AAIS Mobile Medical Equipment Coverage

142.29

AAIS DRONE COVERAGE FORM ANALYSIS

(February 2018)

 

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INTRODUCTION

The IM 7341–Drone Coverage Form insures drones and the equipment needed to operate them. Similar property of others that is in the named insured's care, custody, or control is also covered. Coverage applies while the drone is flying but also while on the ground or in storage. Attachments to the drones, such as cameras and recording devices, can also be covered.

Eligibility

Any commercial business enterprise or farm that has owns and/or operates a drone is eligible. While initially designed for medium to large enterprises, this coverage form has no size limitation.

POLICY CONSTRUCTION

AAIS Drone Coverage requires at least these four forms:

Related Article: CL 0100–AAIS Commercial Lines Common Policy Conditions

IM 7343–SCHEDULE OF COVERAGES–DRONE COVERAGE
(01 12 changes)

This Schedule of Coverages is used with IM 7341–Drone Coverage. IM 7343 contains the following information:

Policy Number

Covered Property

 

Drone Operations

The types of operations for which the drone is used must be described in detail. The drones are covered only when being used for these operations.

 

Catastrophe Limit

The limit entered here is the most that will be paid in a single occurrence regardless of the number of drones, the number of operations, or the number of premises.

 

Drone Coverage

Coverage can be either on a scheduled basis or on a blanket basis. If on a blanket basis, the limit that applies over all drones is entered beside the checked Blanket Drone Limit.

If coverage is on a Scheduled basis, the Scheduled Drone Coverage is checked and then each drone must be described and a limit entered beside it.

If more drones, equipment or ground equipment need to be scheduled, IM 7344-Additional Drone and Equipment Schedule must be attached

 

Drone and Ground Equipment Coverage

Coverage Not Provided is the first option that can be checked.

If coverage is desired it can be either on a scheduled basis or on a blanket basis.

If coverage is to be blanketed, there are two options. The drone and ground equipment can be part of the drone blanket amount entered earlier and no separate limit is entered in this area. The other blanket option is to blanket all drone and ground equipment under their own blanket and provide a limit in this area. If coverage is on a Scheduled basis, the Scheduled Drone and Ground Equipment Coverage is checked, then each piece of equipment must be described and a limit entered beside it.

If more drones, equipment or ground equipment need to be scheduled, IM 7344-Additional Drone and Equipment Schedule must be attached.

 

Drone Cargo Coverage

A selection of Coverage Not Provided or Drone Cargo Coverage must be made.

If the drone cargo coverage is selected, one limit is entered. This limit applies on a per occurrence basis.

Optional Coverages

Two optional coverages are available. If either is desired, a check must be placed beside it and a limit entered. The two coverages are:

Coverage Extensions

The limit on the Schedule of Coverages for this coverage applies to all covered locations.

Additional Debris Removal Expenses

The limit is $5,000 unless a different limit is entered.

Supplemental Coverages

This coverage provides additional limits of coverage or additional coverage. Required entries vary by type of coverage.

The limit is $2,500 unless a different limit is entered.

A waiting period of 12 hours applies unless a different waiting period is entered.

The limit is $10,000 unless a different limit is entered.

The limit is $5,000 unless a different limit is entered.

A waiting period of 12 hours applies unless a different waiting period is entered.

The limit is $1,000 unless a different limit is entered.

Electrical Disturbance

A selection must be made to either waive or not waive the Electrical Disturbance exclusion.

Deductible

The deductible amount must be entered in the space provided.

Coinsurance

The coinsurance selection can vary by drone coverage and the drone and ground equipment coverage. The following selection must be made for each of the coverages.

Valuation

The valuation selection can vary by drone coverage and the drone and ground equipment coverage. The following selection must be made for each of the coverages.

Income Coverage

Note: Income Coverage is not part of IM 7341–Drone Coverage Form. Endorsement IM 7313–Drone Coverage–Income Coverage must be attached whenever this option is selected.

 

One of two options must be selected:

If this coverage is selected, the limit must be entered in the space provided. It is the most paid in any one occurrence.

Income Coverage Waiting Period

A selection must be made to either have a waiting period or state that it is not applicable. If it is selected, a waiting period, in days, must be entered

 

Income Coverage Extension

This applies only if Income Coverage Provided is selected.

Interruption by Civil Authority

Coverage applies up to 14 days unless a different number of days is entered.

 

Additional Information

This section of the schedule of coverages lists endorsements and forms included when the policy is issued.

 

IM 7341–DRONE COVERAGE FORM ANALYSIS

This analysis is of the 11 16 edition.

 

Introduction

You and your is the party(ies) named on the declarations as the insured. We, us, and our is the insurance company that has agreed to provide the coverage. Other definitions are part of this coverage form and are very important because they can restrict or broaden coverage.

Agreement

The insurance company agrees to provide the coverage described in the coverage form and in the schedule of coverages. The named insured agrees to pay a premium. The agreement is subject to all the coverage form's terms, conditions, endorsements, and definitions.

