Summary: With the surge in popularity of unmanned aircraft, such as drones, the Insurance Services Office (ISO) has developed a form—Limited Coverage For Unmanned Aircraft Property, IH 99 29 01 16—to address the coverage needs of these type of craft. This form, unlike IH 00 61 01 16, does not provide coverage for cargo carried by unmanned aircraft.
Topics covered:
Additional coverage – additionally acquired unmanned aircraft
Covered causes of loss and exclusions
Unmanned Aircraft Systems (UAS), such as drones, are robots with the ability to hover, which makes them useful for using video cameras to record data; hence their use in firefighting, surveillance, and traffic monitoring. They can also be used for delivering smaller packages or spraying crops. They can be controlled remotely similar to how remote hobby aircraft are controlled, but they can also be programmed to fly independently using GPS navigation.
The IH 99 29 form is used in conjunction with the Commercial Inland Marine Conditions Form, CM 00 01 09 04, and the Common Policy Conditions Form, IL 00 17 11 98, to cover unmanned aircraft and cargo against direct physical loss or damage, including that which occurs when the unmanned aircraft are used in commercial or civil operations. It can be endorsed to the Contractors Equipment Coverage Form, Machinery And Equipment Coverage Form, and the Miscellaneous Articles Coverage Form.
The coverage can be written on a blanket or scheduled basis.
ISO's Inland Marine Handbook lists several factors and characteristics that should be considered when underwriting unmanned aircraft, including if the craft is manufactured commercially or built from a kit; the year it was built; the maximum speed and flight radius; the altitude and duration of flight; payload capacity; if the aircraft has been modified after manufacture in order to increase speed, range, payload capacity, or other capacities; if the craft can be operated beyond line-of-sight; if geofencing technology is included (aids in avoiding restricted airspace); if collision avoidance and return-to-home technology is included; if the operating software uses encrypted link technology; how complex the aircraft is to operate; if the insured owns, rents, or leases the aircraft; and the number of unmanned aircraft the insured owns, rents, or leases.
1. Covered Property – Unmanned Aircraft
We will pay for direct physical loss of or damage to the following Covered Property from any of the Covered Causes of Loss:
"Unmanned aircraft" owned by you, or rented or leased to you if you have a contractual responsibility to insure, that are described in the Schedule. However, if loss or damage occurs while such "unmanned aircraft" are in flight, in preparation for flight or being transported to or from the launch or landing site, coverage applies only if such use is part of "unmanned aircraft operations".
Coverage for such "unmanned aircraft" includes the following property but only if such property is not covered under the Coverage Form to which this endorsement applies:
a.Equipment used with such "unmanned aircraft" provided such equipment is essential for operation of the "unmanned aircraft" or for executing "unmanned aircraft operations"; and
b.Data generated as part of "unmanned aircraft operations" and the electronic media on which such data is processed, recorded or stored, such as software, films, tapes, discs, drums or cells.
2.Property Not Covered provisions in this Policy that address aircraft do not apply to the property addressed in Paragraph A.1., but such exception only applies with respect to the coverage provided under this endorsement.
Analysis
The form promises to pay for direct physical loss or damage to unmanned aircraft. "Unmanned aircraft" is a defined term on the form, meaning an aircraft that is not designed, manufactured, or modified after manufacture to be controlled directly by a person from within or on the aircraft. Such aircraft are generally operated by remote control or programmed to fly via GPS navigation.
The aircraft must be owned, rented, or leased by the insured or for which the insured has a contractual responsibility to insure. Loss to such craft is covered in flight, in preparation for flight, or being transported to or from the launch or landing site only if this use is part of the unmanned aircraft operations. "Unmanned aircraft operations" is a defined term in the policy meaning the operations described in the declarations. Operations may include fire fighting, aerial photography, or delivery of goods. If, for instance, the insured's unmanned aircraft operations are described in the declarations as delivery of goods and the aircraft is damaged in flight while being used to take wedding photos for the insured's cousin, that damage would not be covered if aerial photography was not described as part of the operations.
