Understand the Regulations and Risks of Drones

Unmanned aerial vehicles (more commonly known as drones) are becoming an integral part of the design and construction industry.

The U.S. Federal Aviation Administration (FAA) is moving forward on setting up general requirements and granting licenses and permits so that commercial entities can legally utilize drones for a broad range of observation and exploration purposes. According to most users, the FAA is slow and restrictive in authorizing drone use. Firms want to tap the potential of aerial surveillance, often without appreciating the risks.

The hesitancy of the FAA to authorize general drone use is based on safety and privacy concerns. Interference with manned aircraft and the dangers to people and property from accidents are primary concerns. Popular opposition to both the invasion of privacy aspects of drone use and the noise is also influential in forcing the FAA to proceed cautiously.

However, the use of drones—especially in the planning, design, and evaluation of the construction of a capital asset—continues to evolve and will pressure the FAA to match rules and restrictions to the reality of this evolution.

The FAA’s Proposed Rule

The FAA has worked on rules for the commercial usage of drones for several years and recently published interim rules and proposed final rules. The release of proposed rules only begins a period of public comment and possible revision that could take as long as two years before final rules take full effect. Among the major provisions are these:

• A commercial drone must not weight more than 55 pounds and can only be flown within line of sight of the operator or assigned observer. Drones cannot currently be used as autonomous vehicles beyond the visual control and monitoring of the operating team. The drone must only be flown in daylight and cannot operate over any persons not directly involved in the operation. The draft rules also limit a drone’s flying speed to 100 miles per hour and altitude to no higher than 500 feet above ground level.
• Pilots of drones are considered “operators” who will be required to pass an aeronautical knowledge test and be vetted by the Transportation Security Administration. Upon passing, they would receive a permit that would have to be renewed every two years as well as an operator’s certificate with a rating for small drone control.

Although drones appear to be inexpensive machines, it is obvious that the price of a drone will probably be the least significant cost factor in the commercial use of drones. Permitting and personnel expenses are likely to move the feasibility of commercial drone options out of casual or limited business operations. The FAA estimates that it would cost $300 to become certified, including fees and preparation costs.

Drone Operators Must Have Risk Controls and Insurance Coverage

Until the FAA released the proposed rules, only specific drone uses and users were allowed. Now, many companies, including design and construction firms, are ready to put drones into use.

Certainly, any legal drone use for design and construction will have to meet the commercial restrictions. Whether an entity owns and operates the drone or subcontracts for its use with a commercial provider, the entity operating the drone will have to have appropriate risk controls and insurance coverages.

The insurance industry is moving forward on preparing coverage for drone use. The issue is not one of professional liability insurance coverage; for instance, the Schinnerer program covers the professional liability of firms using drones as a tool to allow them to perform their professional obligations. Professional liability coverage, however, only applies if the underlying cause of action was based on a wrongful act or omission in the performance of professional services and not on a wrongful act or omission in the operation of a business that happens to provide professional services. And professional liability insurance never covers criminal activity, which could result from unpermitted drone operations, such as by a flight into protected air space.

The insurance industry, however, is concerned with general liability exposure intrinsic in the commercial use of unmanned aircraft and has reacted. Now, the Insurance Services Office (ISO), the private organization that develops insurance coverage standards, recently developed and filed a variety of general liability insurance endorsements addressing drone exposures to allow for maximum flexibility with this newly emerging exposure.

Licensed drone operators are undoubtedly careful about having general liability insurance that protects others from their negligence and follows the FAA rules and guidelines, but many firms using drones are doing so as amateurs. Turning hobbies into commercial uses is likely to be unlawful as well as dangerous. As the FAA continues to refine the rules, guidance, and process for the lawful use of drones and state and local governments enact controlling laws and identification requirements, it is likely that the use of drones in design and construction will increase and the risks to the operators and the public decrease. Ignorance of or indifference to the exposures faced in drone operations will only make firms a target for future litigation and possible criminal sanctions.

Firms that are anticipating the legal use of drones should check with their brokers about their general liability coverage and the new ISO endorsements. Firms that subcontract for drone operations should make sure that the firm operating the drone has appropriate coverage for the physical damages a drone could cause, coverage for personal injury claims such as invasion of privacy, and contractually agrees to stand behind its services. Also, the firm should check its general liability and management liability coverages so that it is not held responsible for imputed negligence or negligence in the selection and management of a drone operator who does not have appropriate coverage.

