Drones: first ever book lifts lid on insurance implications

"That's like Sesame Street advice compared to what we're explaining"

Drones: first ever book lifts lid on insurance implications


By Daniel Wood

Today, said Clyde & Co’s Maurice Thompson, drones are so prevalent that virtually every industry uses them directly or indirectly. However, the insurance and risk implications of drones are still poorly understood.

“No-one understood the risks of using aviation products in various non-aviation sectors,” said Thompson (pictured), who heads up both the global law firm’s Australian energy, maritime, natural resources group and its aviation division.

In February, Clyde & Co announced the publication of Drone Law and Policy. The firm’s media release described the book as the “first of its kind” for outlining drone risks and the evolving regulatory frameworks in Australia, the US, UK and Europe.

“We are at the start of this journey,” said Thompson.

The journey began a few years ago, in 2019.

“What we started to see in Australia with our pretty unique cross sector perspective, working for all these major clients, was that they all started to pivot, initially quite casually into this drone space,” he said.

In bigger markets, like the US and UK, Thompson said insurance law experts tend to specialize in one industry area and were perhaps unable to see the cross-sector implications of the coming of drones.

“The questions that started to come in were ‘Are we covered for this insurance wise?’ To which the general answer at that time was, ‘No, you’re not,’” he said.

In response to this growing drone issue, Thompson and his team set off for the Clyde & Co headquarters in London where they met with insurers, insurtech companies, the regulator and the government to discuss the conundrum that they all faced.

“You can see the difficulty,” said Thompson. “You might have a triple A rated shipping company, or oil and gas company. They might be brilliant at what they do but now they’re dabbling in aviation.”

For example, he said, the laws around maritime are well established but, suddenly, a maritime entity could be contracting aviation services, or even conducting aviation services itself, by doing surveys of oil and gas rigs with drones.

This results in “a huge gulf of expertise” that the aviation regulators have struggled to understand, he said, because their regulations are not yet adequate. Insurers and underwriters also face issues, he said, because they don’t yet understand the risks.

Thompson said cross-sector conversations were needed to overcome this lack of knowledge. As a result, he led Clyde & Co’s initiative to set up a Global Drones Group.

The book came next. Thompson freely admits that, before they started researching and collaborating, none of the authors considered themselves experts on drones.

“None of us had it [drone expertise]. But now we do,” said Thompson.

Until their book’s February launch, Thompson said any insurance resources about drones tended to focus on rules about proximity to people, where you can fly them and altitude limits.

“That’s all great but that’s like Sesame Street advice compared to what we’re explaining as sort of a whole industry template,” he said.

One of Thompson’s specialities tackled in the book is the marine sector.

Until now, he explained, the big supertankers have always been guided into and out of ports by a maritime pilot. These specialists know the local harbour and waterways and taxi out to ships, board them and personally steer them into their berths.

“They’re now trialling - and they’ve done it successfully in Fremantle - piloting these vessels into port with drones,” said Thompson.

He said this raises the possibility that the drone could be mismanaged or cyber hacked and then an accident could happen when the ship comes into port.

“Then you have this world that’s never been dealt with before, where you have the law and insurance relating to maritime colliding with that of aviation,” he said.

Thompson said shipowners’ insurance policies allow them to ply the waters of the world with an ability to limit their liability.

“If you didn’t allow them to limit their liability, no-one would do it! Because no-one wants to be involved in an Exxon Valdez or a huge disaster and not have coverage,” he said.

“The standard they’re held to is typical negligence. ‘Did you owe a duty of care? Did you breach it?’” He explained.

However, the aviation sector is insured very differently, with unlimited liability held to a very strict standard.

“Most aviation damage caused by aircraft will be if it crashes or if something drops from it, like toilet waste or something frozen solid, so effectively, hardly anything,” he said.

A drone guided supertanker throws these settled insurance demarcations between marine and aviation into disarray.

The P&I (protection and indemnity) liability insurance held by the ship will be questioned because the problem is caused by an aviation related product which implies unlimited, not limited, liability.

“So what’s your insurer going to say then? Your P&I insurer will say, ‘This isn’t what we signed up for!’ And you have this horrible mess,” said Thompson.

This impacts the safe port warranties common in ports, he said.

“So whenever anyone moves anything between ports, if you’re going to a port, it has to be safe,” said Thompson.

This warranty functions, he said, if the port operators are competent. However, ports are now faced with the prospect that this safety warranty depends, not on “your old sea captain” piloting the ships, but “some young techie that’s grown up doing PlayStation,” said Thompson.

“So the question will be if there’s a disaster, or if a policy is adapted to use that service, is that the same level of service to maintain that port safe status?” he said.

This could throw into question that status, said Thompson, and impact insurance across sectors.

This is why maritime underwriters, for example, suddenly find themselves “mashed together” with aviation underwriters, said Thompson.

So if your ship is going into a port using a drone to guide it into its berth, is there an insurance policy that will cover you?

“It’s developing,” said Thompson. “But it is the case that typical policies relating - even to the ports themselves – haven’t caught up because no-one’s discussed it,” he said.

Industries involved in security, airport and aircraft safety and cyber-risks are also playing catch-up.

Drone Law and Policy, he said, is the first time this “conundrum” has been addressed at a global level.

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