Property Covered

Coverage applies to the property described below, subject to any exclusions or limitations.

Three distinct types of property are covered under this form. Each has its own limits and limitations.

1. Drone Coverage

The named insured’s drone and drones of others that are in the care, custody, and control of the named insured are covered for direct physical loss or damage that is caused by a covered peril. When this coverage is written on a scheduled basis, only the listed drones are covered.

The most paid if the blanket section is made is the blanket limit. This is a per occurrence limit that applies regardless of the number of drones damaged in an occurrence.

The most paid for a scheduled drone is the limit for that particular drone.

A very important limitation applies to the drone operations. There is no flight coverage for any drone that is being used outside of the operations described on the schedule of coverages.

 

Example: Massive Realty purchased three drones to use in its business. When coverage is purchased, the drone operations are described as developing visual marketing information for use in real estate sales and rentals.

Michael, the president of Massive, takes one of the drones on vacation with him. He and the family enjoy using the drone to assist in documenting their Southwest adventure. When the drone loses power and is lost because it is in an inaccessible location, the coverage for the drone is denied because the drone was being used for family vacation pictures and not real estate visual marketing pieces.

Michael must use his personal funds to purchase a replacement drone for Massive.

 

2. Drone and Ground Equipment Coverage

If selected on the schedule of coverages, the named insured’s drone equipment and ground equipment and such equipment of others that is in the care, custody, and control of the named insured are covered for direct physical loss or damage that is caused by a covered peril. When this coverage is written on a scheduled basis only the scheduled equipment is covered. Covered ground equipment must be used to navigate or control a covered drone while it is in flight. Covered drone equipment is covered while attached to a covered drone.

The most paid if the coverage is blanket depends on the selection made. If the selection is to include the drone and ground equipment in the blanket drone limit, coverage is subject to the drone blanket limit. This limit applies regardless of the number of drones, drone equipment and/or, ground equipment damaged in an occurrence. If the other blanket option is selected that applies to only the ground equipment and drone equipment, a limit for that blanket amount must be entered and it applies to only the drone equipment and ground equipment and any combination of the two.

The most paid for a scheduled drone and ground equipment is the limit for that particular item.

A very important limitation applies to the drone operations. There is no flight coverage for any drone equipment or ground equipment that is not being used in the operations that are described on the schedule of coverages.

 

Example: When the Massive Realty drone was lost, the camera equipment and other recording devices on the drone were also lost. That equipment is also not covered because the drone was in flight and not being used for the described operations.

 

3. Drone Cargo Coverage

If selected on the Schedule of coverages, the cargo that is being hauled by a covered drone is covered for direct physical damage by a covered peril.

Cargo that is lost because of it being dropped by the drone or because it is delivered to the wrong address is also covered. The drop must be unintentional and the delivery error must be due to a drone malfunction.

Cargo coverage applies only while the drone is in flight and only for cargo that is described in the schedule of coverages. The limit on the schedule of coverages is the most paid in a single occurrence.

A very important limitation applies to the drone operations. There is no cargo coverage if the drone is not being used in the operations that are described on the schedule of coverages.

 

Example: Home Delivery Plus’s drone operations are the delivering of medical supplies and devices to clients who live in outlying areas in their rural county.

Scenario 1: The drone is delivering medical devices and supplies to a client. A falcon gives chase and captures it and its cargo. The drone is found and repaired but the cargo was destroyed. The damage to the drone is covered, as is the loss of cargo.

Scenario 2: The employee who controls the drones decides to impress his girlfriend by using the drone to deliver some candy to her house for Valentine’s Day. The drone becomes tangled in wires as it attempts to deliver the goods. There is no coverage for the candy that is damaged and no coverage for the damage to the drone because the drone was not being used for the described drone operations.

Property Not Covered

Four specific types of property are excluded:

 

1. Contraband

Property that is illegal to possess is not covered. Property that is legal to possess but that is being used as part of an illegal trade or that is being transported illegally is not covered.

 

Example: Barry made a few changes in his drone. All the changes were in violation of FAA regulations. When the drone is damaged while operating in a manner within FAA’s guidelines, all coverage on that drone is denied because it was illegal for Barry to possess a drone with his added features.

 

2. Leased or Rental Property

Any property that is leased or rented to others by the named insured is not covered.

Note: The limitation does not limit this loss of coverage to only when the property is rented out. Could this statement be used to deny coverage for items that are occasionally rented out but that, at the time of the loss, were being used by the named insured in a manner consistent with disclosed operations?

3. Loaned Property

Property that is loaned to others is not covered.

Note: The limitation does not limit this loss of coverage to only when the property is loaned out. Could this statement be used to deny coverage for items that are occasionally loaned out but that, at the time of the loss, were being used by the named insured in a manner consistent with disclosed operations?

4. Waterborne Property

No property is covered while waterborne unless it is in transit and in a carrier for hire's care, custody, or control.

