Due to the content length, we have divided the analysis into four parts. This document is Part 1.

Part 1

• Policy overview
• Declarations
• The Policy
• Section VI - Definitions

• Section I - - Coverages
• Section II - General Policy Exclusions
• Section III - Who Is An Insured

• Section IV - Limits of Insurance
• Section V - Policy Conditions

• Endorsements

Throughout our review of the policy, we use the term ‘drone’ in lieu of the policy term ‘unmanned aerial system’ for convenience.

The policy first contains a statement regarding claims services and who to contact, as well as a privacy statement.

On the sample policy, three insurers are listed with their respective percentages of coverage, but there may be more or less insurers on an individual policy and their respective percentages of coverage may vary. Despite the number and percentages of insurers on the policy, the liability of these insurers is several and not joint, and this is clearly stated on the Declarations.

Policy Overview:

• On-Demand (Hourly) Policies:

Indoor coverage and worldwide coverage endorsements are not automatically included in on-demand policies. Indoor coverage can be added optionally for around $5.00–$10.00.

• Physical Damage (Hull) Coverage (see Endorsements):

If an insured opts for hull coverage, there is an added premium based on the drone’s insured value.

Hull coverage includes:

• Loss or physical damage to drones, mounted equipment, spare parts, and other related paraphernalia such as remote controllers.
• Theft, disappearance, flyaway
• TRIA - Terrorism Risk Insurance Act

• Paraphernalia that does not relate directly to the drone. This includes; Tablets, mobile phones, personal computers, non-drone cameras, and lenses. {DJI CrystalSky remote controllers can be included}
• Equipment without a related drone

A standard policy provides personal injury liability at $25,000 for each offense and in the Aggregate, which may be increased upon underwriter review and approval, up to $100,000.

Declarations:

Before the Declarations, the policy contains a three-page Guide to the Provisions of Your Policy document, which is a topical page reference providing an outline for ease in reading the policy, while also containing a recommendation to read the entire policy carefully. Since the entire policy is a digital online document, we think it would be helpful if the topics were linked to the page numbers, rather than having to scroll through to find them.

The Declarations first presents the insurers who are providing the coverage explained in the policy. The insurers provide coverage separately. In order to quality for coverage the insured must be a resident of the United States.

Nine additional items are then listed with a brief summary:

Item 1. Named insured and address - Insureds must be U.S. residents.

Item 2. Policy period - This can be an hourly, monthly or annual period as designated on the declarations.

Item 3. Limit of insurance - This item has two parts, Part 1 Liability and Part 2 Physical Damage.

Part 1 Liability: Each occurrence limits are available from $0.5M to $10M, with $1M limit being the most common. A cargo sublimit is shown on the declarations page, but this is seldom purchased at this time, as few operators in the U.S. offer such services. There is also a cargo deductible if such coverage is selected. The sublimit is part of the each occurrence limit, and not additional.

Unlike the standard CGL policy, the declarations include a section for stating Supplementary Payment limits for emergencies and search and rescue operations related to scheduled aircraft, but given that the amount shown is NIL for these operations this seems to be non-standard coverage requiring specific account underwriting. The emergency conditions are application of foam on a runway or fire and crash control and rescue, not likely needed for most drones. Refer to Section II - Liability, Supplementary Payments for more information on these supplementary payments.

Part 2 - Physical Damage - This describes the aircraft being covered, its insured value and the applicable deductible shown in percentage. Newly acquired aircraft is subject to the maximum insured value limit, which on the sample policy is $1,000,000.

Scheduled Aircraft:

(a) Subject to Paragraph (b) below, the limit of insurance for a scheduled aircraft is its insured value, less any applicable deductible.

(b) The insured value of any newly acquired aircraft or any scheduled aircraft modified during the policy period is subject to the Maximum Insured Value Limit $1,000,000

Item 4. Description of insured aircraft - Coverage applies only to the scheduled aircraft shown in the schedule and newly acquired aircraft. The separate schedule requires the year, make and model, identification number, and insured value, with deductibles for in motion and not in motion. Owned or leased drones owned and operated by the named insured may be scheduled, as long as they do not exceed 55 lbs.

