Defining Occurrence – When Policy Definitions Do Not Apply To All Coverages
September 24, 2020
Model-aircraft hobbyist John Taylor didn’t want to register his model aircraft with the FAA pursuant to the newly created drone registry. So he took on the FAA, challenging new regulations aimed at unmanned aircraft registration and flight restrictions. Last Friday (May 19, 2017), he won. See Taylor v. Huerta, Case No. 15-1495 (D.C. Cir. May 19, 2017). At issue were the recently issued FAA Regulation Rule and Advisory Circular requiring registration of drones and restricting their use in certain areas. Although not an insurance-related lawsuit, the Taylor court’s ruling will certainly affect insurance-policy interpretation moving forward. Here’s why:
Inciting to Section 336(a) of the FAA Modernization and Reform Act (“FMRA”), the Taylor court agreed with Mr. Taylor that the FAA did not have the authority to impose a registration rule for the use of drones. FMRA bars any rules or regulations concerning “model aircraft.” A “model aircraft” is defined under the Act as an “unmanned aircraft that is — 1) capable of sustained flight in the atmosphere; 2) flown within visual line of sight of the person operating the aircraft, and 3) flown for hobby or recreational purposes.” The court ruled that the Registration Rule is squarely prohibited under FMRA, even though its stated purpose is aimed at addressing aviation-safety concerns.
Did you catch that? The D.C. Circuit Court of Appeals just concluded that hobby or recreational drones are “model aircraft” under the FAA Modernization and Reform Act and therefore can’t be regulated by the FAA. That means that the registration requirement and its modest registration fee weren’t permitted, but that’s not why you’re reading this. You’re reading this because many homeowners’ insurance policies exclude liability coverage for injuries or damage caused by an “aircraft” but then define “aircraft” as “any contrivance used or designed for flight, except model aircraft or hobby aircraft not used or designed to carry people or cargo.”
So, what’s the difference between a “drone” and a “model aircraft”? It seems like there is a difference, doesn’t it? But the difference, it seems, is impossible to articulate. At some level, we think of “model aircraft” as yellow, airplane-shaped hobby devices with propellers flown in public parks by pipe-smoking fathers bonding with their sons, and beyond question, this is what the actuaries had in mind when they blessed the insurance-policy definition of “aircraft” that excluded these wholesome little toys that hardly ever fly directly into someone’s face or capture compromising images of stalking victims. “Drones,” on the other hand, are model aircrafts’ more sophisticated cousins, equipped to do far more dangerous things than simply bring a smile to an apple-cheeked ten-year-old.
But as sure as we are that we understand the differences between the two, the difference defies articulation. Though we tend to think of “model aircraft” as being shaped like airplanes and “drones” as being quadcopters, we know that there are exceptions to both of these generalizations. Though we think of “model aircraft” as being operated by remote control within the pilot’s line of sight and “drones” as being self-piloting and utilizing global positioning systems, we know that there are model aircraft equipped with autopilot and drones that are operated by remote control within line of sight.
So far there isn’t a judicial opinion deciding whether a drone is a “model aircraft” within the meaning of an insurance policy that covers “model aircraft,” but the first judges to confront the question are undoubtedly going to read the D.C. Court of Appeal’s Taylor decision for some insight. And Taylor didn’t even attempt to distinguish between the two. The entire opinion uses “drone” and “model aircraft” interchangeably, and that should alarm homeowners’ insurers that believe there is a difference between a “drone” and a “model aircraft” as that term is used in the policy definition of “aircraft.” Though the Taylor opinion leaves room for the argument that “model aircraft” means something different in a homeowners’ policy than it means in FMRA, the argument doesn’t seem as persuasive after Taylor.
As technology continually advances, insurers scurry to keep up, accommodating shifting trends by clarifying policy language, definitions, and coverage. Only recently, the act of flying model aircraft was once such a rare, esoteric hobby that the additional risk of covering model aircraft under homeowners’ policies was negligible. We have since, however, seen a recent surge in the number of people who own and fly recreational drones, which now expand across all walks of life. The drone, which was once seemingly limited to the military, journalists, and first responders to capture photographs in hard-to-reach and/or dangerous places, is now widely used by everyday civilians.
Thus, for now, the ruling in Taylor gives credence to the argument that the “model aircraft” exception to the aircraft exclusion means that homeowners’ insurers are covering drone risks. Insurers that don’t want to be caught flat-footed should consider either removing the “model aircraft” exception from their definitions of “aircraft” or setting their actuaries to the monumental undertaking of assessing how many of their policyholders have drones in their bedroom closets, and then quantifying this new risk that they may now be covering.