Evolving Risk

Rogue Drones

Drones are creating public safety hazards, and there’s little that can be done.  
By: | August 31, 2015 • 10 min read

This summer, at one of California’s numerous wildfires, the appearance of a drone over Interstate 15 forced firefighting aircraft to back off for about 20 minutes until it flew away.

Instead of 40 or 50 acres burning before that fire was controlled, a few thousand acres, along with about 20 vehicles, were destroyed, as drivers ran from the area, according to reports.

In July alone, there were about a half-dozen similar incidents in California. Anywhere from two to five drones appeared at fire sites, sometimes chasing after the air tankers and helicopters, and forcing the aircraft to delay dropping retardant or even calling off operations until the areas could be cleared.

Dennis Brown, chief of flight operations, California Department of Forestry and Fire Protection (Cal Fire)

Dennis Brown, chief of flight operations, California Department of Forestry and Fire Protection (Cal Fire)

“It has hampered our efforts,” said Dennis Brown, chief of flight operations at the California Department of Forestry and Fire Protection (Cal Fire), which has about 50 air tankers and helicopters that respond nearly daily to wildfires from March through November.

“The size of the drones, even though they look small, could cause significant damage to any of our aircraft,” Brown said. The tail rotor of a helicopter is particularly vulnerable and a tail rotor strike could be catastrophic. “We had one helicopter pilot coming in to land to drop off a crew and there was a near miss by a drone,” he said. “It was 20 to 30 feet away, right in the windscreen.”

Sometimes, the drones are operated by homeowners checking for damage to their property. Sometimes it’s just curiosity or a desire to photograph the scene and post it to social media that prompts the drone operators.

“The size of the drones, even though they look small, could cause significant damage to any of our aircraft.” — Dennis Brown, chief of flight operations, California Department of Forestry and Fire Protection (Cal Fire)

But regardless of the reason, interference from drone operators is obstructing firefighting efforts and increasing danger to the pilots and their aircraft.

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“The pilots are flying low and they are flying fast,” said John Glenn, chief of fire operations for the Bureau of Land Management. “There are a lot of hazards there. You throw drones or UAVs into the mix and there have been a number of cases where we have shut down operations until we can clear the air.”

Open Season for Drones

Public safety hazards due to drones aren’t limited to firefighting. The Federal Aviation Administration reports about two dozen drone sightings per month at airports throughout the nation, according to reports.

In one reported case, a plane headed from Washington, D.C. to LaGuardia Airport in New York had to pull up about 200 feet to avoid a collision with a drone in its path as it tried to land.

UAVs have buzzed French nuclear plants, landed on the roof of the Japanese prime minister’s residence (with radioactive material, no less), and even landed on the White House lawn. In August, a riot broke out in an Ohio prison yard after a drone dropped a package containing significant quantities of marijuana and heroin.

Drones have flown over sporting events and city parks — to sometimes deadly effect. One 19-year-old man died in a New York park when he lost control of his drone helicopter and the fast-moving blades cut him and killed him.

J. Matthew Ouellette, owner/general adjuster, Ouellette & Associates

J. Matthew Ouellette, owner/general adjuster, Ouellette & Associates

Drones have been sighted during a game of the Texas Longhorns football team and at a Philadelphia Phillies game. A triathlete in Western Australia had to be taken to the hospital just yards from the finish line after a drone fell on her.

“They take a pretty decent picture and they are fun and cute, but it’s not real smart to be flying a drone in an arena,” said J. Matthew Ouellette, owner/general adjuster at Ouellette & Associates in Indiana.

“The drone could fall out of the sky … and into somebody’s lap or into their beer,” he said. “Right now, it’s open season and people are flying them all over the place. There are just some idiots out there.”

And some people don’t take kindly to it, with reports surfacing of people shooting drones out of the sky. Of course, the reverse is also a grim prospect: One teenager was arrested after creating a drone that shoots a gun.

Coverage Options

As for insurance coverage, the typical general liability, property or homeowners’ policy does not cover aircraft, experts said.