Deductible Example:

A DJI Inspire 2 is insured with a scheduled aircraft value of $3,000. At a 10% deductible, the deductible amount will be $300 per occurrence.

• In the event of a drone crash, insured will be responsible for paying the stated deductible.
• If the damage amounts to $1,000, insured will pay $300 and the insurance policy will cover the remaining $700.
• If the drone is a total loss, insured will pay the same $300 deductible, and the insurance company will cover the remaining $2,700.

However, policies do not provide coverage for:

• Drone chemical spraying operations (unless approved by underwriters)
• Drone/Equipment electrical malfunction while on-ground resulting in no physical damage.

Item 6. Pilots - The policy shall not apply while a scheduled aircraft is in flight unless the pilot in command is approved by the Named Insured and appropriately licensed for the flight being conducted. Pilot in command is a defined term.

Item 7. Coverage territory - Worldwide. Indoor coverage is provided through monthly and annual plans, but indoor operations over people required underwriter review and approval.

Item 8. Policy issuing office - policies are issued on behalf of Skywatch.AI by Global Aerospace, Inc, 115 Tabor Road, Suite 3A, Morris Plains, NJ 07950.

Item 9. Premium - the premium is listed, and any applicable California surcharge.

Plus:

Listing of Endorsements issued at Policy Inception. The sample policy has the Aircraft Schedule and 15 endorsements attached.

This policy is completed by attachment of form UAS, the Aircraft Schedule(s) described in Item 4 and the following endorsements made part of this policy on its effective date:

UASE041, UASA121, UASA125b, UASC022, UASC025, UASC036, UASC039, UASC061, UASC064, UASC066, UASC095, UASN004, UASC023, UASC054, UASS001

The last page of the declarations contains a statement that various provisions in this policy may restrict or limit coverage. As with all policies, the insured is instructed to read the entire policy carefully to determine rights, duties and what is and is not covered. The Declarations, these provisions and any attached Aircraft Schedules and endorsements complete the policy.

Next, the following introductory provisions appear:

Throughout this policy:

1. Words and phrases that appear in bold italicized type have special meaning (Refer to SECTION VI - DEFINITIONS);

2. The words “we”, “us” and “our” refer to the insurers providing this insurance;

3. The word “insured” means the persons or organizations qualifying as such under SECTION III – WHO IS AN INSURED;

4. The words:

(b) “Named Insured” refer to each person or organization shown in Item 1 of the Declarations;

(c) “You” and “your” refer to the Named Insured shown in the Declarations and any other person or organization qualifying as a Named Insured under this policy; and

5. If:

(a) Newly formed or acquired organizations are not included in the description of the Named Insured in Item 1 of the Declarations, and

(b) During the policy period, a Named Insured forms or acquires any organization other than a partnership, joint venture, or limited liability company, the words “Named Insured,” “you” and “your” shall refer in like manner to any such organization formed or acquired by a Named insured.

However, insurance afforded by this policy

(1) applies only if there is no other insurance, similar to the insurance afforded by this policy, available to the newly formed or acquired organization and

(2) continues only until the 60th day after the organization’s formation or acquisition or the end of the policy period, whichever is earlier.

The insurance afforded by this policy as respects any newly formed or acquired organization applies only to bodily injury or property damage that occurs and physical damage sustained after the organization’s formation or acquisition.

Analysis:

This introductory section is straightforward. It advises that there may be coverage restrictions or limits and that the insured should carefully read the the policy. The terms identifying the insurer and the insured are explained, and it advises that definitions are provided for certain terms. Also identified are how newly formed or acquired organizations are handled. Coverage for newly formed or acquired organization is for bodily injury or property damage that occurs and property damage that occurs after the organization’s acquisition or formation.

The Policy:

Section I - Coverages

Section II - General Policy Exclusions

Section III - Who Is An Insured

Section IV - Limits of Insurance

Section V - Policy Conditions

Section VI - Definitions

Even though the Definitions appear in the policy last, we will review this section first since the definitions are imperative to understanding the policy and what is and is not covered:

SECTION VI – DEFINITIONS

Bodily injury means physical injury sustained by a person and includes

(a) Mental anguish, sickness or disease; or

(b) Death

resulting therefrom.

