Once the stuff of science fiction or restricted to military use, drone technology has gone mainstream. News reports are full of stories about how drones are being used, or misused, for commercial and recreational purposes. Let’s take a 1,000-foot view of seven key issues for lawyers to consider, to help the majority of practicing lawyers who are not FAA regulatory specialists with basic issue spotting. (It is not intended to be an authoritative primer on drone regulations or FAA practice.) We’ll also get an “in the trenches” perspective from Suffolk Construction’s general counsel, Wendy Venoit, who recently obtained FAA approval for her company’s drone use.
1. Drones are “Aircraft”
While awareness has increased dramatically in the last 12 months, some businesses may still need to be reminded that the fact that they can purchase a drone for $1,000 does not mean that it can use it without going through the FAA approval process.
We’ll start simple. Drones are “aircraft” under federal law. Their use and regulation are governed by the FAA. A business can’t just purchase a drone on Tuesday and start (legally) using it on Wednesday without first seeking and receiving FAA approval. The fact that drones are inexpensive and easy to purchase does not change the existing legal framework governing their use (more on that below). They must now be licensed and registered, whether used for recreational or commercial purposes. In addition to the feds, a number of states have passed or are considering passing drone-related legislation.
2. Getting Permission
There’s a difference between recreational/hobby drone and commercial drone use. The FAA provides general guidance on this. The bottom line is that if you use a drone for your business, you must petition for what’s known as a “Section 333” exemption in order to fly it. That’s true whether or not you charge an additional fee for using the drone.
Until recently, “recreational” users did not have licensing or registration obligations. That has changed. A recreational user who buys a drone for non-business purposes must now register their drone with the FAA and pay a $5 licensing fee (as of December 21, 2015). The FAA has partnered with the Association for Unmanned Vehicle Systems International (AUVSI) and the Academy of Model Aeronautics (AMA) to develop a website, knowbeforeyoufly.org, which provides information on recreational drone usage, including registration requirements and restriction on use. (Some examples: don’t fly your drone over 500 feet, in restricted airspace [Washington, D.C. is off limits] or within 5 miles of an airport.)
3. Tort Law Hasn’t Been “Disrupted”
Whether or not drone technology is “disruptive,” drones and drone operators live in an existing legal framework with established rights, remedies, and liability, both civil and criminal. The news is full of reports of drones falling from the sky and injuring people or going places where they weren’t supposed to go.
While the technology may be complex, the law seems fairly straightforward. There’s no “drone exception” to negligence claims, as far as we’re aware. Whether someone is injured by a drone or injured by a negligently operated crane, common law tort remedies still apply. Criminal laws do too.
4. Drone Data is Not Free
Drones may be able to capture petabytes of useful data at a fraction of the cost of a helicopter. But fast and inexpensive data acquisition can be both a benefit and a liability. As one commentator explains: “Actionable insight is an asset. Data is a liability. And old data is a non-performing loan.”
First, the benefit. Consider the following quote from a recent article in the MIT Technology Review titled “New Boss on Construction Sites is a Construction Drone,” which explains how drone data can be used to help identify factors that may be causing schedule delays on a construction project:
“We highlight at-risk locations on a site, where the probability of having an issue is really high,” says Mani Golparvar-Fard, an assistant professor in the department of civil engineering at the University of Illinois, who developed the software with several colleagues. It can show, for example, that a particular structural element is behind schedule, perhaps because materials have not yet arrived. “We can understand why deviations are happening, and we can see where efficiency improvements are made,” Golparvar-Fard says.
This is one of the many useful applications of a construction drone: tracking progress and identifying potential delays. But it’s easy for a lawyer to war-game risks that come with the benefit of being “understand why deviations are happening.” What else are you capturing? And what are you doing with that data?
A hypothetical illustrates the trade-off. Assume a visitor to a construction site trips and falls into a trench that was allegedly improperly guarded, and lacked proper warnings. Is the exposure worse if two months of drone footage showed the site wasn’t scrutinized and nothing was done? (Or assume it was scrutinized and nothing was done—take your pick).
This isn’t completely uncharted territory. Cameras have been used on and in construction sites for years. However, the access and amount of data that drone technology can provide is unprecedented, as is the apparent up-front cost, at least for now.
5. The Insurance Landscape Remains Uncertain
Legacy insurance products may or may not apply to drone-related losses. The industry is working to create new products, but it’s a mistake to assume that all drone operations will be covered by existing policies.
How might a company’s existing insurance policies apply in the event of a drone-related loss? Assume that (1) a general contractor uses a drone to monitor an active construction site, and that operator error (2) causes the drone to fly off the site and crash into a moving car on an adjacent street injuring the car and its occupants. The occupants and owner sue the GC (we’ll keep it simple and assume that they don’t drag in the owner, subcontractors, product manufacturer, etc). Is it covered or not?
One of the standard CGL policy forms excludes coverage for: “ ‘Bodily injury’ or ‘property damage’ arising out of the ownership, maintenance, use or entrustment to others of any aircraft, ‘auto’ or watercraft owned or operated by or rented or loaned to any insured. Use includes operation and ‘loading or unloading.” This exclusion is subject to an exception for “Liability assumed under any ‘insured contract’ for the ownership, maintenance or use of aircraft or watercraft[.]”