Note: This could be a concern in areas where ferries are a regular type of transport. It is important to point this limitation out to anyone buying the coverage.

Optional Coverages

The limits provided under the two optional coverages apply separately from any other limits in the policy. They are not to be combined or added to any other coverage limit or to a supplemental coverage or extension. This coverage is not subject to any coinsurance condition.

These optional coverages are available only with scheduled coverage.

Note: They are not needed when coverage is on a blanket basis because all owned drones and drones of others in the named insured’s care, custody and control are covered.

1. Newly Acquired Drone

If this coverage is selected on the schedule of coverages, direct physical loss or damage to drones that the named insured acquires during the policy period is covered when caused by a covered peril. Only newly acquired drones that are used as part of the operations described on the schedule of coverages are covered though.

There are restrictions. The most paid is the limit entered for this optional coverage on the schedule of coverages.

The coverage applies for only 60 days following the date of acquisition. This is further modified to state that that regardless of the 60 days, the coverage ends when the drone is reported by the named insured or when the policy expires, whichever comes first. An additional premium is due as of the acquisition date.

2. Newly Acquired Equipment

If this coverage is selected on the schedule of coverages, direct physical loss or damage to drone equipment or ground equipment that the named insured acquires during the policy period is covered when caused by a covered peril. Newly acquired drone equipment or ground equipment that is being used with a drone in flight is covered only if that drone is being used as part of the operations described on the schedule of coverages.

There are restrictions. The most paid is the limit entered for this optional coverage on the schedule of coverages.

The coverage applies for only 60 days following the date of acquisition. This is further modified that regardless of the 60 days, the coverage ends when the drone is reported by the named insured or when the policy expires, whichever comes first. An additional premium is due as of the acquisition date.

Coverage Extensions

Provisions That Apply To Coverage Extensions

There is one coverage extension. Its limit is either the limit on the schedule of coverages or the default limit included in the coverage form. This limit is part of the applicable limit for covered property and not in addition to it unless otherwise indicated. It is not added to or combined with the limit for any other coverage extension or supplemental coverage and is not subject to any coinsurance provisions that apply elsewhere in the coverage form.

Debris Removal

When a covered peril damages or destroys covered property, the cost to remove any created debris is covered under this extension.

Debris removal does not include any costs for removing, restoring, replacing polluted land or water or to extract pollutants.

There are two parts of the Limit section. The first is restricting any debris removal payment to no more than 25% of the amount paid for the actual direct physical loss. The second part is that when the debris removal and the physical damage loss are added together, no more than the limit of insurance is paid.

An additional $5,000 (or a higher amount entered on the schedule of coverages) is available if the debris removal expense is more than 25% of the loss amount or if the combined cost of loss and debris removal is more than the limit of insurance for the covered property.

The named insured must report debris removal expenses to the insurance company within 180 days of the loss date in order for this coverage extension to apply.

Supplemental Coverages

Provisions That Apply To Supplemental Coverages

There are two supplemental coverages. The limit for each is its own default limit that can be increased by entering a higher limit on the schedule of coverages. Limits for any supplemental coverage are separate from the applicable limit for covered property, not part of it.

The limit available for coverage described under a supplemental coverage is the only limit available for it. It is not the total of the limit for a supplemental coverage and the limit for covered property. The limits are not added to or combined with limits for any other supplemental coverage or coverage extension. They also are not subject to any coinsurance provisions that apply elsewhere in the coverage form.

1. Continuing Rental or Lease Payments

This applies to damage to drones or equipment that the named insured has rented or leased. If the drones or equipment are damaged by a covered peril, and the named insured remains contractually obligated to continue making payments the insurance company will make those payments until the drone or equipment is either repaired or is replaced.

No payment is made by the insurance company until a waiting period has ended. The coverage form waiting period is 12 hours but it can be changed. After the waiting period, the insurance company will pay whatever reasonable expenses the named insured actually incurs. These payments will continue even after the policy period ends. However, the named insured must be making a reasonable effort to rebuild, replace, or repair the damaged items.

The limit is $2,500 but it can be increased.

The coverage form deductible does not apply.

 

Example: Mavis rents a drone for 60 days. She is contractually obligated to pay for damage to the drone and to pay the rent for 60 days regardless of damage. The first day of flight, it is damaged. Repairs take 5 days. This coverage pays for 4 ½ days of the owed rental payments.

 

2. Pollutant Cleanup and Removal

The insurance company pays the named insured's expenses to extract pollutants from land or water if a covered peril that occurred during the policy period caused the pollutants to be released or discharged.

This is immediate coverage so any reasonable expenses to extract pollutants are paid only when reported to the insurance company within 180 days of the date of loss.

Costs related to testing, evaluating, observing, or recording pollutants are excluded except for those costs that are part of the extraction process.

The most paid at any one location is $10,000 for all such expenses.  This is a 12-month aggregate limit not an occurrence limit. This limit can be increased.