Firms Have to Recognize Professional and Business Exposures

There are many scenarios where a design or construction entity operating a drone or directing its use by a subcontractor could find itself liable for harm. In some cases, this liability would be considered a professional liability risk, but in many situations the liability is a business risk.

• If a firm uses a drone to photograph the sight lines from a 20th story apartment planned for construction, and the view is improperly selected so the tenant sues the developer for false advertising and the developer sues the firm that misdirected the drone’s camera, a professional liability exposure could result. If that same drone invades the privacy of an apartment dweller in a near-by building while attempting to photograph the sight line, such a personal injury probably would not be considered a professional exposure.
• If a drone is used to help perform an inspection of a project and the firm misdirects the drone so that it does not capture detailed information on one part of the project, thus providing an inappropriate view for interpretation and evaluation, that missing detail could be a professional liability exposure. If the camera fails to operate properly and information is missing or if the drone crashes into a pedestrian causing bodily injury, those technological failings are not wrongful acts in the performance of professional services and should not trigger professional liability insurance coverage.
• If a construction management firm administering the construction contract uses a drone to evaluate construction on a project and fails to recognize improper placement of flashing, broken beer bottles on a roof membrane, or a missing insulation application, that could be professional negligence because of the negligent interpretation of the information provided by the observation tool—the drone.

Unless the professional firm is either directly or vicariously liable for the actual operation of the drone, the risk can be limited, but it certainly does not disappear. Obviously, a design firm or construction manager directing the flight of the drone (even if not operating the drone) could result in direct liability for problems ranging from invasion of privacy to collisions. But not all of the direct liability is within the scope of professional liability insurance coverage so firms need to assess their range of exposure depending on the project conditions, the actual operation of the drone, and the interpretation or use of the information provided by the drone.

Firms Need to Manage the Risk of “Too Much Information”

The greatest source of professional liability exposure may be the contractual exposure of a firm for monitoring or evaluating the live or recorded images produced by the drone. A real-time feed or a recording of a fly-over is likely to result in additional exposure because of an inferred duty to examine in detail all the information available from the drone.

Experienced photographers know that when they take pictures of a site or project from a plane or helicopter with an approved flight pattern, from an approved crane or tower position, or from an adjacent facility that they have entered legally, they need to focus only on the scope of their photography assignment. That is not always the case with drone operators; some are currently operating illegally and have no performance standards on which to base their operations.

Firms have to be aware that the use of drones is not a simple transition in the process of observing the work on a project site. As with web cameras, drone photography often produces far more images than are used in the evaluation of a project. If not properly denoted in a contract, the scope of services could include the use of all of the available images as part of the firm’s duty to observe and evaluate the project as part of the firm’s construction contract administration duties

Firms must be specific in their contracts as to their scope of responsibilities in any preliminary study or site-monitoring effort. If the drone is being used to gather information for the planning of a project or other survey uses, such as the identification of site conditions or the creation of documentation of an existing structure, the firm should agree with the client as to appropriate use and detrimental reliance on the information obtained from the drone. Still photos from video feeds might be a prudent limitation on the scope of risk that could be created by the drone’s omnipresence.

Unless a firm has the necessary staffing and skill set and is being compensated for real-time monitoring of the drone video feed, the firm needs to clearly outline and disclaim any responsibility to determine if the drone indicates whether or not the project is being constructed in conformance with the contract documents for the project. And, in compliance with a firm’s document retention policy, unrequested or unused information, such as the recording of a video feed, could then be discarded to avoid future attempts to place responsibility on the firm beyond its contractual obligations.

Drone Usage Will Not Change the Professional Liability of Firms

Unless the standard of care evolves to require the use of drones and the evaluation of the abundance of information captured by them, the use of a drone to examine a site, to investigate the adequacy of construction, or to monitor project operations will not directly increase the professional liability exposure of firms. Firms, however, can increase their contractual liability to a client or to others if they affirmatively take on responsibility, set up unrealistic expectations from their use of drone information, or ignore contractual provisions that spread or shift liability to others regarding drone use.

http://www.schinnerer.com/