The associated equipment and data generated as part of the operations are also covered, as well as the media on which the data is processed, recorded, and stored. Such items as remote controls and the software that processed the data collected would be covered.
The property is covered only if not already covered under the coverage form to which the endorsement applies. So, if the property is covered by the Miscellaneous Articles Coverage Form, it cannot be covered by this form, too.
Additional Coverage – Additionally Acquired Unmanned Aircraft
The Additional Coverage – Additionally Acquired Property in the Coverage Form is replaced by the following but only with respect to the coverage provided under this endorsement:
If during the policy period you acquire "unmanned aircraft" of a type described in the Schedule (including the related property addressed in Paragraph A.1.), for use in "unmanned aircraft operations", we will cover such "unmanned aircraft" (including the related property addressed in Paragraph A.1.) for up to 30 days, but not beyond the end of the policy period.
In any one occurrence, the most we will pay for the total of all loss or damage to all such "unmanned aircraft" (including the related property addressed in Paragraph A.1.) is the lesser of:
1.25% of the total of the Limits of Insurance shown in the Schedule for "unmanned aircraft" described in the Schedule; or
2.$50,000.
You will report values of such "unmanned aircraft" (including the related property addressed in Paragraph A.1.) to us within 30 days from the date you take possession and will pay any additional premium due. If you do not report such "unmanned aircraft" (including the related property addressed in Paragraph A.1.), coverage will cease automatically 30 days after the date the "unmanned aircraft" (including the related property addressed in Paragraph A.1.) is acquired or at the end of the policy period, whichever occurs first.
The Coinsurance Additional Condition does not apply to this coverage.
This Additional Coverage does not increase the applicable Limit Of Insurance shown in the Schedule.
This Additional Coverage does not apply to "unmanned aircraft" (including the related property addressed in Paragraph A.1.) covered on a blanket basis.
Analysis
The form provides minimal coverage for additionally acquired property—the lesser of 25 percent of the limit or $50,000—for up to thirty days or until the end of the policy period, whichever is first. The insured must report the values of the acquired aircraft within thirty days of taking possession in order for coverage to be provided. Additional premium must also be paid. If not reported, the coverage will cease after thirty days or at the end of the policy period.
Covered Causes Of Loss And Exclusions
Coverage provided under this endorsement is subject to the Causes of Loss and Exclusions applicable to the Coverage Form to which this endorsement is attached, and is also subject to the following exclusions:
1.We will not provide coverage when loss or damage is caused by or results from "unmanned aircraft" (or the related property addressed in Paragraph A.1.) being used in any professional or organized racing or demolition contest or stunting activity, or while practicing for such contest or activity. We also will not provide coverage while "unmanned aircraft" (or the related property addressed in Paragraph A.1.) is being prepared for such contest or activity.
2.We will not provide coverage for loss or damage that occurs while an "unmanned aircraft" (or the related property addressed in Paragraph A.1.) is rented, leased or loaned to others.
3.We will not pay for loss or damage caused by or resulting from mechanical breakdown, malfunction or failure to operate. But if loss or damage by a Covered Cause of Loss results, we will pay for the loss or damage caused by that Covered Cause of Loss.
4.We will not pay for loss or damage caused by or resulting from unexplained disappearance.
5.If an exception is indicated in the Schedule, the exclusion relating to artificially generated electrical, magnetic and electromagnetic energy (which appears in the Coverage Form to which this endorsement is attached) does not apply to this endorsement, provided that the short circuit or other electric disturbance originates within and is limited to the "unmanned aircraft" or the related property addressed in Paragraph A.1.
Analysis
The form makes clear that it is not intended to cover reckless activities such as racing or stunts. It is also intended to cover property while the insured is using it and not while it is being loaned, leased, or rented to others. Losses caused by unexplained disappearances—for example, misplacing the remote control device that controls the aircraft—are not covered.
While losses caused by mechanical breakdown, failure, or malfunction are not covered, damage caused by ensuing covered causes of loss is covered. So, if mechanical malfunction causes damage to the unmanned aircraft which leads to a fire, the damaged caused by the fire would be covered.