In our fact pattern (where the GC alone was sued) the “insured contract” exception is probably not going to help. An insurer might argue that a drone is an “aircraft”, that the exception does not apply, and that there’s no coverage. Whether or not the insurer is correct or has a duty to defend will depend on the specific allegations in the lawsuit and applicable state law: one exclusion isn’t necessarily the end of the inquiry, but it could certainly be a problem if coverage was expected.
For now, whether or not a client is using drones in their business or considering a new drone program, it makes sense to review applicable insurance programs to evaluate adequacy and availability of coverage. Existing policies may need to be modified to provide greater assurance of coverage, and additional policies put into place, and new types of coverage considered.
6. Industry Perspective
To provide a fresh perspective on the FAA exemption process, we interviewed Wendy Venoit. Ms. Venoit is general counsel of Boston-based Suffolk Construction, listed as the 31st largest construction company in the United States by trade publication Engineering News Record. She joined the company in early 2015 after spending the bulk of her career in private practice as a partner in the construction law practice at Connecticut-based Pepe & Hazard and McElroy, Deutsch, Mulvaney & Carpenter, LLP. Suffolk recently received FAA approval of its exemption request, and we asked for her thoughts and feedback on the process.
Q: Why did Suffolk choose to go through the exemption process? Was it a lawyer-driven initiative or a business initiative? Or both? Was it something that customers demanded?
A: As it is unclear when the FAA will finalize the rules on the commercial use of drones, the exemption process was necessary to ensure that Suffolk was able to utilize drones on its projects within the guidelines set by FAA as soon as possible. Implementing the use of drones on Suffolk projects is consistent with Suffolk’s goal to balance its strong safety program with the increasing need to implement innovative processes to construct its projects, and was driven largely by the project teams. The choice to pursue a letter of exemption from the FAA and comply with FAA rules and regulations which ensure that the operation of the drones was within approved parameters was the responsibility of the legal department. Suffolk assessed the benefits of drones from a job site safety perspective and sought to comply with the FAA regulations so that drones could be utilized as an effective part of the safety program.
Q: When did Suffolk do this? How long did it take? Is the process complete?
A: Suffolk began the exemption application in July 2015 and was issued an exemption letter by the FAA in early November 2015. It took a little under 90 days from submitting the application to getting a decision from the FAA. The exemption granted by the FAA has several requirements prior to and during the operation of a drone.
Q: Were you able to do it in-house or did you need to go to outside lawyers?
A: We were able to handle the exemption process in-house.
Q: Any useful resources that you discovered on the way?
A: A lot of material is available on drone use and the potential implications of the FAA rule, but most anticipates the impact of rule or how the FAA will enforce and regulate the use of drones. However, as all exemption applications and decisions are on the FAA docket, reviewing prior applications for exemptions was the most useful resource in preparing our own application.
Q: Any unique “gotchas” to be aware of, beyond the exemption process?
A: No “gotchas” per se, but the exemption is not a carte blanche to operate the drone at will and has some strict requirements, which could pose a challenge for many companies.
Q: Are most of your competitors also going through the process or are you still in the vanguard?
A: Most larger construction companies appear to recognize the utility of operating drones, so several have applied and been granted the exemption.
Q: How prevalent do you expect drones to be in the construction industry in the next five years?
A: Drones could minimize the risks associated with inspections of hard to reach areas, and assist in the elimination of conflicts during construction. As such, it will be an asset in keeping people safe while increasing efficiency, so I expect that drone use will be prevalent in construction in the next five years.
Q: In addition to exemption process and licensing, how (if at all) has issue of drone usage come up in contract negotiation?
A: It’s not a significant contract issue, but developers and owners want technology to be used and drones are on the leading edge of technology and getting a lot of publicity. It is a benefit for Suffolk to be able to offer the use of drones as part of innovative technologies and its safety program for its projects. It is anticipated that owners/developers will address certain issues in the contract as drone use becomes more prevalent. Specifically, it is expected that there will be certain contractual provisions regarding indemnification for injury, property damage and unauthorized use, insurance and compliance with the FAA guidelines.
7. What Next?
Drones are here to stay, whether we like it or not. The benefits that they offer must be understood within an existing legal framework. For hobbyist/recreational users, following registration requirements and familiarizing oneself with use limitations are a good first step.
For lawyers advising businesses considering a drone program, a good place to start may be with some standard “W” questions: What will you be using? Who will use it? When will you start? When will you end? What data will be gathered? Who will own the data? Why will the data will be gathered? Where will it be stored? What insurance will be available if there’s a problem with the drone? Those questions will surely lead to others, and a plan for safe takeoff can be created.
About the Author
Stephen Palley is a trial lawyer in Washington, D.C., and the founder of Palley Law, PLLC. He focuses his practice on insurance coverage, construction law, and emerging technology. Follow Stephen on Twitter @palleylaw.