UAS fliers may be able to avoid FAA Safety Policies; Insurance Policies cannot be easily circumvented

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The FAA has established safety policies for UAS flights, and it appears that the operators and the companies, which hire unauthorized drones, can avoid those rules.  But in the event of an accident (inevitable), the most powerful policy may be the terms of liability coverage issued by insurance carriers.

UAS flights are dramatically increasing, as the below article from Insurance Journal notes; the author’s conclusion is based on the FAA’s increased approval rate of the §333 applications. The agency has sharpened its review skills and is issuing legal authorizations for SAFE, commercial flights.

However, the article also notes a very dangerous trend of the significant entry of illegal (that is, not exempted) UAS operators providing commercial service. This quote demonstrates the emerging economic problem, which also has major safety implications:

“Although the exemption is needed for commercial flights, many individuals are flying drones for hire without government permission at lower rates. That irks operators who followed the rules.

Competitive Disadvantage’

‘It puts me at a competitive disadvantage,’ said Bryan Cherry, a United Parcel Service Inc. pilot who started a drone- flying service after winning an FAA exemption.”

Quite frankly, these rogue operators believe:

  1. that the FAA has no authority to prevent their flights, and
  2. that the FAA does not have the resources to “catch their unexempted flights.”

Unfortunately, these observations appear to have created a marketplace in which UAS operators without the requisite §333 authorities can and do successfully bid for work. These unauthorized UAV organizations also are selling their services to third party corporations. Hypothetically speaking, a UAV Co. is hired by Power Line Company to inspect its towers; the PLC may not know about and thus may not request to see the requisite FAA authority.

The NTSB has held that the FAA has the authority to regulate and sanction illegal/unauthorized operations. The FAA does have limited surveillance resources and thus will have difficulty to detect illegal operations.

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The two above pictures of drones flying in close proximity to the power lines can be used to demonstrate the legal and safety importance of the §333 authorization. The aircraft on the left, in this example, has the §333 authority to perform the commercial task, in part because the FAA examined the operator’s safety program and the operating capabilities of the vehicle flying in close proximity to the electrically charged structures carrying significant risks. Hypothetically, the UAV on the right does not carry the §333 permission and its operating procedures and its technical performance may not justify a finding that it is SAFE. The unauthorized UAS may either be an internal asset of the power company or be owned and operated by a 3rd party contractor to the utility.

What these operators, who “care less” about the regulations, do not recognize is that there are consequences to this “Wild, Wild West” approach to flying. Flagrant violations of the FARs constitute a legal basis for denial of that company’s or individual’s request for permanent authority to fly drones! There may be short term benefits to flying underneath the FAA’s radar, but there will likely be a long term prohibition from receiving permanent authority.

One of the ways such lawlessness may be compelled to stop would be a tragic accident. A bad accident involving injury to person(s) and/or damaged property would likely result in a Congressional overreaction. If a constituent complains to a Senator or Representative about an irresponsible action which caused loss of life or destruction of a building, that Member would become energized to increase the FAA’s safety strictures. Ideally the FAA’s and industry’s education efforts may contribute to safer practices.

What is most disturbing is the apparent willingness of major corporations to operate UASs without the requisite §333 authority or to contract with an outside UAV organization which has not been reviewed by the FAA. Perhaps they do not fully comprehend the FAA’s legal opinion of what constitutes “compensation or hire”?

It is based on early CAB decisions (see among other cases, Las Vegas Hacienda Inc. v. Civil Aeronautics Board 298 F. 2d 430 (USCA 9th Cir., 1962)) on this subject. The rationale, simply out is that the CAB, now FAA, properly interpreted that any flight, which is part of a commercial enterprise, constitutes “compensation or hire” under the statute. This position is supported by the legal doctrine of “administrative ease.” Here, the FAA does not have the resources or expertise to perform a complex accounting review of whether the flight at issue “makes money”; so it is a legally justified use of “administrative ease” to cast all flights within a commercial enterprise as requiring a higher level of safety.

The FAA has issued valid safety regulations, but it does not appear to have the resources to detect violations. Some UAS operators and/or companies contracting with unexempted drone pilots have chosen to ignore the FAA’s rules and have increased the risk for unsafe flights/accidents. In this “enforcement vacuum” it is possible (probable?) that such rogue UAV flights may result in a catastrophic accident.
Such a crash might impact the insurance loss profile of the UAS industry. The insurance carriers will likely recalculate the risk analysis and increase the premiums. Unlike the FAA’s regulatory scope, the insurance sees all, at least sees all claims. If an accident occurs, the company(ies) involved will likely seek to pay for the damages under the insurance policies which both carry.

Perhaps more importantly, the insurance industry is extremely proactive and powerful. The aviation insurance sector, for example, became aware of a significant number of GA accidents due to the improper fueling of the aircraft by ground personnel. The insurance carriers sponsored, i.e. paid for, a program to color code the aircraft fuel tank caps to insure that the proper grade of gas was used.

u5Many (most?) coverage statements include limitations on the policy which requires the insured to hold the necessary governmental authorities to perform the activities under the agreement. Flying commercial UAS aircraft without the requisite FAA approvals would appear to be violating these exclusions. If that is a correct assumption, the insurance carriers would be well advised to publicize this risk.

It is also a common practice for an insurer to require that the insured only contract with companies which have the appropriate credentials. The reason for extending the purview of the risk exclusion is because the 3rd party provider, here a UAS operator without a §333 approval, might create liability and the claimant will assert derivative liability against the company buying the UAS service.

While the FAA policies are not getting the traction within the UAS industry, the Insurance Policies appear to have greater reach to compel compliance with safety standards.

A clear statement by the industry which pays for claims that the absence of the requisite FAA authority will have greater impact on unexempted operators, certainly on large corporations which have major assets. This warning should also include advice to companies that buy UAV services to assure that their contractor has §333 papers.

Ideally the FAA would assert authority to enforce its rules against the 3rd party companies which buy UAS services, but its legal jurisdiction to do so is attenuated at best. Maybe outreach by the FAA, maybe its new external Drone Oracle, could educate the public about the consequences of operating UASs without safety approval.

 

ARTICLE: FAA Approving 250 Drone Permits a Month Without Final Rules

 

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1 Comment on "UAS fliers may be able to avoid FAA Safety Policies; Insurance Policies cannot be easily circumvented"

  1. It is natural that affluence should be followed by influence. ~Augustus William Hare and Julius Charles Hare, Guesses at Truth, by Two Brothers, 1827

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