The schedule allows for an exception to the exclusion for loss or damage related to artificially generated electrical, magnetic, and electromagnetic energy. For the exclusion not to apply, the short circuit or other electric disturbance originates within and is limited to the unmanned aircraft and its related property.
With respect to the coverage provided under this endorsement, the most we will pay for loss or damage in any one occurrence is the applicable Limit Of Insurance shown in the Schedule.
Analysis
This section is clear—the form will not pay more than the limits of insurance shown in the schedule.
With respect to the coverage provided under this endorsement, we will not pay for loss or damage in any one occurrence until the amount of the adjusted loss or damage before applying the applicable Limit of Insurance exceeds the Deductible shown in the Schedule. We will then pay the amount of the adjusted loss or damage in excess of the Deductible, up to the applicable Limit of Insurance.
Analysis
The form pays only after the deductible amount has been surpassed by the amount of the adjusted loss or damage.
Valuation Of Data And Electronic Media
With respect to data and electronic media addressed in Paragraph A.1., the Valuation General Condition in the Commercial Inland Marine Conditions is replaced by the following:
The value of data will be the actual cost to reproduce. If the data is not replaced or reproduced, we will pay the cost of the value of the electronic media with no stored data. The value of electronic media will be the cost to repair or replace such media with substantially identical property.
Analysis
The Commercial Inland Marine Conditions form's valuation general condition states that property is valued at the least of the actual cash value of the property, the cost of reasonably restoring the property to its condition immediately before loss or damage, or the cost of replacing the property with substantially identical property. That condition is replaced with this valuation for data, which is the actual cost to reproduce the data; if it cannot be reproduced, the value is the cost of electronic media with no stored data. The value of electronic media is the cost to repair or replace the media with substantially identical property.
The Coverage Territory Condition in the Coverage Form is replaced by the following but only with respect to the coverage provided under this endorsement:
1.We cover property wherever located within:
a.The United States of America (including its territories and possessions);
b.Puerto Rico; and
c.Canada.
2.We also cover property while airborne within and between points in Paragraph 1.
Analysis
The coverage territory not only includes the U.S., its territories and possessions, Puerto Rico, and Canada, but also property while airborne between those points. Property that is airborne between Los Angeles and Toronto is covered; but, between Los Angeles and Mexico City, the airborne property is not.
The Coinsurance Additional Condition in the Coverage Form is replaced by the following but only with respect to the coverage provided under this endorsement:
If a Coinsurance percentage is shown in the Schedule, the following condition applies:
We will not pay the full amount of any loss or damage to Covered Property if the value of such Covered Property at the time of loss or damage times the Coinsurance percentage shown for it in the Schedule is greater than the Limit of Insurance for the property. Instead, we will determine the most we will pay using the following steps:
1.Multiply the value of Covered Property at the time of loss or damage by the Coinsurance percentage;
2.Divide the Limit of Insurance of the property by the figure determined in Step 1.;
3.Multiply the total amount of loss or damage, before the application of any deductible, by the figure determined in Step 2.; and
4.Subtract the deductible from the figure determined in Step 3.
We will pay the amount determined in Step 4. or the Limit of Insurance, whichever is less. For the remainder, you will either have to rely on other insurance or absorb the loss yourself.
This provision does not apply to property covered on a blanket basis.
Analysis
The form provides instructions for determining if a coinsurance penalty applies.
The following definitions are added, but only with respect to the coverage provided under this endorsement:
1. "Unmanned aircraft" means an aircraft that is not:
a.Designed;
b.Manufactured; or
c.Modified after manufacture;
to be controlled directly by a person from within or on the aircraft.
2."Unmanned aircraft operations" means the operations described in the Schedule.
Analysis
The form is intended to cover only unmanned aircraft, such as drones, and nothing that has been modified or designed to be controlled by an onboard human. The aircraft's operations are described in the schedule and may include such activities as aerial photography and pipeline locating.