Analysis:

The definition of bodily injury is broad in that it encompasses mental anguish, as well as sickness or disease; and death if it results from any of this. This is atypical as most policy definitions of bodily injury do not include mental anguish. However mental anguish has not been defined, so for purpose of coverage it would likely be given its plain, ordinary meaning. Merriam-Webster defines it as a high degree of emotional pain, distress, torment, or suffering that may aggravate a crime or be a subject of an action for damages or wrongful death.

Cargo:

(a) Means property while being loaded, unloaded, or carried on board the aircraft component of an unmanned aircraft system.

(b) Does not include:

(1) Property installed on the aircraft component of an unmanned aircraft system;

(2) Live animals, birds, reptiles, fish, or plants;

(3) Accounts, deeds, evidences of debt, mail, money, notes, securities, bullion, credit cards, furs, fur garments, jewelry, precious stones, valuable papers and records, paintings, statuary or other works of art, or other articles of extraordinary value; or

(4) Payload

Analysis:

The cargo definition includes coverage while the property is being loaded, unloaded, or carried aboard the unmanned aircraft system, and the definition clarifies the types of property that are not cargo. The payload definition appears later but means equipment that is capable of enhancing the utility of the aircraft component of an unmanned aircraft system on which it may or may not be installed, the value of which is to be treated separately from that of a scheduled aircraft and not included in the insured value thereof. Payload does not include dispensable load, which is cargo configured to be dispensed from an aircraft in flight.

Cost to repair:

(a) Means the sum of:

(1) The necessary cost of transporting, by the least expensive reasonable means, the damaged property, replacement parts and tools to the place of repair and the repaired property from the place of repair to the nearest of the place of accident or home airport or heliport; and

(2) The actual cost of:

a. Inspection, required by a manufacturer, to investigate the full extent of physical damage;

b. Using materials and parts of like kind and quality to repair or replace damaged property or replace missing property;

c. Labor charged at straight time rates to effect such repair or replacement; and

d. Reasonable overhead, but only for that portion of the repairs actually made by you.

(b) Does not include the cost of:

(1) That part of any repair or replacement that results in better than like kind and quality; or

(2) Repair or replacement of any property that has not sustained physical damage.

Analysis:

The cost to repair definition includes transport and labor components, and investigative costs, as well as the actual cost of repair or replacement of damaged property. The definition clarifies that coverage is limited to repair or replacement of like kind or quality of missing or damaged property, but not to its betterment. Reasonable overhead is included, but only for the actual repairs made by the insured.

Coverage territory means the territory shown in the Declarations.

Civil aviation authority means the duly constituted agency or authority of a sovereign power having jurisdiction over civil aviation within its borders.

Dispensable load means cargo configured to be dispensed from an aircraft in flight.

Analysis:

By defining coverage territory as that shown in the declarations, this allows for flexibility to limit the use of the drone to specific area use, but the typical policy coverage territory is worldwide.

Civil aviation authorities are given many names, and can be large or small, and geographic area specific. Adding this definition removes the need to name every aviation facility that might be used by a drone.

Dispensable load was discussed above in relation to the cargo definition, and is property that can be dispensed from the drone such as food, medical supplies or other products.

Flight means:

(a) As respects any aircraft other than a glider without self-launch capability or lighter-than-air aircraft, the time commencing with the application of power for takeoff and continuing until (1) the completion of the decelerating run after touching down or (2) touching down in the case of a vertically landed aircraft;

(b) As respects a glider without self-launch capability, the time commencing with the application of power for takeoff to the tow aircraft and continuing until the glider comes to rest after landing; and

(c) As respects a lighter-than-air aircraft, the time commencing with the release of moorings and continuing until the application of moorings.

In motion means:

(a) While the aircraft is in flight, moving under its own power or the momentum generated therefrom, or on water and not moored; or

(b) If the aircraft is a rotorcraft, anytime that the rotors are rotating.