 3. Rental Reimbursement

This applies after the named insured’s drones or equipment has been damaged. If the drones or equipment are damaged by a covered peril this coverage pays for the expense the named insured incurs to rent replacement drones or equipment until they are replaced or repaired. No payment is made by the insurance company until a waiting period has ended. The coverage form waiting period is 12 hours but it can be changed. After the waiting period, the insurance company will pay whatever rental payments the named insured actually pays. These payments will continue even after the policy period ends. However, the named insured must be making a reasonable effort to rebuild, replace, or repair the damaged items.

If the named insured can resume operations with drones or equipment without incurring additional expenses, no payment will be made.

The limit is $5,000 but it can be increased.

The coverage form deductible does not apply.

 

Example: Massive Realty’s three drones are in constant use due to the very hot realty market. One is damaged when it runs into a tree. Massive rents another drone until that damaged one is repaired. This coverage pays the rental cost Massive incurs except for the costs incurred in the first 12 hours following the loss.

 

4. Spare Parts and Tools

When drone spare parts, accessories or batteries sustain direct physical damage or loss due to a covered peril, the insurance company will provide coverage. This also applies if tools are damaged. All must be specifically designed or intended to be used with a drone.

The limit is $1,000 but it can be increased. This is also subject to the coverage form deductible.

Perils Covered

Coverage applies to risks of direct physical loss unless the loss is limited or caused by an excluded peril.

Perils Excluded

1. Primary Exclusions

The first group of exclusions is essentially absolute. Subject to specific exceptions, loss or damage by each is totally excluded, regardless of any other cause or event that contributes to a loss, either concurrently or in any other sequence. The insurance company does not pay for any direct or indirect loss or damage caused by or that results from any of these events.

Related Article: Concurrent Causation and Anti-Concurrent Causation Clauses–A Discussion

a. Civil Authority

There is no coverage for a loss that results from an order any civil or government authority issues. These orders may include seizure, confiscation, destruction, or quarantine of property but this exclusion is not limited to only these. The only exception is when the loss or damage is caused by a civil authority destroying property as a means of controlling a fire. This exception applies only if the fire is the result of a covered peril.

b. Nuclear Hazard

The insurance company does not cover loss or damage caused by or that results from any nuclear reaction, radiation, or contamination. This is absolute and applies whether the nuclear incident was controlled or not, and by whatever means caused. Any loss the nuclear hazard causes is not treated as a loss that fire, explosion, or smoke causes. The only exception is when a fire results from the nuclear fire, direct loss or damage from that fire is covered but the damage from the nuclear hazard remains excluded.

c. War and Military Action

The insurance company does not pay for loss or damage caused by any act of war. Undeclared and civil war or warlike action by a military force is all considered war. All actions taken to hinder or defend against an actual or expected attack by any government or sovereign authority that uses military personnel or other agents are also considered war and excluded. In addition, acts of insurrection, rebellion, revolution, or unlawful seizure of power and any action any government authority takes to prevent or defend against any such acts are excluded. If any action within the terms of this exclusion involves nuclear reaction, radiation, or contamination, this exclusion applies in place of the nuclear hazard exclusion.

Note: This means that the exception for resulting fire under the nuclear hazard is not covered when it is the result of war.

2. Secondary Exclusions

The second group of exclusions applies to loss or damage caused by or that result from any of the following loss events. Some of these exclusions have exceptions, conditions, or limitations that should be noted and reviewed carefully. The insurance company does not pay for any loss or damage caused by or that results from any of these events.

a. Contamination or Deterioration

Loss or damage that is caused by contamination or deterioration is excluded. This applies to corrosion, decay, fungus, mildew, mold, rot, and rust. It also applies to any quality, fault, or weakness in covered property that causes it to damage or destroy itself. However, this exclusion is not limited to only these described causes.

The only exception is that if a covered peril occurs as a result of any of these, coverage applies to the loss or damage that covered peril causes.

b. Criminal, Fraudulent, Dishonest, or Illegal Acts

Coverage does not apply to loss caused by or that results from criminal, fraudulent, dishonest, or illegal acts that any of the following commit alone or in collusion with another:

Coverage applies if employees destroy property. It does not apply if employees steal.

This exclusion does not apply to covered property in the custody of carriers for hire.

c. Electrical Currents

Loss caused by electrical arcing or currents is excluded unless the electrical is from lightning. The exception is when the excluded arcing or currents results in a specified peril any loss or damage that specified peril causes is covered.

 

Example: An electrical arc in the ground equipment causes a fire. The fire then disables the ability of ground equipment to control the drone. The drone plunges to the ground and is destroyed. The damage from the arcing in the ground equipment is not covered. The fire damage to the ground equipment is covered and the resulting damage to the drone is covered.

