The document discusses the rapidly growing use of drones (also called UAVs) and the evolving regulatory landscape around their operation. It notes that while drone use has increased, regulation remains limited. The FAA currently prohibits commercial drone use but allows hobby/recreational use. The document outlines various risks from drone operation that should be considered, such as aircraft liability, invasion of privacy, and workers compensation. It also discusses the blurred lines between hobby and commercial drone use and calls for understanding risks and regulations as drone technology advances.

1. The ABCs of UAVs
Understanding the Evolving Landscape of Drone
Regulations and Risk Management
Gallagher
Aviation
Practice
FALL/SEPTEMBER 2014

2. Aviation The ABCs of UAVs 2
The ABCs of UAVs
Understanding the Evolving Landscape of
Drone Regulations and Risk Management
The use of unmanned aerial vehicles (UAVs, or drones) has
increased dramatically in recent years. Drones — small,
unmanned aircraft that are operated remotely — are in the
news daily. The strong marketing of the devices to the
public combined with decreasing costs has proliferated
these devices, yet the regulation of them remains lenient.
The current and potential uses for drones are varied; they
are widely used in the military, for disaster and emergency
situations, and there has been much talk about extending
their use for commercial purposes. Martha Stewart even
has one to take aerial photos of her home in New York.
However, unless you are a member of the manufacturing
team of such a device, or an organization leveraging
the innovative opportunities of UAVs, there is limited
information currently available for companies interested
in pursuing UAV usage for business purposes.
U.S. Government regulation of drones has moved slower
than the business community. Currently, the Federal
AviationAdministration (FAA) prohibits the commercial
use of drones but does allow the use of drones for hobby or
recreational use, subject to some limitations.And United
States Senator Charles Schumer recently called for stricter
guidelines in regulating the operation of drones. While
Congress has given the FAA until September, 2015 to
propose regulations, Schumer, citing safety and privacy
issues, has called for swifter action.
Senator Schumer may have been thinking about a recent
news story wherein a Connecticut beachgoer took justice
into her own hands when a privately-operated drone
passed overhead. She assumed the young drone enthusiast
was taking inappropriate pictures of her enjoying the hot
summer day. While she was pursuing this “pilot” who
said his drone was flying too high to capture intimate
photos, another beachgoer was filming the incident on
their mobile device. It appears the “pilot” survived the
attack, but the drone’s condition is not certain. Keep in
mind, one doesn’t have to be a licensed pilot to order or
operate a drone. We will address this point later.
Beyond the Hype
In all the excitement, it is important to remember that
drones are aerial devices, and can present risks for
aircraft (within the commercial or private sector), and
the FAA apparently shares Congressional concerns on
the topic. The FAA recently published their roadmap
for the integration of unmanned aircraft systems in the
National Airspace System (NAS).
The FAA’s first big step following introduction of their
roadmap was the naming of six sites for the testing of
drones. Six states were chosen from a pool of about
twenty-five applicants. While no doubt a proud moment
for these states, the specific proposals and studies are
more defined, as the states are merely the sponsor for the
organization engaged in the actual research. For example,
the State ofAlaska is in reality is the University ofAlaska.
Nevada is actually the Reno-Stead Airport, and Texas is
represented by Texas A&M University.
A “Drone” by any other name:
• UAV — Unmanned Aerial Vehicle
• UAS — Unmanned Aircraft System
• RPA — Remotely Piloted Aircraft
• ROA — Remotely Operated Aircraft
• RPAS — Remotely Piloted Aircraft System