Insurance policies covering drone use are generally purchased by either the owner/operator of the drone or the manufacturer, said Patton Kline, senior vice president, Marsh Aviation. “Obviously, the risks for those two groups are very different.”

And, in the end, he said, it is the manufacturers that may face the greatest liability.

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“If there is a significant event, we are concerned that litigation will come back to the UAS [unmanned aerial system] manufacturer because they will have the deep pockets,” he said.

“If you have a weekend warrior flying a drone for fun, they don’t necessarily understand the risks and if they are involved in a significant loss, they may not have insurance to pay for damages.”

“Right now, it’s open season and people are flying them all over the place. There are just some idiots out there.” — J. Matthew Ouellette, owner/general adjuster, Ouellette & Associates

For large aerospace companies that use or manufacture drones, it’s fairly easy for them to work with their insurers to add drone coverage to current policies or to add a stand-alone policy, Kline said.

Coverage may include physical damage to the UAS, propulsion units, payload/cargo (imaging, sensors or specialty equipment that may be more expensive than the UAS itself), ground station control units, spare parts and transit coverage.

All of that is available, he said, from up to a dozen insurers including AIG, Global Aerospace, Allianz, Starr Aviation, United States Aviation Underwriters and Berkley Aviation, as well as insurers that do not historically provide aviation coverage.

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The U.S. Forest Service began publicizing the need to keep drones away from wildfires this summer.

In addition, ISO has crafted a drone endorsement as a coverage extension to some of their commercial general liability (CGL) policy forms for insureds that seek to add drone coverage to CGL policies, he said.

The cost of physical damage coverage (also known as hull coverage) can be expensive, particularly for new or unproven unmanned aerial system platforms. Insuring $1 million in value could cost up to $100,000, depending on the UAV platform, with many policies typically in the $50,000 range, experts said.

Third-party liability, such as for bodily injury or property damage due to drones is also available, and is much less expensive, experts said. Product liability coverage would also be an important coverage to consider for UAV manufacturers.

A commercial stand-alone UAV liability policy for $1 million could start as low as $1,000, said Vikki Stone, senior vice president, Poms & Associates.

She said she has seen interest in such coverage from organizations that use drones in their business, such as entertainment, aerial mapping, residential construction and pipeline construction.

“We are seeing a lot of individuals who may have been hobbyists or pilots who are seeing an opportunity to start up a business,” she said.

“The bigger concern is rogue flyers. The industry has not yet really had enough time to assemble any sort of loss experience. As that evolves, we are likely to see changes in the marketplace, but it’s too new yet.”

Another issue that carriers and brokers are still grappling with is invasion of privacy, which could offer potential litigation concerns. That coverage is currently excluded by all drone insurers, according to Marsh’s recent report, “Dawning of the Drones: The Evolving Risk of Unmanned Aerial Systems.”

Eamonn Cunningham 230X300 Color

Eamonn Cunningham, chief risk officer, Scentre Group

Eamonn Cunningham, chief risk officer, Scentre Group, said the first step to purchasing coverage would be to analyze meaningful gaps between what is in existing policies and what is needed.

“Absolutely do your homework in advance and sometimes you might need experts from outside the organization to understand what’s appropriate and what’s not,” he said.

“The processes that you go through in trying to determine what this relatively brand new risk means to you — it’s a real challenge.”

An organization may not need bespoke coverage once a gap analysis and risk assessment is performed, he said.

He compared drone coverage today with the purchase of cyber coverage a half-dozen years ago. At that time, many companies ended up buying a commodity — the typical cyber policy — instead of coverage that protected the specific risks faced by the organization.

“If you know exactly what you are buying, there’s less chance you will be disappointed when something happens and you find it doesn’t fit the specific manner in which you use, operate, sell or manufacture the drone,” he said.

Inadequate Regulations

Ella Atkins, associate professor, aerospace engineering at the University of Michigan, said federal regulations have hampered the safe use of drones because Congress exempted hobbyists flying under 500 feet from FAA rulemaking in the 2012 FAA reauthorization act.

