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Unmanned Aerial Vehicles (UAVs), or drones,  are often used to enhance public safety, support agriculture, help the environment, monitor the climate and mitigate disasters.

The construction industry is slowly jumping on the drone bandwagon, as these devices are extremely cost-effective and can be used in several capacities, including:

  • surveying large areas;
  • providing real-time data on job progress;
  • identifying potential hazards;
  • scaling bridges and buildings to assess condition through high-resolution images; and
  • making basic repairs.
But with this newer technology comes complex challenges, specifically related to insurance and privacy liability. For instance, a contractor could be building a road, and while surveying it, the drone inadvertently takes images of nearby homeowners in their backyard. This invasion of privacy could mean a lawsuit.

A recent Reuters Ipsos poll cited that 73 percent of respondents wanted regulations for drones and 71 percent thought that drones should not be allowed to operate over someone else’s home. Even President Obama weighed in by ordering the Federal Aviation Administration (FAA) and other U.S. agencies to make sure drones are not dangerous and don’t violate people’s privacy.

The national attention and concern over privacy is warranted as drones become more mainstream, especially for contractors looking to be more economical. The FAA forecasts that the number of commercial drones could reach 7,500 by 2020; other reports estimate the number could be as high as 20,000.

Currently, it is illegal to fly drones for commercial purposes unless the operator has a specific exemption from the FAA for testing or government use. Looking ahead, commercial drone flights could be legalized under proposed rules issued by the FAA on Feb. 15. If adopted, the new rules would allow any company to fly a UAV so long as it abides by specific guidelines.

  • Commercial pilots will now be considered operators and must pass a test at a FAA facility, obtain a certificate rated for flying a small unmanned aircraft and renew that test every two years.
  • Operators must be at least 17 years old.
  • Commercial drones have to stay under 500 feet, as well as fly only during the day and within an operator’s line of sight.
  • Rules apply to all units classified as a "small" unmanned aircraft, which the FAA defines as 55 pounds.
Even with the FAA rule changes, UAVs carry a host of other risks for construction companies, including bodily injury and property damage. UAVs can strike buildings, cars and other property, especially if “loss of link” happens, where the operator loses contact with the drone. Another concern is that current commercial general liability policies generally exclude aviation risk.

Minimizing Risk for Construction-Related Businesses

There are a few ways construction companies can mitigate the risks associated with UAVs. For instance, a company operating UAVs should understand the FAA rules prior to operation and remain fully compliant. If hiring a company that operates UAVs, make sure there is a contract that indemnifies the company from losses that occur as a result of UAV operations.

Finally, implement a financial backstop from losses by purchasing UAV insurance. This is a relatively new product, and Lexington Insurance is one of the first to offer a standalone policy, as well as an endorsement on existing policies. Many operators are small entities and may be able to wrap all of their insurance into one policy that has professional, general and aviation liability together.

As this industry continues to evolve and utilize more technology, the biggest challenge for insurers will be evaluating three key areas of risk: the quality of the equipment, the qualification of the operator of the equipment and what is the environment in which the UAV is being operated. For companies that utilize UAVs, addressing the key underwriting risks and implementing best practices will ensure the use of UAVs remains practical and cost-effective.

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