3. Aviation The ABCs of UAVs 3
The FAA plan is to form teams across the nation that
will host the development and testing of drones, with
the goal being the harmonious sharing of the sky with
commercial airlines. This plan includes gaining a better
understanding of the impact the rapid introduction of
these systems will have on U.S. airspace — the most
unique and complex air system in the world. U.S. airspace
includes commercial airlines, corporate and commercial
business jets, helicopters, blimps, balloons, and thousands
of general aviation pleasure aircraft flying together every
day.
However, the FAA’s plate contains much more than these
obvious items. We all see the cute remote control mini-
drones, but in reality we are talking about the integration
of UAVs with wingspans as large as commercial jetliners.
For instance, the Department of Homeland Security
currently employs un-armed General Atomic Predators
to perform border and port surveillance. We also have
military training & and evaluation, law enforcement,
firefighting, search & rescue and state university research
operations employing large-scale drones. These devices
are (and will be in greater frequency) flying amongst
us, and need to be effectively and safely integrated into
our NAS.
Currently, the FAAdoes not allow UAVs to operate in the
NAS. They do however make exceptions through what
is called a Certificate of Waiver orAuthorization (COA).
Federal, state and local governments and universities for
example, apply for the waiver which is then carefully
considered by the FAA. The operations may be restricted
to daytime-only or in a defined area, for example, and
require special equipment such as a transponder to
communicate with airspace authorities.
The Blurred Lines Between a Hobby and a
Business
The FAA recognizes the need to establish policies for
small UAVs (the cute ones). As drones become smaller,
more capable and easier to operate, this category continues
to experience very rapid growth. And the impact of this
growth is demonstrated most clearly by what we see
in the news every day. This includes not only a typical
consumer — making potential hobby shop orders — but
also public and commercial entities operating smaller but
very capable units. In fact, this very subject is addressed
in the FAA’s roadmap.
For all intents and purposes, the drones generating most
of the media excitement are addressed by the FAAunder
“special rules for model aircraft.” Sorry Buck Rogers,
this is what they are. Very cool, but model aircraft
nonetheless — less than 55 pounds, flown strictly for
hobby or recreational use, in a manner that does not
interfere with (and gets out of the way of) manned aircraft,
and if within five miles of an airport — giving the airport
operator and airport traffic control tower prior notice
of your intended operation. If however, a permanently
established model aircraft facility is within five miles of
the aircraft — you’re all set, because they already know
you are there.
The recreational use of model aircraft is addressed by FAA
Advisory 91-57. Interestingly, it was drafted back in 1981.
However, in 2007 the FAA further defined the advisory
as applying to modelers only and specifically excludes
companies flying model aircraft for business purposes. The
FAA is considering relaxing such restrictions — starting
with some TV and film companies under very defined
circumstances — but any such proposed rules are not
expected until 2015.
Resource: FAAAdvisory 91-57
http://www.faa.gov/documentlibrary/media/advisory_
circular/91-57.pdf

4. Aviation The ABCs of UAVs 4
As mentioned earlier, an individual doesn’t have to be a
licensed pilot to operate a drone under the model aircraft
heading. However, these drones available on Amazon.
com and other hobby websites are ready to fly out of the
box, and if you tell them to go to 2,000 feet, they will
promptly do so — right into the path of manned aircraft.
Clearly there are third party liability issues, and there
have been a number of near collisions with passenger
aircraft already this year.
Model aircraft enthusiasts have operated sophisticated
aircraft responsibly for decades. With the rapid advance in
drone technology, small acquisition costs, and exceptional
out of the box flying capability, the potential exists for
unfortunate consequences from inexperienced users.
Whether you’re a hobbyist or an emerging commercial
enterprise — understanding these risks and the ever-
changing regulatory landscape is the first step in creating
a safer airspace for all.
Drone operators should consider the
following risks and coverages when
evaluating their exposure:
• Aircraft Liability
• Aircraft Liability (War)
• Aircraft Hull
• Aircraft Hull War
• Manufacturer’s Product Liability
• Manufacturer’s Affinity Groups
• Aviation General Liability
• Airport Liability
• Non-Owned Aircraft Liability
• Invasion of Privacy Liability
• Aviation Architects & Engineers E&O
• Workers Compensation

5. Gallagher
Aviation
Practice
Two Pierce Place
Itasca, IL 60143-3141
About the Gallagher Aviation Practice
Gallagher’s Aviation Practice is a global leader in aviation risk management, including UAVs. We view this
growing sector with great excitement, and we are prepared to assist in arranging comprehensive insurance
solutions for any related exposures — from manufacturers and distributors to the end user.
For more information, contact:
Brad Meinhardt
Managing Director — Aviation
www.ajg.com/aviation
14BSD26399A