“The problem is … the FAA’s policies focus on unmanned aircraft operating near airports,” she said.

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Ella Atkins, associate professor, aerospace engineering at the University of Michigan

“You need people on the ground to enforce low-altitude airspace flight, not the FAA. They have no presence away from airports [to control the situation].”

While Atkins doesn’t expect it to happen, some others are anticipating that the FAA may issue final regulations related to drone use by the end of this year.

But, if the FAA puts its focus on bans or strict regulations for low-altitude drone use away from airports, the effort will come to naught, she said. Instead, local and state governments and private landowners should be empowered to apply disorderly conduct and trespass laws as ways to control the hazards of rogue drone use.

“We need to start realizing that it’s a matter of what the person does with the drone, not the drone itself that is bad or good,” Atkins said.

In addition, she said, the FAA is ignoring a 1946 federal legal case that ruled property owners have control over the airspace immediately above their land.

Current rules mean that a farmer could be struck by a drone on his own property and have no recourse, or that Amazon.com could fly 10 feet over a home on its way to deliver a package and owe the property owner no compensation for use of the airspace.

“We need to start realizing that it’s a matter of what the person does with the drone, not the drone itself that is bad or good.” — Ella Atkins, associate professor, aerospace engineering at the University of Michigan

Recently, Amazon suggested a separate airspace lane for commercial drone delivery flights, which called for UAVs to fly between 200 feet and 400 feet. The air traffic control for that space would be handled by an automated computer system.

About 100 companies, including Amazon, Google and Verizon Communications, have agreed to work with NASA to help devise that air traffic system, according to reports.

There are no firm answers to the problem, said Jeff Power, regional aviation officer, U.S. Forest Service. He noted that one current law that could apply to firefighting is a restriction on interfering with public officials in the course of their duty.

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But, he said, it’s very difficult to track down the drone operators.

“A large part of it is education of the drone operators,” Power said, although he noted that one day soon it may be emergency service organizations that are operating drones to help combat hazardous situations.

In fact, Texas A&M University held a seminar this summer about the way drone technology could be used to help deal with deadly flooding.

“We understand the capabilities,” Power said, “but when we have the recreational drone operator who isn’t necessarily familiar with the FAA’s requirements and flight restrictions — that’s the big issue. It’s a matter of educating them and hopefully no one gets hurt in the meantime.”

Anne Freedman is managing editor of Risk & Insurance. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Scenario

The End of Summer

A failure to purchase product contamination insurance results in a crushing blow.
By: | October 15, 2018 • 9 min read
Risk Scenarios are created by Risk & Insurance editors along with leading industry partners. The hypothetical, yet realistic stories, showcase emerging risks that can result in significant losses if not properly addressed.

Disclaimer: The events depicted in this scenario are fictitious. Any similarity to any corporation or person, living or dead, is merely coincidental.

PART ONE: THE HEAT IS ON

Reilly Sheehan, the Bethlehem, Pa., plant manager for Shamrock Foods, looks up in annoyance when he hears a tap on his office window.

Reilly has nothing against him, but seeing the face of his assistant plant operator Peter Soto right then is just a case of bad timing.

Sheehan, whose company manufactures ice cream treats for convenience stores and ice cream trucks, just got through digesting an email from his CFO, pushing for more cost cutting, when Soto knocked.

Sheehan gestures impatiently, and Soto steps in with a degree of caution.

“What?” Sheehan says.

“I’m not sure how much of an issue this will be, but I just got some safety reports back and we got a positive swipe for Listeria in one of the Market Streetside refrigeration units.”

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Sheehan gestures again, and Soto shuts the office door.

“How much of a positive?” Sheehan says more quietly.

Soto shrugs.

“I mean it’s not a big hit and that’s the only place we saw it, so, hard to know what to make of it.”

Sheehan looks out to the production floor, more as a way to focus his thoughts than for any other reason.

Sheehan is jammed. It’s April, the time of year when Shamrock begins to ramp up production for the summer season. Shamrock, which operates three plants in the Middle Atlantic, is holding its own at around $240 million in annual sales.

