Dave Merker Gregory D. Podolak Mark McKinnon Willis Towers Watson Saxe Doernberger & Vita, P.C. Dentons US LLC What Risk Managers Need to Know to Keep Their Heads When Dealing with UAVs

An Industry Poised to Take Off: FAA Sales Growth Estimates: Hobbyist drone sales could expand from 2.5 million in 2016 to 7 million in 2020 Commercial drone sales could increase from 600,000 to 2.7million. Drone Services Industry : Revenue could increase from $170 million in 2015 to $8.7 billion by 2025.

Uses: The Sky’s The Limit Aerial imaging 3-D modeling and surveying Security of property and job site Scanning and detecting damages Real-time monitoring of project progress Emergency management / monitoring –First Responders –Municipalities –Insurance companies

Part Pilot Issues The remote pilot in command must obtain a remote pilot certificate with a small UAS rating The UAS can be flown by someone without certificate if he or she is directly supervised by the remote pilot in command The remote pilot in command cannot supervise more than one UAS at a time.

Remote Pilot in Command Must pass an Initial Aeronautical Knowledge Test Tests administered at FAA-approved Knowledge Test CentersKnowledge Test Centers TSA Background Check Application process expected to take 6-8 weeks

Remote Pilot In Command Test Applicable regulations relating to sUAS limitations, and flight operation; Airspace classification and operating requirements, and flight restrictions affecting small UA operation; Emergency procedures; Radio communication procedures; Airport operations; and Maintenance and preflight inspection procedures.

Visual Line of Sight (VLOS) All flights must be conducted where the Operator can see the aircraft at all times Beyond Visual Line of Sight (BVLOS) not permitted, but could be done by obtaining a waiver (Except for Cargo Operations) FAA will evaluate proposals based on operating restrictions, locations of the flight, and hazards unique to each individual request

Visual Line of Sight (VLOS) FAA considered and rejected using First Person View (FPV) technology to satisfy the see and avoid requirements: FPV suffers from limited field of view and distortion

Visual Line of Sight (VLOS) Daytime operations permitted Operations during civil twilight are permitted if the vehicle has anti-collision lights visible for at least 3 statute miles Night time operations prohibited, but the restriction is waivable

Small UAS Operational Limitations Operational Limitations (con’t) Maximum altitude of 400 feet above ground level. No operations are allowed in Class A (18,000 feet & above) airspace. Operations in Class B, C, D and E airspace are allowed with the required ATC permission. No careless or reckless operations. Requires preflight inspection by the operator.

Airworthiness of Small UAS Aircraft Requirements FAA airworthiness certification not required Prior to flight must inspect the UAS to ensure that it is in a condition for safe operation Aircraft Registration required (electronic is ok) Aircraft markings required

Carriage of Cargo Significant Change -- Carriage of cargo now allowed Max weight of loaded vehicle can't exceed 55 lbs. Preflight check of security of load required Must meet all other operating limitations or have a waiver FAA is signaling that BVLOS cargo delivery will most likely require aircraft certification

Waivers The FAA has provided operators with flexibility to circumvent some of the limitations in Part 107, including: Operation from a Moving Vehicle Night Operations Visual Line of Sight Limits (Except Cargo) Multiple UAS Operation Right of Way rules Operation over people Airspace restrictions Operational limits such as speed and altitude

Waivers The operator must make a request for a Certificate of Waiver (online system will be implemented). The operator must show that the proposed operation can be conducted safely You must provide a complete description of the proposed operation and justification for the waiver The Administrator can add any additional terms and conditions necessary for safety

Part Enforcement Regulations will be enforceable in the same way as any other portions of the FARs FAA Civil Penalty system will apply to violations of the new regulations FAA will take certificate actions against unsafe UAS Operators

Florida Statute “Freedom from Unwarranted Surveillance Act.” Florida Statute Section Makes it illegal to use a drone: “To record an image of privately owned real property or of the owner, tenant, occupant, invitee, or licensee of such property with the intent to conduct surveillance on the individual or property captured in the image in violation of such person’s reasonable expectation of privacy without his or her written consent.” Allows for plaintiff using under statute to pursue “compensatory damages” Allows the prevailing party to win attorneys fees

CGL Coverage Issues CGL Coverage Part A – Aircraft, Auto or Watercraft Exclusion 2. Exclusions This insurance does not apply to: g. Aircraft, Auto or Watercraft ‘Bodily injury’ or ‘property damage’ arising out of the ownership, maintenance, use or entrustment to others of any aircraft… Exception to Exclusion g. This exclusion does not apply to: (4) Liability assumed under any ‘insured contract’ for the ownership, maintenance or use of aircraft… CGL Coverage Part B – Relevant Exclusions 2. Exclusions This insurance does not apply to: a. Knowing Violation Of Rights Of Another ‘Personal and advertising injury’ caused by or at the direction of the insured with the knowledge that the act would violate the rights of another and would inflict ‘personal and advertising injury’. d. Criminal Acts ‘Personal and advertising injury’ arising out of a criminal act committed by or at the direction of the insured. p. Recording And Distribution Of Material Or Information in Violation of Law …(4) Any federal, state or local statute, ordinance or regulation…that addresses, prohibits or limits…collecting, recording, sending, transmitting, communicating or distribution of material or information.

CGL: Electronic Data Liability

CGL: The Great Publication Debate

CGL: PII/Data Exclusion

Other Policies & ISO Endorsements Drone Specific Policies Aviation/Aircraft Specific Policies New ISO CGL Unmanned Aircraft Endorsements

New ISO Endorsements – Unmanned Aircraft CG Exclusion - Unmanned Aircraft CG Exclusion- Unmanned Aircraft (Coverage A Only) CG Exclusion - Unmanned Aircraft (Coverage B Only) CG Limited Coverage for Designated Unmanned Aircraft (Coverage Parts A and B) CG Limited Coverage for Designated Unmanned Aircraft (Coverage A Only) CG Limited Coverage for Designated Unmanned Aircraft (Coverage B Only)

Willis Towers Watson UAS Insurance Challenges UAS currently demands small premiums, especially relative to manned aircraft Uncertainty regarding new risks: invasion of privacy, aerial surveillance and data collection Lack of historical underwriting data Operator experience (flight hours, training) Loss ratios Accident count Repair costs Annual utilization rates Litigation costs Lack of safe operation regulations for UAVs Drone manufacturers more susceptible to litigation as the “deep pockets” Unknown factors drive a “Wait and See” approach for many insurance carriers

Willis Towers Watson Aerospace Insurers: Aviation underwriting expertise and market capacity in leading the way Provide Bodily Injury, Property Damage, P/AI and Physical (Hull) Damage via: Proprietary (Unmanned Aerial Systems) UAS policy forms Adapting their existing Aviation Products Liability, Airline Liability, Hull & Liability policy forms Proprietary UAS policy terms/options often mirror the analogous aviation form (ie. Non-owned Liability, Hangerkeepers, War/High-Jacking Liability, etc.) Unmanned Aerial Systems definition includes ground support equipment required for flight operation Limited Privacy liability coverage provided via P/AI endorsements Privacy and Cyber exposures: Challenge Aerospace Insurers as a new risk Expect to see limited coverage or outright exclusions in the near future

Take Aways Know what’s in (or isn’t!) your insurance program Make sure discrete lines of insurance align Tailor contractual risk transfer Insurance requirements Indemnity

Thank You! Gregory D. Podolak Dave Merker Mark McKinnon