight, you most likely do not have protection for those exposures.
How can I know if my organization is protected under the UAS operator’s insurance policy?
You can’t know for sure unless you read and understand the owner’s policy. Some policyholders may not be sure about who is and who is not protected in their own policy. Some have confused being a permissive user, customer or an approved pilot with being included for liability insurance protection. Such may not be the case, especially for persons working in commercial aviation or the business of arranging UAS flights on behalf of others.
Can my organization buy insurance to cover non-owned hiring or use of UAS?
Yes, if qualified, coverage is generally available for all uses:
For Corporations – Corporate Non-Owned UAS Liability Insurance
For individual licensed renter pilots – Personal Non-Owned UAS Liability Insurance
Corporate Non-Owned UAS and UAV Liability Insurance policies can be broader in the types aircraft covered provided they are only operated by pilots furnished by the UAS operator.
With respect to hired UAS, the exposures are mainly contingent liabilities since the customer is not directly involved with the operation and maintenance of the UAS. If the operator or pilot is an employee of the corporation being insured, coverage may still be available, but would be rated in accordance with the pilot’s experience and may be limited to certain UAS types or models.
Personal Non-Owned UAS and UAV Liability Insurance is usually limited to specified types of UAS with which the individual has substantial experience flying.
What if my organization owns a UAS and has insurance for it, but occasionally use someone else’s aircraft?
Most UAS insurance policies have provisions that could apply to the named insured’s use of a non-owned aircraft. The coverage is usually set forth in a section called “Use of Other Aircraft.” Under it, liability coverage is extended to apply when the named insured is operating another aircraft. It should be noted that this provision usually applies ONLY if the named insured is one individual (may include spouse) and not if the named insured is a corporation or more than just one individual (such as co-owner named insureds). Approved non-owned aircraft may be limited to aircraft of the same type as the insured aircraft. This protection would apply as excess over any other valid and collectible insurance available to the named insured (e.g., coverage may be available under the owners insurance).
It should also be noted that the “Use of Other Aircraft” provision may not extend to cover damage to the aircraft being operated. Further, coverage would not apply to any aircraft that the named insured owns, in whole or in part, or that is rented or leased for more than a short period, seven to 30 days.
Corporate named insured’s can usually have the insurance on their owned aircraft or UAS endorsed to include the corporate use of non-owned aircraft or UAS, although this feature is not always part of a corporate UAS policy. An endorsement can be added to include property damage liability resulting from damage to the non-owned aircraft.
Most UAS and UAV insurance policies have a provision for extending liability coverage to apply to a temporary substitute aircraft. This coverage applies when the insured aircraft is down and out of service because of breakdown, repair, servicing, loss or destruction and another aircraft is used as a substitute.
What is “Non-Owned Hull” insurance?
It is a confusing term that could be misleading. It has been occasionally misunderstood as being physical damage (“Hull”) coverage on a non-owned aircraft. It is not. Actually it is provided as an exception to a typical property damage exclusion. The exclusion eliminates protection under Property Damage Liability insurance for damage to property belonging to others but which is damaged while in the care, custody, or control of the insured. The so called “non-owned hull” insurance sets aside this exclusion and makes coverage available for property damage liability arising out of damages to a non-owned UAS. This coverage is more properly referred to as “Liability Coverage for Damage to Non-Owned Aircraft.” Since the phrase “non-owned hull” is not as wordy, it is often used when discussing this coverage, even by insurance professionals.
Do Non-Owned claims really happen?
Yes. And when they do occur, they tend to be very complex especially when interchange becomes part of the equation.