 

d. Electrical Disturbance

Loss or damage that is caused by any of the following is excluded:

The only exception is if the Electrical Disturbance exclusion waived has been selected on the schedule of coverages.

e. Loss of Use

There is no coverage for loss caused by or that results from delay, loss of use, or loss of market.

f. Malware or Computer Hacking

Loss or damage that is caused because of malware being launched or computer hacking occurring is not covered. This is absolute and does not cover any loss – direct, indirect or any type of access, use, or functionality loss.

 

Example: Jason could not resist clicking and opening up an attachment. Malware launched into his computer network that then infected his ground equipment and eventually his drone. The drone was taken over and flown over an airport. Law enforcement took down the drone and confiscated Jason’s ground equipment in order to track down the whereabouts of the hacker. No coverage exists for any of Jason’s losses.

 

g. Mechanical Breakdown

When mechanical, structural, or electrical breakdown or malfunction causes a loss, it is excluded. The loss is excluded even if a breakdown is the result of a structural, mechanical, or reconditioning process. However, if a covered peril occurs as a result of any of these, coverage applies to the loss or damage that the covered peril causes.

h. Missing Property

The unexplained or mysterious disappearance of the covered property is excluded when there is no physical evidence to suggest what happened to it and the only proof that a loss occurred is based on an audit or physical inventory. The one exception is that this does not apply to covered property in the custody of carriers for hire.

A very important exception applies. This exclusion does not apply if the covered property goes missing or is lost while it is in flight.

 

Example: Home Delivery Plus’s autonomous drone had two deliveries to make. It made the first one but failed to make the second one. Home Delivery sent a second controlled drone to search the area but could not find it. A reward was offered but it never turned up. Coverage applies to the missing drone because it went missing while in flight.

 

i. Pollutants

There is no coverage for loss caused by or that results from any release, discharge, seepage, migration, dispersal, or escape of pollutants. There are three exceptions:

j. Racing

Coverage for all types of racing, including impromptu or spontaneous racing is excluded. The exclusion applies to not only the actual race but also to any preparation for that race and any practicing for the race.

The exclusion includes a definition of race. It is a competition that involves either speed or endurance and can be directed against one or more competitors. It may involve competing only against time.

 

Example: Connie was using her drone to take pictures of a residential property when she noticed another drone in the area. She recognized it as belonging to a friend. She tweeted a challenge and he responded. The plan was to race to the steeple of a nearby church. Unfortunately, Connie miscalculated and struck a telephone pole. The damage to the drone and its attached equipment is not covered because Connie was racing at the time of the collision.

 

k. Spoilage

No coverage applies when perishable stock is spoiled.

i. Temperature/Humidity

Coverage does not apply to loss that dryness, dampness, humidity, changes in, or extremes of temperature causes. There is an exception. If a specified peril occurs as a result of any of these, coverage applies to the loss or damage that specified peril causes.

j. Voluntary Parting

Loss to covered property that is voluntarily given to others is not covered, even if the surrender was due to a fraudulent scheme, trick, or false pretense.

k. Wear and Tear

Loss caused by wear, tear, marring, or scratching is excluded.

What Must Be Done In Case Of Loss

1. Notice

The named insured must give prompt notice of a loss to the insurance company or its agent. The notice must include a description of the property lost or damaged. If a criminal act caused the loss, the appropriate law enforcement agency must also be notified. The insurance company has the right to require that any notice to it be written.

2. You Must Protect Property

During and after a loss, the named insured must take all reasonable steps to protect covered property from further loss. The insurance company pays reasonable costs the named insured incurs to do so if the named insured maintains accurate records to substantiate the costs. Paying these costs is not in addition to the policy limits. There is no coverage for any repairs or emergency measures performed on property not already damaged by a covered peril.

Note: Such costs incurred reduce the amount available to pay the actual loss.

3. Proof of Loss

The named insured must complete and return the insurance company's prescribed proof of loss forms within 60 days after the company requests it. The information provided must include the time, place, and circumstances involved with the loss and information on any other insurance coverage that may apply. It must also include the named insured’s interest and the interest of others with respect to the property involved, including lienholders, loss payees, and mortgagees. Any changes in the title to the property during the policy period must be disclosed, in addition to providing any other reasonable information the company may require to adjust and settle the loss.

4. Examination

Examination under oath may be required in matters that relate to the loss. The insurance company may request these examinations more than once but such requests must be reasonable. If multiple persons are examined, the company has the right to examine each individual separately.

5. Records

The named insured must produce any records related to the loss. The insurance company must be allowed to make copies and take extracts of them as often as it reasonably requests. Records include tax returns and bank microfilms of all related cancelled checks but records are not limited to just these.

6. Damaged Property

Both damaged and undamaged property must be made available for the insurance company's inspection as often as reasonably necessary. It must also be allowed to take samples of the property to the extent necessary to adjust and settle the loss.

7. Volunteer Payments

The named insured may not voluntarily make payments, assume obligations, pay or offer rewards, or incur other expenses without the insurance company's express approval. If it does, it does so at its own expense. The only exceptions are those costs incurred to protect property as item 2. above describes.

