SDV Insights

The FAA Strikes Back: $1.9 Million Dollar Penalty for Unauthorized Drone Flights

Recent FAA Action Reinforces the Need for Appropriate Risk Transfer

Here is a strong reminder that commercial drone use is not without risk, and insurance coverage analysis must be a priority.

The Federal Aviation Administration (“FAA”) recently announced a proposed $1.9 million fine against Chicago-based SkyPan International, Inc. (“SkyPan”), representing its largest fine ever for drone operation.

SkyPan, a provider of panoramic and aerial photography, is alleged to have flown 65 unauthorized drone flights between March 2012 and December 2014. It is currently reported that 43 of these unauthorized flights took place in restricted Class B airspace over New York. The FAA contends that SkyPan not only failed to seek the appropriate FAA Section 333 exemption, but that those flights which occurred in restricted Class B airspace were conducted without necessary prior approval from local air traffic controllers.

The severity of this proposed fine should stand as a stark warning to early adopters of this technology that the FAA fully intends to flex its regulatory muscle, and that proper authorizations and adequate insurance coverage must be part of any businesses’ implementation of drone technology. It is safe to assume that while the FAA has granted over 1,700 Section 333 exemptions, there are other companies operating without them. Similarly, many of the companies utilizing drone technology are likely under or uninsured for its use. The technology has expanded so explosively over the last several years, that insurance underwriters are still assessing the full nature of the risks involved. As it stands now, most companies have no coverage under their commercial general liability policies due to standard aircraft exclusion language. This means that without a stand-alone drone specific policy or a manuscript endorsement, there is no coverage for any liability arising out of drone use. And the liabilities are real, ranging from personal injury and property damage to privacy violations and data breaches.

For companies that have begun to harness and utilize the amazing benefits of this new technology, it would be wise to engage their brokers in a discussion of which drone-specific coverage is currently available. For other organizations, the best current solution might involve contracting out to a third party drone operator. Under the latter approach, it is crucial that the upstream party perform its due diligence, determining if the drone contractor has the necessary FAA approvals and appropriate, drone-specific insurance coverage; perhaps going as far as to request being named as an additional insured on the policies.

The take-away is that while the use of drones has many undeniable benefits and appears to be here to stay, caution and careful risk transfer analysis remain as important as ever.


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SDV is headquartered in Connecticut, with regional offices located in New York, New Jersey, Florida, and California to better serve our clients nationwide. We have the experience and insight to effectively address your insurance coverage concerns and provide practical solutions to any risk transfer challenges you face.