Crash! Boom! Who’s paying for your drone accident?

Below includes a Q&A Australian Aviation conducted involving many of the company’s top drone specialists, delving into all things drone insurance, Australia’s cautious approach, the potential dangers, and how other countries are doing it:

According to many, Australia has lagged behind other countries in establishing insurance and regulations concerning drones. Is this true?

Dr Tony Tarr (senior consultant, Global Drones Group, Clyde & Co)

It is accepted that regulatory intervention ideally needs to tread a path that does not stifle innovation and is not so “heavy-handed” as to unduly impact commercial and recreational uses of drones. In the case of drones, achieving the right balance is no easy task because the rapid development of drone technology in the industry requires active and ongoing regulatory attention, and regulators are still trying to assess the various risks.

However, compulsory insurance requirements for drones have been in place for nearly two decades in many jurisdictions. For example, in the European Union, commercial drone operators have, since 2004, been required to have public liability insurance to protect against legal liability for third party property damage or injury whilst using a drone. More recently, from the beginning of 2021, commercial and recreational drone users in Europe and the United Kingdom must have insurance cover based upon the risks their operations present.

Conversely, Australia has taken a very laissez-faire attitude to this matter. Offers have been made by Clyde & Co through its Australian based Global Drones Group to assist the Department of Infrastructure, Transport, Regional Development and Communications to progress this critical part of the regulatory framework, with the department has indicated that its consideration of insurance has been deferred until some future date.

It is entirely understandable that governments endeavour to travel a balanced and proportionate path on their regulatory journey, to provide certainty for industry investment, to provide a clear policy and legal framework that actively encourages and facilitates the use of new technology and to mitigate potential risks and impacts on the community and the environment. However, in a regulator’s endeavours to achieve “middle” ground, caution should be exercised lest it moves too slowly and fails to keep pace with technological developments and associated risks.

Why is Australia so behind on this?

Maurice Thompson (partner, chair, Global Drones Group, Clyde & Co)

The Department of Infrastructure, Transport, Regional Development and Communications issued an Emerging Aviation Technologies Policy Issues Paper in September 2020, which is described as being the “first step towards the development of a national policy for the management of drones and other emerging aviation technologies”.

It identifies opportunities and risks associated with these technologies, outlines some of the current approaches for managing these issues and proposes an approach to policy development. The proposed approach to policy development covers airspace integration, safety, security, noise, environment, privacy, safe and efficient electric take-off and landing vehicles, infrastructure, technology trials and central coordination.

However, in the opinion of Clyde & Co, a national policy that omits a considered and effective implementation of compulsory liability insurance is ignoring a vital dimension in managing the risks and impacts associated with the use and deployment of drones and other emerging aviation technologies.

Surprisingly, the Policy Issues Paper devotes less than half a page of its 62 pages to insurance.

This largely dismissive commentary is as follows:

“Most commercial drone operators make the business decision to hold insurance to cover for any damage or injury caused as part of managing the risk of their operations. Recreational users of some drone organisations carry insurance as part of their membership. The requirement to hold insurance is often a condition of engagement by organisations procuring drone-based services. There is a range of models in other sectors where third-party insurance has been mandated, such as for vehicles. However, it remains to be seen whether this would be an appropriate mechanism for drones, especially considering the disparate risk profiles of operations across the drone sector. Aviation traditionally has operated free from mandated compulsory third-party insurance for damage to property or injury. However, many industry operators hold insurance policies to cover a range of scenarios as a part of their risk management processes. Any decision to implement an insurance scheme for drone operators will need to be informed by relevant drone accident data, be proportionate to the risk profile of operations, be consistent with a holistic approach to regulation and complement the suite of various approaches available to manage risks and impacts from the use of drones. International approaches have included an insurance service as an optional industry developed UTM service.”