8. Abandonment

The named insured may not abandon damaged property to the insurance company without its written consent.

9. Cooperation

The named insured must cooperate with the insurance company and perform all acts this coverage form requires.

Valuation

1. Actual Cash Value

The value of covered property is based on the actual cash value at the time of loss. Actual cash is replacement cost new minus depreciation.

Note: This valuation clause applies unless Replacement Cost valuation is checked on the schedule of coverages.

2. Replacement Cost

If Replacements Cost valuation is checked on the schedule of coverage, property is valued at replacement cost subject to the following:

3. Drone Cargo Valuation

The invoice is used to determine the value of the cargo. However, if there is no invoice the replacement cost valuation above applies.

4. Leased or Rented Property

The rental or lease agreement is used to determine the value of for property that is leased or rented by the named insured. However, if there is no stated valuation, the valuation selected for the applicable covered property applies. This means that rented drones would be subject to the selected drone’s valuation and rented drone and ground equipment would be subject to the selected drone and ground equipment valuation.

5. Data

Data valuation is based on the cost to recreate the data from duplicate copies. The cost includes labor. When there are no duplicates, the valuation is expanded to include the cost of needed research and other expenses that are required to restore that lost data.

6. Pair or Set

The value of a loss that involves damage to or loss of one part of a pair or set is based on a reasonable proportion of the value of the entire pair or set. However, the loss of one part of a pair or set is not considered a total loss.

Note: This recognizes that the value of the whole is greater than the value of individual parts but that the remaining parts still have value as separates.

7. Loss to Parts

The value of a lost or damaged part of the property that consists of several parts is the cost to repair or replace only the lost or damaged part.

How Much We Pay

1. Insurable Interest

The insurance company does not pay more than the named insured's insurable interest in the covered property at the time of loss.

Note: This may be particularly important if the equipment is held by a partnership or a joint venture. Who owns the equipment is a basic question in claims handling and if the equipment is owned by a member of the joint venture but not actually by the named insured joint venture, the claim could be denied.

2. Deductible

The insurance company pays only the amount of loss that exceeds the deductible amount on the schedule of coverages. This is an occurrence deductible.

3. Loss Settlement Terms

The insurance company pays no more than the least of the following:

4. Catastrophe Limit

This limit caps the amount that will be paid when a catastrophic event occurs. It is the most paid in a single occurrence regardless of the number of drones, the items of drone equipment or ground equipment, and any limits available under optional coverages, supplemental coverage, or coverage extensions.

The one exception is that income coverage limits are separate from this limit.

Note: This limit needs to be regularly reviewed, especially if the named insured is acquiring additional units or operations. Scheduling additional items without increasing the catastrophe limit can result in a serious underinsurance situation following a major disaster.

5. Coinsurance

Note: These guidelines apply separately to the drones and the drone and ground equipment.

a. When coinsurance applies to a coverage provided, the insurance company pays only part of the loss if the limit is less than the percentage of the value of the covered property on the schedule of coverages.

b. The following are the three steps to determine the amount of loss to be paid:

Step 1. Multiply the percentage on the schedule of coverages by the covered property’s value at the time of loss.

Step 2. Divide the covered property’s limit by the result determined in step 1.

Note: There is no coinsurance penalty if the result is1.00 or higher.

Step 3. There is a coinsurance penalty when step 2. is less than 1.00. Subtract the deductible from the amount of loss and then multiply the total amount of loss by the percentage determined in step 2.

The insurance company does not pay more than the amount determined in step 3. or the limit, whichever is less. It does not pay any remaining part of the loss.

c. If there is more than one limit on the schedule of coverages, this procedure applies separately to each limit.

d. If there is only one limit on the schedule of coverages, this procedure applies to the total of all covered property insured under that limit.

e. This coinsurance provision does not apply unless there is a coinsurance percentage entered on the schedule of coverages.

5. Insurance under More Than One Coverage

Two or more coverages in the coverage form may apply to the same loss. In that case, the insurance company does not pay more than the value of the actual claim, loss, or damage sustained.

6. Insurance under More Than One Policy

a. Proportional Share

The named insured may have other coverage subject to the same terms as this coverage form. In that case, this coverage form pays only its share of the covered loss. That share is the proportion that its limit of insurance bears to the limits of insurance of all insurance that covers on the same basis.

b. Excess Amount

There may be other coverage available to pay for the loss other than as described in 6. a. above. In that case, this coverage form pays on an excess basis. It pays only the amount of covered loss that exceeds the amount due from the other coverage, whether collectible or not. Any payment is subject to the limit of insurance that applies.

Loss Payment

1. Loss Payment Options

a. Our Options

The insurance company has the following four loss payment options if a covered loss occurs.

 

 

b. Notice of Our Intent to Rebuild, Repair, or Replace

The insurance company must notify the named insured of its intent to rebuild, repair, or replace within 30 days after it receives a properly completed proof of loss.

