A View From Above

“Falling Skies” is a television science fiction series on TNT that portrays a cluster of civilians and fighters fleeing Boston after a post-apocalyptic alien invasion. Falling skies might take a more prosaic but real-life meaning, however, with the popularization of drone technology. Increasingly, drones have civilian and commercial applications. While some have commented on the impact of drones on property insurance claims, little has been written about how drones will alter the landscape of liability claims adjusting.

In late December 2013, Amazon’s Jeff Bezos disclosed in a “60 Minutes” interview that his company plans to use drones in its fulfillment operations. Currently, the Federal Aviation Administration (FAA) has approved 80 law enforcement agencies to use drones, leading many observers to believe that widespread drone use is not a question of if, but rather when. While the FAA has tried to ban commercial drones, its rules for small drones are not expected to be ready until late 2015. Meanwhile, hobbyists and enthusiasts have successfully challenged the FAA’s legal authority to regulate drones at all.

Outside the U.S., other countries have been early adopters, taking a more permissive view. For example, Dubai’s government plans to start delivering drivers’ licenses, passports, and other documents within the next year. In London, Domino’s Pizza already has served pies using a drone. A Shanghai bakery in China delivers cakes the same way. A large online reseller of remote-control toys launched a competition—now in its second year—to see who could lift the most beer into the air via a drone (perhaps to help wash down those airborne pizzas?). FedEx is exploring drone technology to augment its delivery system.

What impact might all of this drone technology have on the claims industry? At least four come to mind.

An Investigative Tool

Insurance companies could deploy drones to rapidly travel to traffic accident scenes and capture photos of the position of cars post-accident, road debris, skid marks, and even footage of accident participants after a collision.

Such evidence can help evaluate how an accident occurred and facilitate informed liability assessments. A current constraint is the cost and manpower needed to dispatch adjusters to accident scenes. Years ago, having an adjuster drive to an accident scene to investigate was common. With the advent of telephone adjusting, such “boots on the ground” are rarer. Drone technology enables rapid deployment of electronic eyes and ears to capture information within minutes of an accident, information that may help determine liability.

Eye in the Sky

Insurers also could use drones for surveillance on bodily injury claimants who assert disability. This would be a controversial approach, though, as it smacks of an Orwellian state. Currently, adjusters questioning injury and disability claims can conduct activity checks and sub rosa investigations to assess the veracity of disability claims.

Drones can arm claims units with more sophisticated and unobtrusive ways to gauge the physical activities of targeted claimants to impeach claims of disability. In the past, it has been awkward for surveillance firms to unobtrusively position vans near a residence to monitor activities. Drones potentially eliminate that need, replacing it with aerial surveillance that can record a “disabled” claimant mowing the lawn, climbing ladders, cleaning gutters, or kicking it on off-road mud-bogging jaunts. Admittedly, such evidence may evoke outrage from the personal injury bar. However, drone technology may refine insurance carriers’ abilities to fight fraud and validate claims.

“Your Check Is in the Air”

Drones offer more ability to rapidly settle claims. Imagine situations in which an adjuster talks by phone to a claimant and promises that, if she returns a signed proof of loss or release, the adjuster will deliver the settlement check in hours or minutes via a drone. Instead of waiting for an insurance payment in the mail, claimants and policyholders would get the instant gratification of same-day payment. The prospect of rapid check delivery may incline policyholders and claimants toward early claims resolution.

Adjusters often say, “The only good file is a closed file.” The ability to close files may be enhanced by drones, which can deliver settlement papers and checks. This may boost the ability to effectuate rapid turnover in an office’s pending claims inventory.

New Technology? New Liabilities

Of course, drones have liability risks and could spawn new claims. For example, commercial drones likely would fly at low altitudes, probably at the same level as helicopters. According to an article in the Wall Street Journal that quoted Nick McMahon of McMahon Helicopters in Canton, Miss., extending authority to fly drones commercially could be interpreted by some as a “license to kill” and could risk unexpected flight incursions on civil aircraft. While military drones can “see and avoid” other air traffic, most advanced commercial drones lack such features.

One liability concern is the risk of drones or packages dropping from the sky on unsuspecting humans or damaging property. When drones crash, various parties will point fingers at each other. Was it due to operator training and competence? Was it a product defect? Was it an act of God?

Drone technology might sound neat, until one crashes through your car window or strikes an unwitting pedestrian. In such cases, rest assured the inevitable liability lawsuits based in tort will increase. Such collisions—whether airborne or terrestrial—will spawn claims and lawsuits. In addition, one can envision civil suits regarding invasion of privacy when drones conduct surveillance on injured claimants for disability validation purposes. Plaintiffs will not want for targets, either.

An Austrian videographer was fined $10,000 for allegedly operating a drone recklessly in Virginia. He recorded a promotional video of the University of Virginia campus in Charlottesville. The FAA claims he flew the drone recklessly close to buildings, pedestrians, and cars.

In Petersburg, Va., Eileen Peskoff was attending a festival in 2013 when she was leveled by a four-foot-wide drone helicopter that was filming the event before it lost control (the batteries died). Elsewhere, a hobbyist launched his radio-controlled drone from a Manhattan apartment balcony, oblivious to the fact that signal interference would cause the drone to quickly crash, caroming off the side of a building.

Drones will create a new subspecialty for personal injury attorneys who bring claims against manufacturers and/or operators. Claims against manufacturers will flow from allegations of defective design, manufacturing, or failure to warn—or some combination of all three. Liability claims against drone operators will be rooted in negligence for failing to safeguard the operation of such aircraft.

In addition, privacy issues abound. How do drones find us? Who wants to look out their apartment windows and see a hovering “peeping Tom” octopod? Partly in response to such concerns, in September 2013, Texas’ state legislature outlawed drone photography of private entities without the latter’s consent.

While drones might spawn liability claims, a silver lining is that this creates a need for liability insurance. While the marketplace often reacts slowly, one can envision specialized liability policies designed to provide coverage for those who deploy drones. Insurance companies are looking warily at the market for drones but have no idea how to price or cost the coverage.

As commercial drone use increases, there will be a need for insurance coverage. In both first-party physical damage coverage and liability protection, a whole new insurance market will emerge due to drone commercialization and popularization.

Chicken Little was wrong—the sky isn’t falling. That’s the good news. The bad news? Objects may drop from the sky, creating new challenges and opportunities for the insurance claims industry.