Insured contract means a hold harmless agreement required by a military or governmental authority as a prerequisite to the use of an airport, heliport or a related facility.

Analysis:

Since coverage is provided and the deductible is applicable to in motion and not in motion use of the drone, both flight and in motion are defined terms. In simple, flight time includes the time the drone is powered up until the time it decelerates and touches down and comes to a complete landing stop. Some drones are moored, or anchored down if wind susceptible. As such, flight includes the time from when the drone is released from its moorings for flight and continues until it is once again moored/anchored.

In motion includes that part of the flight time when the drone is moving under its own power or is on water but not moored; or in the case of a rotorcraft, anytime that the rotors are rotating.

Unlike a standard CGL policy, an insured contract is limited to such as required for the use of an air transportation facility.

Insured value means:

(a) As respects any scheduled aircraft which is shown in the Aircraft Schedule(s), the amount shown as part of the description of the aircraft; or

(b) As respects any scheduled aircraft which is a newly acquired aircraft, the lesser of the Maximum Insured Value Limit shown in the Declarations or:

(1) If purchased by you, the actual cost to you.

(2) If leased to you, the amount for which you have agreed to insure the property, as required by the lease.

Analysis:

The insured value is agreed upon by the insurer and the insured and that amount is shown on the scheduled aircraft part of the declarations. If the drone is newly acquired, the insured value will not exceed its actual cost or the amount agreed to in the lease agreement.

Newly acquired aircraft means the aircraft component of an unmanned aircraft system that has been certified for flight by a civil aviation authority, which you acquire after the beginning of the policy period by purchase or by exclusive written lease for a period in excess of thirty (30) days; but, only if:

(a) It is in addition to and of the same make and model as an aircraft component of an unmanned aircraft system shown in the Aircraft Schedule(s);

(b) On the acquisition date, there is no other insurance, similar to the insurance afforded by this policy, in effect for such aircraft; and

(c) You report the acquisition to the Policy Issuing Office shown in the Declarations within sixty (60) days of the acquisition and agree to pay the additional premium we require.

Analysis:

A newly acquired drone can be added for a maximum of 30 days, as long as it is identical to the type of drone already scheduled on the policy. There must be no other insurance applying to the newly acquired drone and it must be reported within 60 days of it’s acquisition date and of course a premium must be paid for such acquired drone to maintain the coverage.

Occurrence means an accident, including continuous or repeated exposure to substantially the same general harmful conditions.

Analysis:

The liability coverage provided is on an occurrence basis, and the definition of occurrence is like that under a standard CGL policy.

Payload means equipment that is capable of enhancing the utility of the aircraft component of an unmanned aircraft system on which it may or may not be installed, the value of which is to be treated separately from that of a scheduled aircraft and not included in the insured value thereof. However, payload shall not include dispensable loads.

Analysis:

Throughout the policy, payload is not covered and any value of such cannot be included in the scheduled drone or its insured value. The definition is added to clarify what is being excluded by this term, and to distinguish it from dispensable loads of cargo which may be covered under the policy.

Physical damage:

(a) Means direct, physical, and accidental:

(1) Loss of, or

(2) Damage to

all or part of the property insured under PART 2 – PHYSICAL DAMAGE.

(b) Does not include any of the following, however caused:

(1) Loss of use.

(2) Any residual decrease in value after repairs are completed.

(3) Loss of the aircraft component of an unmanned aircraft system that has disappeared after the commencement of a flight you permitted until it has been missing and not reported for thirty (30) days.

(4) The damage confined to wear and tear, freezing, depletion, rust, corrosion, erosion, or any other form of gradual deterioration.

(5) The damage confined to mechanical or electrical breakdown, failure, or malfunction.

(6) The damage confined to an aircraft engine or auxiliary power unit or any component, accessory, or part thereof resulting from mechanical or electrical breakdown, failure, or malfunction of any of its components, accessories, or parts.

(7) Heat damage to an aircraft engine or auxiliary power unit or any component, accessory, or part thereof which occurs during the operation, attempted operation, or shutdown of the engine or unit.

