Drone Damage and Liability Claims in Commercial Operations

Key Takeaways

• An accident involving a drone may result in damage to the aircraft, third-party injury, damage to property, legal liabilities and business interruption.
• The cost of any incident is affected by the type of drone, the payload, the location, the severity of the incident and consequential losses.
• Third-party and own damage cover are separate and should be considered separately within the policy.
• Commercial operators should choose the type of insurance based on the nature of operations, equipment used and operational environment.
• Compliance with DGCA regulations, upkeep of the aircraft and pre-flight checks can reduce the risk and cost of an incident.

A Drone Crash Can Cost More Than the Drone

Let's say you are using a drone to check out a commercial building. While you are trying to get a good picture, the drone malfunctions and crashes into a passing car. Not only do you have to shell out money for repairs or a new drone, but also for the damages the drone caused to the car

If the drone malfunctioned and hurt someone, the costs could balloon: medical bills, settlements, lawyers, and more. All that, just because you didn't consider the risks involved in drone usage, despite the dangers. That's why looking just at the cost of the drone, and nothing else, is a good way to misrepresent the potential problem.

Where Can the Money Go After a Commercial Drone Accident?

A single incident can give rise to multiple expenses.

Damage to the Drone

The aircraft itself could suffer body damage, motors, batteries, navigation systems, or other components. A commercial drone can carry high-value cameras, LiDARs, thermal imaging and other equipment. The cost to repair or replace these components can add up significantly.

Damage to Third-Party Property

The drone could collide with a building, vehicle, machinery, glass façade, power equipment or another object. The resulting claim can involve repair or replacement costs, depending on the circumstances of the incident.

Bodily Injury Claims

The scenario escalates if the aircraft falls on a person or collides with someone during operation. A third-party claim can involve bodily injury expenses, compensation and legal costs.

Legal and Defence Expenses

Not all incidents are quickly resolved. A disagreement can involve legal representatives, documentation, investigation and negotiations before resolution. Eligible legal defence costs, depending on the policy, may be covered by the insured.

Business Interruption and Project Delays

For many commercial operators, the drone is a tool for a larger project. The damaged aircraft could delay a property survey, stop an agricultural monitoring effort or interrupt a filming assignment. The resulting business interruption loss may not be automatically covered by a liability policy and needs to be reviewed.

What Does Drone Liability Insurance Actually Protect?

Third-party liability insurance policies cover damage to other people caused by the drone. As per the Drone Rules of India, it is mandatory for a person to take third-party insurance for any unmanned aircraft (except nano drones) carrying out flights in India, which provides cover for death, bodily injury or property damage arising from a mishap. Thus, such insurance policies do cover property and bodily injury occurring to others. Coverage Includes:

• Third-Party Property Damage: Applicable if the drone being insured damages any other person's property.
• Third-Party Bodily Injury: Applicable if the drone being insured causes injury to any other person
• Legal Defence Costs: Eligible legal expenses may be covered under certain policies in cases of third-party bodily injury and property damage claims.

Coverage Note: It is important to note that the third-party cover in the drone policies covers the liability of the drone operator and not the drone itself.

What About Damage to the Drone Itself?

If your drone crashes into a building, a third-party liability policy might cover the liability to the building owner, subject to the terms of the policy. However, the cost to repair your own drone would usually require appropriate damage or hull cover.

Own Damage or Hull Cover

Depending on the product, this could provide cover against specified accidental damage to the aircraft.

Payload Protection

Where cameras, sensors or other specialist equipment are covered, there may be additional or extended cover for the payload.

Transit Protection

Some products may offer cover whilst the drone or equipment is in transit, subject to terms and conditions of the policy. Availability of these covers will depend on the insurer and the product, and businesses should not assume that all policies offer the same cover.

What Factors Determine the Cost of Commercial Drone Insurance?

There is no one-size-fits-all premium for commercial drone insurance. Each company evaluates the exposure on a case-by-case basis according to the specific characteristics of the aircraft and its intended use.

The Value of the Aircraft

The higher the purchase price of the drone, the bigger is the own damage exposure.

Type of Operation

A drone performing aerial photography over private land does not pose the same risk as a machine used for infrastructure inspections, construction surveys or agricultural applications.

Location of Operations

Flying near crowds, over roads and around industrial objects often involves higher liability exposures.

Payload and Equipment

Carrying infrared or LiDAR equipment or standard photography gear can increase the insured value of the drone.

Coverage Selected

The selection between third-party liability only and an expanded policy covering hull, payload or other items will produce different results.

Claims History

Past losses and claims can affect the underwriting decision and premium.

Pilot and Operational Controls

The training, procedures, maintenance and other factors related to the operator can affect the risk assessment.

This is not an exhaustive list, as each insurance company considers various other elements when determining the final premium.

A Simple Example of How Much It Can Cost

Imagine a surveying firm owns a professional drone worth ₹3 lakh. It has a high-end camera. They fly the thing, but suddenly it crashes into a parked car because an operator lost control.

Now, what will the costs include? Drone repair/replacement + camera repair/replacement + vehicle repair/replacement + legal/claim expenses + project delay

The amounts can vary from any figures depending upon the damage. Hence, saying that the maximum loss would be only ₹3 lakh (the drone cost) would be wrong. The third-party liability may exceed the value of your own aircraft.

How Drone Insurance Helps Manage the Financial Exposure

Insurance works by transferring certain financial risks from the operator to the insurer, subject to the terms of the policy. For a commercial drone operator, the protection may be structured around two broad areas:

The exact inclusions, sub-limits, deductibles and exclusions depend on the drone insurance policy.

What Should Businesses Evaluate Before Buying Drone Insurance?

A low premium is not the sole consideration.

Consider the Risk Involved: Begin by defining the location the drone will fly over or near, what it will carry and what could possibly go wrong.

Distinguish Between Liability Coverage and Own Damage: Find out if the policy covers only third-party liability or if it also includes your drone and its payload.

Scrutinise the Limits of Liability: Establish that the limit of liability will be sufficient given the environments the aircraft will fly in.

Examine the Exclusions: A seemingly complete policy can fail to account for an activity or type of damage that the business owner considers important.

Become Familiar With the Claims Procedure: Make sure that reports of incidents will be accepted within the required time frame and that the documentation needed is available.

Review the Policy as Circumstances Change: Expanding from aerial photography to construction inspections or adding new aircraft to a fleet may greatly impact the level of risk.

Final Thoughts

Commercial drones are transforming the construction, agricultural, surveying and photography industries and are crossing into new markets every day. But with every takeoff comes a potential for financial risk. The key is to shift the focus from the question "How much does my drone cost?" to "What can my drone damage or disrupt if it is not operating at maximum efficiency?"

This is where the right Drone Insurance can make a difference. Policies offering third-party liability coverage can help protect against eligible claims regarding others' property, while the appropriate own damage and equipment coverage can help protect the drone itself. The exact details will depend on which policy the business selects.