How Insurance Can Add Value, Confidence And Assurance To The UAS Resale Market

How Insurance Can Add Value And Assurance To The UAS Resale Market

By Terry Miller

Sales of used Unmanned Aerial Systems (UAS) are becoming more common and in the future will involve systems that are much larger, carry substantially higher value along with a lot of potential liability.

When they see articles like those outlining Uber’s plans for passenger carrying drones, insurance underwriters naturally begin calculating the loss potential and related exposures like products liability and future liability arising from the resale of drones by their insured’s. And when passenger carrying begins, how will the General Aviation Revitalization Act (GARA) play into the equation? Will it increase exposure to owners? Most agree that it will, just as it does in manned aviation.

When a system costing $30,000 or more is purchased, the question of resale naturally arises. Will there be any residual value and what can an owner do to help preserve that value? What about liability arising from the sale of used UAS or Unmanned Aerial Vehicles (UAV)? What liability do I expose myself or my company to when I sell a used UAS and what are the liability risks associated with purchasing a used UAS? Remember that hasty repair you made on-site after a hard landing last summer?

So what happens after you sell that used UAS? Are you concerned about having insurance coverage for bodily injury or property damage arising from from the failure of the UAS? You should. Some of you may be thinking; “wait, I sold my UAS and that leaves me off the hook” Are you?

There is an obscure and little known liability coverage for former owners who sell their UAS that may be endorsed onto their policy. Why would they need it and what does it cover?

Consider the following: You have signed the bill of sale and the new owner packs up the UAS and drives away. Later that evening – or even weeks or months later – you find out there was an accident involving “your” UAS. Did you know you could potentially be liable for bodily injury or property damage to third parties? Again, you may be saying; “ But, I sold the UAS, and I have the bill of sale to prove it”.

If an attorney could prove the cause of the accident was due to your negligence when you owned the UAS, then this coverage may come in to play. For example, what if the accident was due to a maintenance issue, repair or failure to repair on your part when you owned the UAS? Though that type of occurrence may seem remote, claims have occurred and will occur more often as millions of UAS reach the resale market. Fortunately, aviation and aerospace insurance companies are aware of this exposure and several carriers can provide a liability coverage endorsement for the “Sale of UAS, UAS Parts or Maintenance.”

As you might imagine, having this coverage in place at the time of sale will have a dramatic impact upon the resale value to the seller, the desirability of your UAS to a buyer and in differentiating your used UAS from every other uninsured UAS listed for sale on the market.

What does it cover and not cover? As always, it varies so read your policy and endorsement carefully.

Most policies that provide the coverage will contain wording that is similar to the following:

COVERAGE – LIABILITY FOR SALE OF AIRCRAFT, AIRCRAFT PARTS OR MAINTENANCE

The Company shall pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages because of bodily injury or property damage caused by an occurrence and arising out of:

(a) aircraft that the first Named Insured has relinquished from its exclusive ownership and control,

(b) aircraft that the Named Insured has either sold or relinquished from an exclusive written lease, or

(c) materials, parts, equipment, fuel, lubricants or maintenance services for aircraft of others provided or performed by the Named Insured on a not for profit basis,

but only if the bodily injury or property damage occurs away from the premises owned by or rented to the Named Insured and after physical possession of such aircraft, materials, parts, equipment, lubricants or fuel has been relinquished to others. Coverage H is subject to the following provision which is in addition to all other applicable provisions not herein revised:

EXCLUSION (Applicable to Coverage)

This insurance does not apply to bodily injury or property damage arising out of the sale or relinquishment from an exclusive written lease of aircraft, if the Insured is in the business of:

(1) manufacturing aircraft;

(2) selling aircraft; or

(3) distributing aircraft.

In many ways, relinquishing control of a UAS that we have owned, operated, and maintained can increase our exposure to liability. Good risk management practice says to identify potential hazards, and what you can not mitigate, you may want to transfer to an insurance policy. An experienced and knowledgeable insurance broker like Transport Risk Management will identify those exposures and make certain that you are properly and adequately covered for the long term.

President of Transport Risk Management, Inc. Aviation Insurance Professionals