(8) The damage to an aircraft engine or auxiliary power unit or any component, accessory, or part thereof that has been contacted by a foreign object except where such damage is the result of a single recorded incident sustained during the policy period which is of sufficient severity, when such damage is discovered, to require immediate repairs in compliance with the requirements of the engine or unit manufacturer.

Analysis:

The policy is designed to cover physical damage caused by direct, physical, and accidental damages, i.e., drone crash incidents. As such, the definition of physical damage does not cover damage unrelated to crashes. In addition, there is no coverage for many other types of damage as listed, however caused. These include loss of use, diminished value, or missing components (unless reported within 30 days of flight); and other damages if those are the only damages to the drone, namely: wear and tear or other deterioration, mechanical or electrical issues, power and malfunction issues, and heat damage associated with the engine or power of the drone. Lastly, damage to the engine or power unit or its parts from a foreign object, unless the damage is of such severity that it requires immediate repair to comply with the manufacturer of the engine or its unit, and the damages are the result of a single recorded incident sustained during the policy period.

Pilot in command means the pilot responsible for the operation and safety of the aircraft.

Analysis:

This term is used in the policy declarations to designate who is covered under the policy for use of the drone.

Property damage means:

(a) Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or

(b) Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the occurrence that caused it.

Analysis:

This property damage definition is added in relation to the liability portion of the policy, not to be confused with the term physical damage. The definition is similar to the ISO definition, while tailored to the unmanned aerial system policy.

Scheduled aircraft means the aircraft component of an unmanned aircraft system that has been certified for flight by a civil aviation authority and which is shown in the Aircraft Schedule(s), and also

(a) any newly acquired aircraft;

(b) the propulsion system and parts and equipment installed in or on the aircraft component of the unmanned aircraft system:

(1) while installed; and

(2) while temporarily removed until replacement has commenced:

a. removed parts which are intended to be replaced with similar parts shall not be considered part of the aircraft component of an unmanned aircraft system from the moment that the replacement part comes into physical contact with the aircraft component of an unmanned aircraft system;

b. removed parts which are not intended to be refitted to or replaced on the aircraft component of an unmanned aircraft system shall not be considered part of the aircraft component of an unmanned aircraft system from the moment that such parts are no longer in physical contact with the aircraft component of an unmanned aircraft system;

(c) tools and equipment in the aircraft component of an unmanned aircraft system which have been designed for use with the aircraft component of an unmanned aircraft system and are ordinarily carried therein.

However, scheduled aircraft shall not include payload.

Analysis:

This definition describes what is covered as a scheduled aircraft, necessary as it applies to the declarations and the coverage provided by the policy. Note that to be scheduled aircraft, these must be drones that do not exceed 55 lbs, and must be owned or leased and operated by the named insured. While it is necessary to cover parts that have become damaged but are being repaired or refitted for the drone, this coverage does not extend to them being left lying around or new parts while they are awaiting attachment to the drone. So, they are covered only temporarily and only when they are in physical contact with the drone.

Suit means a civil proceeding in which damages because of bodily injury or property damage to which this insurance applies are alleged, and

(a) An arbitration proceeding in which such damages are claimed;

(b) Any other alternative dispute resolution proceeding in which such damages are claimed; and to which the insured must submit or does submit with our consent.

Total loss means physical damage to scheduled aircraft:

(a) Resulting in loss of the entire scheduled aircraft, or

(b) Where the cost to repair exceeds 75% of the insured value of the scheduled aircraft.

Unmanned aircraft system means a complete system, certified as such by a civil aviation authority, consisting of an aircraft and the associated equipment needed for its operation and remote control.

Analysis:

The last three definitions are seemingly self-explanatory. A suit is defined similar to ISO and includes not only a civil proceeding for damages, but also arbitrations and alternative dispute resolutions, with the consent of the insurer.

A total loss is one that is either an entire loss of the scheduled drone, or where the repair costs are greater than 75% of the drone’s insured value.

An unmanned aerial system is the complete, certified system as determined by a civil aviation authority, and it consists of the aircraft at equipment needed for its operation and remote control.