The Future of Unmanned Flight (Part 2): Liability and Insurance for Drones

This article is part of the “Future of Unmanned Flight” series, which presents the current regulatory framework of drones in the EU and Bulgaria, examines open issues regarding privacy, data protection, liability, insurance, and any other developments in the growing industry of unmanned flight.

Be sure to regularly check our website and social media accounts for analyses, news and updates regarding the regulatory world of drones.

Introduction

As drones become more and more common in the European and Bulgarian skies, incidents are bound to occur and it is crucial for every business utilizing unmanned aircraft systems (‘UAS’) to be well aware and prepared for the settling of insurance and liability claims arising from such circumstances. The newly adopted U-space Regulation (find out more about it in U-space Implementing Regulation adopted by the Commission), introduced the long-awaited rules regarding the registration, geo-awareness and remote identification for commercial drones. This is an important first step when it comes to settling liability claims in cases where an unmanned aircraft causes damage to property or people, because it makes possible for owners and operators to be easily identified in case of tortuous or even criminal lawsuits.

Yet there is still a long way to achieving uniform liability standards for drone-caused damages across the EU. The present article provides an overview of the currently applicable legal orders which can shed light on the obligations and insurance coverage of potential commercial drone operators.

Liability

Currently no uniform system for establishing liability for drones exists in the EU, which means that operators and victims must look towards their domestic legislation to settle claims. This raises a number of issues due to the largely cross-border nature of either the drone operations themselves, or the businesses that operate them. Some of those issues include: “the identification of the liable party, the liability regime applicable to the liable party and insurance provisions applicable to civil drones” [1]. A potential source of EU-wide liability regulatory framework would be Directive 85/374/EEC on the liability for defective products, however it is reasonable to assume that like with manned aircraft, a significant number of possible liability-raising scenarios would not be due to a defective product or part, especially once drones take to the urban skies where significant issues like drone-drone, drone-bird, drone-building collisions, theft and hacking become the riskiest potentialities.

As was explained in the previous articles, prior to the New Basic Regulation Member States had discretion for drafting rules on UAS below 150 kg. As the new EU legislation has not as of yet covered liability, those previous national rules still apply in the majority of EU countries. Most countries have opted for requiring strict liability for drone operators, however there are some states which follow the common approach for car accident legislation – requiring fault (at least negligence) of one of the parties.

Bulgaria has not adopted drone-specific legislation for third party tortuous damage, meaning that the general fault-based liability regime of Article 45 of the Obligations and Contracts Act applies to UAS-caused damages. Because of the requirement of fault, both in Bulgaria and the Netherlands there is no requirement whether the operator or owner is negligently liable but rather this is to be decided on a case-by-case causation basis.

In the countries where the legislator has explicitly prescribed that the strict liability is unlimited, claims for damages have no upper limits regarding monetary compensation. In Germany and Italy, the claim is capped at the minimum insurance level set by Regulation (EC) No. 785/2004 on insurance requirements for air carriers and aircraft operators (‘Aircraft Insurance Regulation’, discussed in more detail below) [2], however if negligence of the operator is proven the awarded compensation can exceed those limits. When it comes to the person who is to be held liable for damages to third parties, the law in Belgium, Italy, and Romania does not specify whether it’s the owner or the operator. In Denmark the owner is strictly liable for damages, unless the operator has assumed full responsibility for the drone’s operation and maintenance, whereas in France and Germany the operator is strictly liable for damages [3].

Those differing national legal frameworks for establishing liability are something that commercial drone-based businesses should be well familiarized with when considering expanding their activities to other EU countries.

Insurance

A 2021 amendment to the Bulgarian Civil Aviation Act has introduced Article 19a, which establishes a mandatory insurance requirement for commercially operated UAS. The rule does not contain specific details regarding the mandatory coverage size, however this can be found in EU legislation.

Mandatory aircraft insurance for liability to third parties is based on the Aircraft Insurance Regulation which distinguishes the required insurance based on the maximum take-off mass (‘MTOM’) of the aircraft. Even though unmanned aircraft are not explicitly mentioned as falling under the regulation, the lack of definition in Article 2 as to what constitutes an aircraft and the broad scope of the law have made its requirements categorically applicable to UAS. However, due to the focus on weight of the aircraft, practically all civil drones fall in the lightest category (MTOM of less than 500kg) and correspondingly the smallest insurance requirement of 0.75 million SDRs  [4] equivalent to about 1 million Euros. This sole distinguishing factor of weight has been criticized by numerous authors due to its limited application and coverage to drones and as a consequence most drone businesses are advised to carefully consider different coverage policies rather than opting for the regulatory minimum.

Even when specific aviation insurance schemes with large coverage are chosen by operators, they would usually apply only to physical damage to property and persons, and do not take into account possible breaches of privacy, data theft and manipulation or hacks. These issues regarding data safety and privacy will be discussed at more length in the next article of the series.

[1] De Schrijver, Steven. "Commercial Use of Drones: Commercial Drones Facing Legal Turbulence: Towards a New Legal Framework in the EU." US-China L aw Review. 16 (2019), p. 345.

[2] The full text of the Aircraft Insurance Regulation can be found here.

[3] For a more detailed overview of national systems, you can refer to: Steer Davies Gleave. "Study on the third-party liability and insurance requirements of remotely piloted aircraft systems (RPAS)." Final Report (2014).

[4] Special Drawing Right as defined by the International Monetary Fund in relation to a basket of currencies and commodities.