But the pressure is building on Sheehan. In previous cost-cutting measures, Shamrock cut risk management and safety staff.

Now there is this email from the CFO and a possible safety issue. Not much time to think; too much going on.

Sheehan takes just another moment to deliberate: It’s not a heavy hit, and Shamrock hasn’t had a product recall in more than 15 years.

“Okay, thanks for letting me know,” Sheehan says to Soto.

“Do another swipe next week and tell me what you pick up. I bet you twenty bucks there’s nothing in the product. That swipe was nowhere near the production line.”

Soto departs, closing the office door gingerly.

Then Sheehan lingers over his keyboard. He waits. So much pressure; what to do?

“Very well then,” he says to himself, and gets to work crafting an email.

His subject line to the chief risk officer and the company vice president: “Possible safety issue: Positive test for Listeria in one of the refrigeration units.”

That night, Sheehan can’t sleep. Part of Shamrock’s cost-cutting meant that Sheehan has responsibility for environmental, health and safety in addition to his operations responsibilities.

Every possible thing that could bring harmful bacteria into the plant runs through his mind.

Trucks carrying raw eggs, milk and sugar into the plant. The hoses used to shoot the main ingredients into Shamrock’s metal storage vats. On and on it goes…

In his mind’s eye, Sheehan can picture the inside of a refrigeration unit. Ice cream is chilled, never really frozen. He can almost feel the dank chill. Salmonella and Listeria love that kind of environment.

Sheehan tosses and turns. Then another thought occurs to him. He recalls a conversation, just one question at a meeting really, when one of the departed risk management staff brought up the issue of contaminated product insurance.

Sheehan’s memory is hazy, stress shortened, but he can’t remember it being mentioned again. He pushes his memory again, but nothing.

“I don’t need this,” he says to himself through clenched teeth. He punches up his pillow in an effort to find a path to sleep.

PART TWO: STRICKEN FAMILIES

“Toot toot, tuuuuurrrrreeeeeeeeettt!”

The whistles of the three lifeguards at the Bradford Community Pool in Allentown, Pa., go off in unison, two staccato notes, then a dip in pitch, then ratcheting back up together.

For Cheryl Brick, 34, the mother of two and six-months pregnant with a third, that signal for the kids to clear the pool for the adult swim is just part of a typical summer day. Right on cue, her son Henry, 8, and his sister Siobhan, 5, come running back to where she’s set up the family pool camp.

Henry, wet and shivering and reaching for a towel, eyes that big bag.

“Mom, can I?”

And Cheryl knows exactly where he’s going.

“Yes. But this time, can you please bring your mother a mint-chip ice cream bar along with whatever you get for you and Siobhan?”

Henry grabs the money, drops his towel and tears off; Siobhan drops hers just as quickly, not wanting to be left behind.

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“Wait for me!” Siobhan yells as Henry sprints for the ice cream truck parked just outside of the pool entrance.

It’s the dead of night, 3 am, two weeks later when Cheryl, slumbering deeply beside her husband Danny, is pulled from her rest by the sound of Siobhan crying in their bedroom doorway.

“Mom, dad!” says Henry, who is standing, pale and stricken, in the hallway behind Siobhan.

“What?” says Danny, sitting up in bed, but Cheryl’s pregnancy sharpened sense of smell knows the answer.

Siobhan, wailing and shivering, has soiled her pajamas, the victim of a severe case of diarrhea.

“I just barfed is what,” says Henry, who has to turn and run right back to the bathroom.

Cheryl steps out of bed to help Siobhan, but the room spins as she does so.

“Oh God,” she says, feeling the impact of her own attack of nausea.

A quick, grim cleanup and the entire family is off to a walk-up urgent care center.

A bolt of fear runs through Cheryl as the nurse gives her the horrible news.

“Listeriosis,” says the nurse. Sickening for children and adults but potentially fatal for the weak, especially the unborn.

And very sadly, Cheryl loses her third child. Two other mothers in the Middle Atlantic suffer the same fate and dozens more are sickened.

