Drones: The search for risk-based rules

The use of drones for commercial purposes is growing at a rapid rate, with the technology able to carry out a seemingly endless list of tasks. Natural resource companies use whole fleets to manage their mines, construction firms have them on site and the maritime industry uses them for surveys, to name a few examples. Last month, Project Wing, an offshoot of Google’s parent company Alphabet, became the world’s first drone delivery business after receiving approval from the Australian aviation authority Casa. The insurance industry, meanwhile, has been one of the early adopters of drone technology to improve accuracy and speed of decision-making in a variety of claims scenarios. But with opportunity comes risk, and large companies in particular need help transitioning to drone use. Regulators, risk managers and insurers are playing catch-up with the technology. This is creating issues around liability and, inevitably, resulting in growing risk of litigation. The more uncertainty there is about who is liable and what the standards for liability are, the more litigation there will be. Ben Norris spoke to members of Clyde & Co’s global drone strategy group about the current situation and what the future might have in store. Regulators are trying to keep up with drone technology but are always playing catch-up and behind the latest developments, warn experts from Clyde & Co who say it will take time to harmonise rules across the world. In the meantime, companies are struggling to understand how they are allowed to use drones. The lawyers also explained that unless properly coordinated, drone regulation and legal rulings risk doing more harm than good to a fledgling industry that has the potential to provide many transformative benefits. Maurice Thompson, a Clyde & Co partner in Australia, said companies across the world and their insurers are struggling to come to terms with where they stand on drone use, in part because of a lack of regulations. “We are having interesting discussion at both ends of the spectrum with our risk manager and insurance clients about how drones can be used because of the void caused by a lack of regulation globally,” he explained. Mr Thompson stressed that no matter the jurisdiction in which they operate, the most sophisticated companies are “getting to the same point as each other now, where the regulators are behind the times”. According to Jeff Ellis, an aviation partner at Clyde & Co in the US: “The technology is advancing to the point where the use of drones is going to grow exponentially. The technology is improving rapidly and regulators are trying to catch up.” “To make it efficient for industry and have a harmonised system, which is what everyone wants, will take a bit of time,” added Patrick Slomski, an aviation partner in Clyde & Co’s London office. Mr Ellis said regulators are making efforts by conducting studies on the risks posed by drones. “Regulations are meant to mitigate a risk. But before you figure out what risk mitigation should be, you need to understand the risk itself. So regulators are now trying to assess the risk. As regulators are satisfying themselves via various testbeds, the rules are going to change. Hopefully that delivers a sensible outcome. We will wait and see,” he said. By way of an example, the US’s Federal Aviation Administration (FAA) and other regulators have been conducting tests to compare the effects of a bird and a small drone hitting an aircraft. “We know the damage birds can do and the question is: what can drones do? There are studies that say the damage will be relatively minor, but others take a different viewpoint. So the regulators are conducting further studies to understand the risk,” explained Mr Ellis. “The regulators are trying to work out the nature of the risk and appropriate mitigation levels. This involves federal regulators, the drone industry, the local regulators, law enforcement – it is a pretty broad spectrum. So hopefully that delivers a sensible outcome,” he added. It is imperative that regulators and the legal world devise a system that is commensurate to the risk posed by drones and fully coordinated, argued the lawyers. Unless properly coordinated, legal rulings and government regulations could do more harm than good, they added. Mr Slomski noted that authorities are coordinating efforts on drones, but it takes time. The risk is that until adequate regulations and standards are in place, companies are using drones without clear guidelines, which could lead to inconsistent legal judgments, he added. “It has taken a while to get there but the regulators are coordinating. They are coordinating across industries. The threat at the moment is if cases come up, particularly on third-party damage, they will do so where standards have not been properly defined by the regulators. Then you are into territory where you need to start worrying about keeping all the court decisions consistent,” said the lawyer. Mr Ellis said Clyde & Co is trying to stimulate discussion on this issue on behalf of drone operators and their insurers, to prevent courts from deciding such cases in a “reactionary, myopic way”. “We want courts and the regulators to understand the broader context and come up with what we think is a sensible solution. We are certainly not advocating growing the drone industry at any cost. And none of the industry people we represent are looking to do that. They recognise that the industry has to grow sensibly and safely. At the same time, we don’t want the courts to be overinfluenced by one particular incident,” he added. Mr Ellis said regulations are developing in the US, where the FAA is very proactive. While right now the rules are still pretty restrictive – you cannot operate beyond visual line of sight, and you cannot operate over another person unless you have a waiver – explained the lawyer, the FAA has just approved Google’s Wing to act as a certified air carrier and begin commercial package delivery for a fee in two small towns in Virginia. This is, Ellis believes, a major step to widespread use, and a continuation of the FAA using small testbed areas to better judge risk and practical issues relative to fuller drone integration into the national airspace. The FAA has also announced that provided people have the appropriate training, they will be able to fly drones beyond visual line of sight. Mr Slomski said things vary country to country across Europe but in terms of barriers to operation, things are similar to the US. However, some drone operations are already permitted beyond a visual line of site, he explained. The UK’s Civil Aviation Authority, for example, has wide powers to grant such use. “If it is satisfied that your operation can be done safely, it has the power to allow you to do it. So there are powerline and pipeline inspections going on. But in remote areas as you might expect,” said Mr Slomski. Mr Thompson said Australia initially had more sophisticated regulations than other parts of the world, but now things are very similar to elsewhere. He noted that Australia has brought in compulsory registration of drones. This is about to happen in the UK and parts of Europe and has already happened in the US. The drone wars Mr Thompson went on to warn that companies are at great risk of industrial espionage from drones. He said there are examples of rogue drones flying over mine sites, with the likely aim of measuring commodities. “We have heard of circumstances where you have drone wars taking place in the sky. Miners are trying to knock the other drone out the sky with little success. There are other circumstances where people are trying to take data on soft commodity crops to influence the price of trade,” said Mr Thompson. “I would argue that there is a great risk of industrial espionage. Proving it is another thing entirely,” he continued. What are the privacy issues associated with monitoring crowds and individuals at public events with drones? Jeff Ellis: That is being hotly debated right now. The Patriot Act in the US has raised a lot of privacy concerns. There are concerns that drones are capable of gathering so much information that it is something that needs to be regulated. Maurice Thompson: It is throwing up some really interesting arguments. Consider a large warehouse with 20 close circuit security cameras taking constant feed and footage. People get constantly videoed and no one cares. CCTV footage is collected without people complaining. So the argument is: why can’t we have one camera on a drone moving around the same site taking photographs? That is what the other cameras are doing anyway. Then the question is: do you allow that sort of argument to run if you have multiple drones taking multiple facial recognition data from people? Patrick Slomski: The UK and various European countries come at this slightly differently. Here, there is less debate about privacy and invasion of privacy. It is more to do with how you process the data you collect, whether it is intentional or inadvertent. The effects of that is we have operators and system developers for drones coming to us asking what they must do to ensure they aren’t inadvertently processing data they shouldn’t be. So, it is more of a concern for those operating the drones, rather than people being caught on camera, over here.

Drones: The search for risk-based rules

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