This “hands-off approach is ameliorated to some extent by an undertaking in the Department of Infrastructure, Transport, Regional Development and Communications, Emerging Aviation Technologies Policy Statement” in May 2021 that the:

“Australian government will commence a study regarding the necessity and adequacy of insurance requirements to manage risks associated with the use of emerging aviation technologies” and “will consider the risks of damage associated from the use of drones, the broader suite of measures to manage drone safety, and the cost impacts of insurance on the development of the sector”.

The policy statement further states that this study:

“Will aim to assist the industry in making decisions about suitable insurance options within the emerging environment of drone and eVTOL operations and consider the appropriateness of any potential mandatory insurance requirements. The Australian government recognises the potential impact of a mandatory insurance scheme on the continued innovation and operating costs for the diverse range of drone and eVTOL vehicle applications, and that in most cases, decisions about necessary insurance requirements are best handled by operators as part of individual approaches to risk and liability management.”

This very cautious approach is in direct contrast to the more robust adoption of mandatory insurance schemes in Europe and, with respect, misses the point from an insurance perspective – the key role of insurance is to protect against future uncertainties and uncertain loss.

Is it important for insurance to be enforced for drone users?

Maurice Thompson (partner, chair, Global Drones Group, Clyde & Co)

The desire of the growing drones sector to increase the use of drones in high-density population areas discharging services like deliveries and having drones operate as air taxis will increase the focus upon compulsory third-party liability insurance in jurisdictions that do not at present mandate such cover.

Any proactive approach to drone management and regulation must consider compulsory third-party liability insurance and other liability issues, for the reason that there is now mounting evidence that injury to persons and property damage are genuine concerns arising out of the use of drones, and that incidents of actual harm are increasing rapidly.

Given the increasing sophistication of these aircraft, the veritable explosion in their usage, their capacity to carry ever-increasing payloads and their ability to travel vast distances, the potential for injury or damage resulting from drone operations is ever increasing.

Notwithstanding the assertions in the Policy Issues Paper, numerous examples of personal injury and damage to property are already emerging through drone accidents. For example, there are recorded instances of drones having crashed into individuals in parks and public spaces, into runners during athletic events and of drones crashing into trains, buildings and even onto the lawns of the White House. One submission to the Australian Senate standing committee on rural and regional affairs and transport, “Inquiry into Regulatory Requirements that Impact on the Safe Use of Remotely Piloted Aircraft Systems, Unmanned Aerial Systems and Associated Systems” (15 December 2016), demonstrated how the lack of registration and insurance has previously resulted in a bystander footing the bill for a drone operator’s mistake when, in August 2016, a drone collided into the front of a new Mercedes GLS as it was being driven across the Sydney Harbour Bridge. The impact left part of the drone embedded in the car bodywork and other debris scattered across the road. Because of heavy traffic, the vehicle was travelling at a slow speed; had the traffic been moving faster, the incident could have affected several cars and resulted in greater damage. Because the operator of the drone remains unknown, and despite police investigations, the owner of the motor vehicle has been left with the repair bill.

Their increased deployment through transport and delivery services in high-density population areas will further enhance personal injury and property damage risks. There are burgeoning numbers of drones, many unregistered or unlicensed, and, more dauntingly, substantial numbers of drones operated with little or no training. Regulators and the community at large therefore face what is hardly a minor safety challenge with the Civil Aviation Safety Authority (CASA) submission to the 2018 Senate Inquiry highlighting “an increase in the operation of RPA without regard to safety, particularly within restricted airspace, including the risk of a catastrophic collision with a passenger aircraft”.

The Senate Inquiry noted that a primary and growing concern of aviation authorities and experts is that of the number of incidents whereby drones have come into contact with or within close range of aircraft. According to the Australian Airline Pilots’ Association, over 160 “air proximity events” involving drones were reported from 2015-16. The Australian Transport and Safety Bureau (ATSB) provided 180 near encounters with drones reported to air traffic control between 2012 and 2016. It informed the committee that none of the involved drones was operated by commercial operators. In 2017, there were 151 reported near encounters with crewed aircraft, representing a 119 per cent increase from the previous year.

There are frequent reports of drones causing hazards to aircraft.