2. Your Losses

a. Adjustment and Payment of Loss

The insurance company adjusts all losses with and pays the named insured unless another loss payee named in the policy is involved.

b. Conditions for Payment of Loss

The insurance company pays a covered loss within 30 days after it receives a properly prepared proof of loss and the amount of loss is established. The amount of loss is determined by either a written agreement between the company and the named insured or after an appraisal award is filed with the company.

3. Property of Others

a. Adjustment and Payment of Loss to Property of Others

The insurance company has the option to adjust and pay losses that involve property of others either to the named insured acting on the property owner’s behalf or to the property owner.

b. We Do Not Have to Pay You if We Pay the Owner

The insurance company is not obligated to pay the named insured when it pays the property owner. In addition, if the property owner sues the named insured, the company has the option to defend the named insured in that suit.

Other Conditions

1. Appraisal

The insurance company and the insured may not always agree on a covered claim’s value. This condition provides one method to resolve disputed claims.

Either party can request an appraisal to determine a disputed claim’s value. Once requested, the parties have 20 days to obtain their own independent and competent appraisers and give their appraiser's name to the other party. The two appraisers then have 15 days to select a competent impartial umpire. If they cannot agree on an umpire within that time period, either can request that a judge in the court of record in the state where the property is located appoint one.

The appraisers then determine the claim’s value. They submit any differences to the umpire. Once any two of the three parties agree, the amount of loss is set.

Each party pays its own appraiser. Both parties share the umpire’s cost and other expenses equally.

2. Benefit to Others

The insurance provided does not directly or indirectly benefit any party that has custody of the named insured's property.

3. Conformity with Statute

Any condition in this coverage form that conflicts with any applicable law is amended to conform to that law.

4. Estates

Note: This condition applies only if the named insured is an individual.

a. Your Death

If the named insured dies, the person who has custody of the named insured's property is an insured until a qualified legal representative is appointed. The named insured’s legal representative becomes an insured once he or she is appointed. Both are insureds but only with respect to the property this coverage form insures.

b. Policy Period is not Extended

This coverage does not extend past the policy’s expiration date.

5. Misrepresentation, Concealment, or Fraud

This coverage is void if any insured at any time willfully concealed or misrepresented a material fact that relates to the insurance provided, the property covered, or its interest in the property. It is also void if fraud or false swearing by any insured took place concerning the insurance provided or the property covered.

Note: The named insured must deal with the insurance company honestly. Its rights of recovery may be voided if it intentionally misrepresents or conceals a material fact or information. This means that the insurance is treated as simply having never existed versus denying a particular claim.

6. Policy Period

Only covered losses that occur during the policy period are paid.

7. Recoveries

Paying the loss does not end the obligations of the named insured and the insurance company toward one another. Additional provisions apply if the insurance company pays a loss and the lost or damaged property is subsequently recovered or the parties responsible for the loss pay for it.

Either party that recovers property or payment must inform the other. Recovery expenses that either party incurred are reimbursed first. If the named insured keeps the recovered property, it must refund the amount of the claim the insurance company paid, unless the company agrees to a different amount. If the claim paid is less than the agreed loss due to applying a deductible or another limitation, any recovery is prorated between the named insured and the insurance company based on the company's respective interest in the loss.

8. Restoration of Limits

Payment of a claim does not reduce the limit available for future claims.

9. Subrogation

The insurance company acquires the named insured's rights of recovery from third parties after it pays a loss. The named insured must help the insurance company secure those rights. The company is not obligated to pay a loss if the named insured hinders or impairs the company's rights of subrogation. However, the named insured can agree in writing to waive recovery rights from others before a loss occurs.

10. Suit against Us

The insurance company cannot be sued by anyone for any coverage until all the terms of the coverage form are met. Suits must be brought within two years after the named insured first knew about a loss. If a state law invalidates this condition, any suit brought must comply with the provisions of that law and begin within the shortest period of time allowed by law.

Note: It is normal for a basic coverage form to be modified by mandatory state-specific endorsements that address issues that relate to that specific state.

11. Territorial Limits

Covered property must be located in the United States, its territories, and possessions, Canada, or Puerto Rico in order for coverage to apply.

Definitions

Certain terms within the policy are subject to unique definitions within this section. These terms may broaden or restrict coverage so it is very important to review this when evaluating coverage. Eleven terms are defined:

1. Computer hacking

The unauthorized intrusion by any party into hardware, software, website, or a computer network that results in numerous types and forms of listed damage. The listing provides only examples and not limitations.

2. Drone

A drone is an unmanned aircraft but the definition does not stop there. It must also meet the following criteria:

The hull, the motor, and the onboard equipment are considered as the aircraft but only if needed to fly it.

There are five types of described onboard equipment but this is not to be considered limiting:

 

3. Drone equipment

Equipment that is attached to a drone to aid in its described drone operations but that are not needed for the drone to fly. A variety of equipment is listed but these are examples more than limitations.

