Locke Lord QuickStudy: Santa Hurries Down CGL Carriers’ Chimneys – Court Finds Drones are Aircraft and Excluded in Important New Coverage Decision

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.