A few examples will illustrate. Gatwick Airport, the United Kingdom’s second-largest airport, was brought to a standstill in December 2018 through the illegal operation of drones within the airport’s airspace. This disrupted the travel plans of 125,000 people and cost the airlines an estimated US$63 million. A civilian UAV collided with a Black Hawk helicopter over the Eastern Shore of Staten Island, New York City. On 21 September 2017 and on 17 April 2016, a British Airways Airbus collided with a UAV approaching Heathrow Airport. The Federal Aviation Administration (FAA) in the United States reports that crewless aircraft (UAS) sightings from pilots, citizens and law enforcement have increased dramatically over the past two years.

The FAA now receives more than 100 such reports each month. The agency has sent out a clear message that operating drones around airplanes, helicopters and airports is dangerous and illegal. Unauthorised operators may be subject to stiff fines and criminal charges, including possible jail time. According to safety experts, UK drone incidents rose more than a third in 2018. The UK Airprox board recorded 125 dangerously close encounters or drone incidents in 2018.

Given how entrenched compulsory third-party motor vehicle insurance is, it makes little sense that insurance concerning the person or property of third parties arising out of drones is optional. Further, not only is there exponential growth in the number and scope of operations of drones, but initiatives also such as home deliveries and other uses close to people increase significantly risk to person and property of third parties.

When flying cars and UAVs become the norm and there is no proper insurance, could there be dangers for urban air mobility?

Dr Tony Tarr (senior consultant, Global Drones Group, Clyde & Co)

There will be dangers to urban air mobility if proper liability insurance arrangements are not mandated.

Public acceptance of and confidence in this new transportation requires that a person who sustains injury or property damage have a real opportunity to recoup his or her loss from the drone pilot or operator. For this to occur, the person at fault must be identified, and the person at fault can satisfy any damages award or settlement.

It should also be noted that public liability insurance cover benefits that extend far beyond individual compensation. Coupled with a robust registration regime, operators with insurance cover would become more visible, accountable and traceable in the case of an accident or incident. According to one submission to the 2018 Australian Senate inquiry committee, possessing an operator’s certificate and the associated insurance policy for a business regularly acts as a deterrent for unsafe flight. In contrast, amateur or recreational operators who have “no skin in the game” may be more inclined to illegally take on jobs or unsafe operations as “they will most likely lose nothing but the fee they got for the job anyway” (Mr Ashley Fairfield, Submission 51).

The prospective benefits of extensive drone operations point to expanding commercial operations in the urban environment over the coming decade. Operation in this complex environment, as compared to more remote and less densely populated areas, requires a more intense focus on considerations of risk (personal injury and property damage), technological protections and mitigations, management of very low-level airspace and its traffic, as well as aviation regulation, planning law and the rights of individuals to their privacy and peace.

The Australian National Transport Commission, in their report Automated Vehicle Reform Program Approach (October 2019), records that the Australian transport ministers have agreed that existing motor accident injury schemes expand to cover crashes caused by automated vehicles – an approach already enshrined in the United Kingdom in the Automated and Electric Vehicles Act 2018.

When considering drones (that is, automated aerial vehicles), it is not, therefore, too much of a stretch to contemplate that they should be treated similarly to the proposed treatment of automated vehicles, especially when the drone is an aerial taxi or aerial delivery vehicle operating in a high-density population area. It is, therefore, not unreasonable that the operator of such a drone should carry appropriate and adequate liability insurance to ensure that members of the public have recourse to compensation for death, injury or property damage.

Given how entrenched compulsory third-party motor vehicle insurance is, it makes little sense that insurance concerning the person or property of third parties arising out of drones is optional. Further, not only is there exponential growth in the number and scope of operations of drones, but initiatives also such as home deliveries and other uses close to people increase significant risk to person and property of third parties.

An adaptation, with appropriate modifications, of the compulsory third-party motor vehicle scheme with associated nominal defendant arrangements provides a tried and extensively tested pathway to resolving problems flowing from unregistered and/or uninsured drones.