Note: This list will probably grow longer as drones become more commonplace. Items that are not considered drone equipment may replace this inclusive listing.

 4. Ground equipment

The equipment that is used by an operator on the ground to control the drone while it is in flight.

5. Limit

The amount of coverage that applies to the insured property.

6. Malware

Software that is introduced into a computer or other online device in order to gather information, gain access to computer systems, deny access in some way or merely to disrupt computer operations. Malware is intentionally intrusive and could be a virus or a contaminant of some sort.

7. Perishable stock

Property that must be kept under controlled conditions because they will be damaged if those conditions are not maintained.

8. Pollutant

This is a broad and expansive term. It is solids, liquids, thermal or radioactive contaminants, and irritants. It includes, but is not limited to, acids, alkalis, chemicals, fumes, smoke, soot, vapor, and waste. Waste includes materials intended for recycling, reclamation, and reconditioning, as well as for disposal. Visible and invisible electrical or magnetic emissions and sound emissions are also considered pollutants.

9. Schedule of coverages

Any page labeled as such that contains coverage information. Declarations and supplemental declarations are included in this definition.

10. Sinkhole collapse

The earth’s surface suddenly settling or collapsing into an underground opening that was created by water acting on limestone or some other rock formation. Neither the collapsing land’s value nor the cost to fill the sinkhole is considered sinkhole collapse.

11 Specified perils

The named perils of aircraft, civil commotion, explosion, falling objects, fire, hail, fire extinguishing equipment leakage, lightning, riot, sinkhole collapse, smoke, sonic boom, vandalism, vehicles, volcanic action, water damage, the weight of sleet, snow or ice and windstorm. Two terms need further explanation.

Falling objects does not include loss to personal property that is stored in the open. Falling object damage to the interior of buildings or personal property that is stored in buildings is not covered unless a falling object first breaches the building's exterior.

The cracking or breaking of a part of the system or appliance that holds the water or steam causing the sudden or accidental discharge or leakage of water or steam is water damage.

12. Spoilage

A negative change in perishable stock. Examples provided are frozen goods thawing, liquid material solidifying, refrigerated goods becoming warm but this definition is not limited to only these.

 

Example: Louise Flowers is using its drone to deliver flowers. The flowers are placed in containers cooled with liquid ice before being transported. The drone delivers the flowers but because of a leak in the containment system the dry ice has flowed out and the flowers were spoiled. The damage to the flowers is not covered.

 

13. Terms

All policy provisions, limitations, exclusions, conditions, and definitions that apply to this coverage.

14. Volcanic action

An airborne volcanic blast or shock waves, ash, dust, and particulate matter. The cost to remove dust, ash, or particulate matter that does not directly damage covered property is not volcanic action but lava flow is.

ENDORSEMENTS AND SCHEDULES

AAIS has developed two endorsements and two schedules for use with this coverage form:

IM 7341–Drone Coverage–Income Coverage

This endorsement provides income (earnings) coverage. The limits and other pertinent information are entered on IM 7343–Schedule of Coverages–Drone Coverage.

IM 7344–Equipment Schedule–Drone Coverage

This schedule is to be used only when coverage for drones and/or drones and ground equipment are written on a scheduled basis. This is used to describe such items when the space on the schedule of coverage is insufficient.

 

Note: Additional company specific endorsements may be available and used. Each should be examined to determine its effect on policy coverage, especially when some may impose restrictions or controls that may be minimum requirements or prerequisites for the company to provide coverage or to accept a particular exposure.

UNDERWRITING CONSIDERATIONS

This underwriting will focus only on the drone aspect of a business or farm operation with the assumption that the operation is not primarily a drone operation.

 

The first question must relate to how the drone is to be used. A precise description is needed because coverage for the drone in flight applies only when the drone is being used for the described operation. This is very important because the type of use determines the hazard and the premium that should be charged. Common usages are:

 

Inspection

Real Estate

Media

Security

Spraying

Survey

Entertainment (Rodeo)

Inventory

 

The manner in which the drone is controlled is also needed. A drone that is operated by an operator and only within its line of sight is considerably less hazardous than an autonomous drone. The distance the drone travels is also very important and where the clients are located. Drones operating in flat terrain will have less potential for obstacle damage than those operating in mountainous areas.

 

The training of the operators and maintenance schedule of the drones and equipment is important. All must be kept up to date especially in order to stay in compliance with FAA requirements.

 

Does the applicant hold a Certificate of Waiver or Authorization (COA) issued by the FAA or does the operator have a pilot’s license? Drones that operate outside of the operator’s vision often must be under the control of a trained pilot. These requirements will be changing but following the FAA guidelines are very important.

 

A list of all drones and a listing of attachments to the drone is important for underwriting and claims. A list of all ground equipment is also needed. When blanket coverage is provided these listings are not placed on the policy but they are used as part of the underwriting and will be used in any claims settlements.

 

These lists should be updated at least every renewal and more often if the named insured is adding equipment.