Insuring your drone will make your head spin By Kathleen Pender

Photo: Connor Radnovich, The Chronicle Mark Nano (left) and Colby Curtola compare drone designs before sending the crafts for flights at Golden Gate Park.

The Federal Aviation Administration issued a rule last month that will make it easier to use unmanned aircraft systems — better known as drones — for commercial purposes such as aerial photography, equipment inspection and news gathering.

Insuring your drone, however, is anything but simple. Drones pose myriad risks, including damage to the drone itself, to people or property hit by a drone and invasion of privacy claims.

Your homeowners or renters policy might — or might not — cover some or all of these risks if you’re flying a drone for fun, but it won’t cover business use. The Academy of Model Aeronautics provides drone insurance to members, but it also excludes commercial use.

If you use a drone to make money, your general business insurance might cover the drone itself, but you usually need a specific aviation-liability policy to cover damage it inflicts on people or property.

The FAA has long allowed hobbyists to use drones for recreational purposes without authorization, but it has prohibited their use commercially unless the operator obtained what’s known as a Section 333 exemption and operated under its strict guidelines. The FAA has granted more than 7,100 of these exemptions since September 2014, but the application is complicated and there’s a processing backlog.

The new rule, dubbed Part 107, makes it legal to use drones under 55 pounds for commercial purposes without FAA authorization, as long as the pilot passes a test, registers the drone, flies it within sight during daylight hours below maximum altitude and speed limits, and follows other safety regulations.

The new rule does not deal with privacy issues, but the FAA says it is acting to address them. In the meantime, it encourages drone pilots “to check local and state laws before gathering information through remote sensing technology or photography.”

Photo: Connor Radnovich, The Chronicle Larry Davis inspects his drone after it experienced technical difficulties in flight at Golden Gate Park.

More drones

Commercial drone use is expected to take off when the rule goes into effect Aug. 29. Insurance companies are expanding their offerings in this area. Some are using drones themselves to survey roofs and catastrophe scenes.

San Francisco filmmaker Toby Harriman was using his drone for aerial photography before a fireworks show on the Fourth of July in Colorado when it was shot down. “I think it was a group of drunk people on their deck having a party,” Harriman said. He filed a police report, but nothing came of it.

Fortunately he had business insurance for his photography equipment that covered the downed drone and camera. He filed a claim with Travelers Insurance, which agreed to pay him $3,900, after a $250 deductible. He got about the same amount when he lost a drone in Iceland this year.

Harriman is a bit concerned, because he has heard that if you file two drone claims, your policy might not get renewed. His business policy does not provide liability coverage for the drone, and he’s had trouble getting it.

For businesses, “a general liability policy would exclude anything associated with aviation, typically,” said Shawn Ram, a regional manager in San Francisco for insurance broker Crystal & Co.

Matthew Lavin, whose Santa Cruz company Aerography UAVs operates under a Section 333 exemption, said he is required to get at least $2 million in third-party aviation liability insurance when working through the California Film Commission. Some clients and venues want $5 million or more.

Businesses can get this specialty insurance from underwriters such as AIG, Global Aerospace, Starr Insurance and Allianz.

Lavin’s broker, Transport Risk Management, placed him with Allianz. “I was vetted extremely hard,” he said.

Last year, he paid over $3,000 in premiums for two drones. One had $1 million in liability coverage, the other had $2 million. This year, prices have come down and he paid only $1,500, which also covered damage to one of the drones.

Global Aerospace charges around $800 to $900 a year for $1 million in liability insurance for “lighter drones,” said Chris Proudlove, a senior vice president with the insurer.

It also sells “hull coverage” for damage to the drone and equipment. For models in the $1,000 to $2,000 range, the annual premium is 5 to 10 percent of the insured value.

Proudlove said demand for aviation insurance is growing “at an incredible pace” in anticipation of the new rule. “As more and more commercial operators realize that the bar has been set pretty

low in terms of what they can do, more commercial and public entities are looking to integrate drones.”

As with any type of insurance, you must read the exclusions carefully, and if you don’t understand them, talk to your agent. Most policies exclude damage caused by acts of war, which could include sabotage, which could include someone shooting down your drone.

Photo: Connor Radnovich, The Chronicle Colby Curtola flies his drone at Golden Gate Park.

Added coverage

Many commercial policies also exclude damage arising from technology failures, such as a cyberattack on a drone, Ram said. You can buy additional coverage for those risks.

For hobbyists, “the situation is very unclear,” Proudlove said. “It’s questionable as to whether homeowners would cover drone use.”

Most homeowners and renters policies “are silent” as to whether they cover drones, Ram said. If you operate a drone for recreational use, talk to your agent.

Colby Curtola, a San Francisco drone racer and instructor, has insurance through the Academy of Model Aeronautics. Membership in the Academy generally costs $75 per year and comes with $2.5 million in liability insurance for damage caused by drones. The policy also will pay up to $1,000 if a drone is lost, stolen or damaged, said Chad Budreau, a spokesman for the Academy. He could not say how many claims have been paid out under this policy.

Kathleen Pender is a San Francisco Chronicle columnist. Email: kpender@sfchronicle.com Twitter: @kathpender