Product recall notices from state regulators and the FDA go out immediately.

Ice cream bars and sandwiches disappear from store coolers and vending machines on corporate campuses. The tinkly sound of “Pop Goes the Weasel” emanating from mobile ice cream vendor trucks falls silent.

Notices of intent to sue hit every link in the supply chain, from dairy cooperatives in New York State to the corporate offices of grocery store chains in Atlanta, Philadelphia and Baltimore.

The three major contract manufacturers that make ice cream bars distributed in the eight states where residents were sickened are shut down, pending a further investigation.

FDA inspectors eventually tie the outbreak to Shamrock.

Evidence exists that a good faith effort was underway internally to determine if any of Shamrock’s products were contaminated. Shamrock had still not produced a positive hit on any of its products when the summer tragedy struck. They just weren’t looking in the right place.

PART THREE: AN INSURANCE TANGLE

Banking on rock-solid relationships with its carrier and brokers, Shamrock, through its attorneys, is able to salvage indemnification on its general liability policy that affords it $20 million to defray the business losses of its retail customers.

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But that one comment from a risk manager that went unheeded many months ago comes back to haunt the company.

All three of Shamrock’s plants were shuttered from August 2017 until March 2018, until the source of the contamination could be run down and the federal and state inspectors were assured the company put into place the necessary protocols to avoid a repeat of the disaster that killed 3 unborn children and sickened dozens more.

Shamrock carried no contaminated product coverage, which is known as product recall coverage outside of the food business. The production shutdown of all three of its plants cost Shamrock $120 million. As a result of the shutdown, Shamrock also lost customers.

The $20 million payout from Shamrock’s general liability policy is welcome and was well-earned by a good history with its carrier and brokers. Without the backstop of contaminated products insurance, though, Shamrock blew a hole in its bottom line that forces the company to change, perhaps forever, the way it does business.

Management has a gun to its head. Two of Shamrock’s plants, including Bethlehem, are permanently shuttered, as the company shrinks in an effort to stave off bankruptcy.

Reilly Sheehan is among those terminated. In the end, he was the wrong person in the wrong place at the wrong time.

Burdened by the guilt, rational or not, over the fatalities and the horrendous damage to Shamrock’s business. Reilly Sheehan is a broken man. Leaning on the compassion of a cousin, he takes a job as a maintenance worker at the Bethlehem sewage treatment plant.

“Maybe I can keep this place clean,” he mutters to himself one night, as he swabs a sewage overflow with a mop in the early morning hours of a dark, cold February.

Bar-Lessons-Learned---Partner's-Content-V1b

Risk & Insurance® partnered with Swiss Re Corporate Solutions to produce this scenario. Below are their recommendations on how to prevent the losses presented in the scenario. This perspective is not an editorial opinion of Risk & Insurance.®.

Shamrock Food’s story is not an isolated incident. Contaminations happen, and when they do they can cause a domino effect of loss and disruption for vendors and suppliers. Without Product Recall Insurance, Shamrock sustained large monetary losses, lost customers and ultimately two of their facilities. While the company’s liability coverage helped with the business losses of their retail customers, the lack of Product Recall and Contamination Insurance left them exposed to a litany of risks.

Risk Managers in the Food & Beverage industry should consider Product Recall Insurance because it can protect your company from:

  • Accidental contamination
  • Malicious product tampering
  • Government recall
  • Product extortion
  • Adverse publicity
  • Intentionally impaired ingredients
  • Product refusal
  • First and third party recall costs

Ultimately, choosing the right partner is key. Finding an insurer who offers comprehensive coverage and claims support will be of the utmost importance should disaster strike. Not only is cover needed to provide balance sheet protection for lost revenues, extra expense, cleaning, disposal, storage and replacing the contaminated products, but coverage should go even further in providing the following additional services:

  • Pre-incident risk mitigation advocacy
  • Incident investigation
  • Brand rehabilitation
  • Third party advisory services

A strong contamination insurance program can fill gaps between other P&C lines, but more importantly it can provide needed risk management resources when companies need them most: during a crisis.



Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]