This will support public acceptance and utilisation of urban air mobility initiatives. Implementing a compulsory CTP insurance regime with commercial drone operations will resonate with the broader community interest, especially where personal safety is concerned.

Are other nations doing this better?

Prof Julie-Anne Tarr (senior consultant, Global Drones Group, Clyde & Co)

In many jurisdictions, compulsory insurance requirements are already in place. For example, in the European Union, a commercial drone operator was required to have public liability insurance to protect against legal liability for third-party property damage or injury while using a drone. Regulation (EC) No 785/2004 required all commercial drone operations to carry third-party liability insurance, with the minimum third-party insurance requirement being based on the mass of the aircraft on take-off. Recreational drone operators using a drone with a weight above 20 kilograms were not excluded from the need for compulsory insurance. The several Member States had mandated third-party insurance concerning lighter drones.

New Drone Regulations 2019/947 and 2019/945, effective 31 December 2020, adopt a risk-based approach, emphasising the type of drone and the purpose for which it is being operated, rather than upon whether the application is commercial or non-commercial. These regulations which set the framework for the safe operation of drones in European skies (EU and EASA Member States), and adopted in the UK post-Brexit, do not distinguish between leisure or commercial activities and take into account the weight and specifications of the drone and the operation it is intended to undertake.

The European Aviation Safety Agency (EASA) explains that these regulations cater for most types of operations and their levels of risk. It defines three categories of operations: the “open”, “specific” and “certified” categories.

The “open” category addresses operations in the lower risk bracket, where safety is ensured provided the drone operator complies with the relevant requirements for its intended operation. This category is subdivided into three further subcategories called A1, A2 and A3. Operational risks in the “open” category are considered low, and therefore no authorisation is required before starting a flight.

The “specific” category covers riskier operations, where safety is ensured by the drone operator obtaining an operational authorisation from the competent national authority before starting the operation. To get the authorisation, the drone operator must conduct a safety risk assessment, which will determine the requirements necessary for the safe operation of the drone(s).

In the “certified” category, the safety risk is so high that certification of the drone operator and the aircraft is required to ensure safety and the licensing of the remote pilot(s).

These regulations provide a good model for Australia to consider and facilitate the implementation of a differential premium model, considering considerations such as nature and location of the operations and whether the operator is accredited to the relevant UAS International Standard (UIS) for its operations.

Compulsory insurance requirements are also in place in Norway, Iceland, Costa Rica, Trinidad and Tobago, Brazil, Chile, Columbia, Guyana, Uruguay, Kenya, Nigeria, Rwanda, South Africa, United Arab Emirates, China, Hong Kong, the Philippines, Thailand, and Liechtenstein.

Have you dealt specifically with drones and insurance? Could you explain any specific client examples that made you concerned about Australia’s insurance and safety regulations?

Maurice Thompson (partner, chair, Global Drones Group, Clyde & Co)

Our “concerns” globally for the development of appropriate regulation in the exponentially growing drones sector began in 2018 when we started to field concerns from a diverse range of clients across multiple sectors as to their desires to pivot into the use of drones in their businesses and the almost complete lack of appropriate regulations and the absence, for the most part, of any scalable insurance options whatsoever. In response, Clyde & Co established a “Global Drones Group” comprising specialist lawyers from a cross-sector offering (e.g. insurance, aviation, marine, oil and gas, commodities, resources, construction, big data, cyber, terrorism, product liability, health care, property, defence, urban development) to address the rising need for drones-related legal advice across the world.

This was done through a prism that the legal issues encountered would not be restricted to classic “aviation”. The Global Drones Group has provided governments, insurers, brokers, regulators and corporates with advice to navigate the safe expansion of this sector.

As for specific examples, see the Australian Senate standing committee on rural and regional affairs and transport, “Inquiry into Regulatory Requirements that Impact on the Safe Use of Remotely Piloted Aircraft Systems, Unmanned Aerial Systems and Associated Systems” (15 December 2016).