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In what is believed to be a first-of-its-kind decision, the U.S. District Court for the Central District of California recently issued an opinion denying coverage for a personal injury lawsuit against a drone operator based on an aircraft exclusion in the operator’s Commercial General Liability (CGL) policy. This decision should come as welcome news to insurers, and a warning to drone operators to make certain that they have appropriate coverage in place. The case is Philadelphia Indemnity Insurance Company v. Hollycal Production, Inc., et al., ED CIV 18-768 PA.
The accident at issue arose while Hollycal Production (“Hollycal”) was using a drone to photograph a pre-wedding function. The operator allegedly flew the drone too low, colliding with one of the attendees, Darshan Kamboj, severely injuring Kamboj and ultimately causing her to lose sight in one eye. Ms. Kamboj subsequently filed suit against Hollycal, its owner and the Hollycal employee that operated the drone. In turn, Hollycal tendered the defense of the Kamboj lawsuit to Philadelphia Indemnity Insurance Company (“Philadelphia”), which had issued a CGL policy to the National Association of Mobile Entertainers, pursuant to which Hollycal had been added as an insured certificate holder. Philadelphia agreed to provide Hollycal with a defense subject to a reservation of rights, and thereafter filed a declaratory judgment action seeking a determination it had no duty to defend or indemnify the Kamboj lawsuit.
Philadelphia moved for summary judgment in the declaratory judgment action, arguing that two separate exclusions in the policy precluded coverage. The first was the Aircraft, Auto or Watercraft exclusion in the Policy, which excluded coverage in pertinent part for bodily injury or property damage “arising out of the ownership, maintenance, use or entrustment to others of any aircraft, ‘auto’ or watercraft owned or operated by or rented or loaned to any insured.” The second exclusion was added by way of a Miscellaneous Recreational Exposures endorsement, and precluded coverage in pertinent part for bodily injury or property damage “[a]rising out of the ownership, operation, maintenance, use, loading, or unloading of any flying craft or vehicle, including, but not limited to, any aircraft, hot air balloon, glider, parachute, helicopter, missile, or spacecraft.”
Although Hollycal failed to oppose the motion, the Court nonetheless conducted a substantive analysis of the issues. Noting that “aircraft” was not a defined term in the policy, the Court looked to the Merriam-Webster’s Collegiate Dictionary definition of the word, along with the definition of aircraft set forth in 49 U.S.C. § 40102(a)(6) and 14 C.F.R. § 1.1. Reviewing these definitions, the Court concluded that a “drone … is an aircraft under the term’s ordinary and plain definition.” Accordingly, the Court found that the Kamboj lawsuit was excluded from coverage, and Philadelphia had no duty to defend or indemnify Hollycal. In addition, because Philadelphia reserved its rights to seek reimbursement for any defense-related payments, the Court found that Philadelphia was entitled to reimbursement from Hollycal of approximately $17,000 Philadelphia had paid to defend Hollycal in the Kamboj lawsuit. Of potential interest, while the dispute was centered in California and the action pending in California, the Court and parties do not appear to have addressed California Public Utilities Code Section 21012. This section of California’s State Aeronautics Act defines “Aircraft” to mean “any manned contrivance used or designed for navigation of, or flight in, the air requiring certification and registration as prescribed by federal statute or regulation.” Such California definition is arguably at odds with that cited by the Court to the extent California limits aircraft to a “manned contrivance”.
There has been much consternation in the insurance industry as to how courts would apply an aircraft exclusion to drone operations. In at least one instance, the Court has sided with the insurers, but there will likely be more challenges to come as the policy wordings and combinations can vary. This decision is an important warning for drone operators as well though, as it reinforces the need for operators to closely review their insurance and assure that they have appropriate coverage in place for their drone operations. As this matter makes clear, and as reinforced by recent reports of a drone allegedly striking the nose cone of an Aeromexico Boeing 737, there are substantial exposures arising from such operations, and without careful risk management and the right insurance, operators will be left exposed to potentially ruinous liability.