Drones and Real Estate – Is The Future Here?

Rinat Klier Erlich

 

Drone usage is increasing in many areas of government and private businesses for matters like border patrol, environmental monitoring of crops and trees, inspecting inaccessible areas, research and specific tasks, including aerial shots and movies. This technology also has the ability to record remote places, sweep over large areas, conduct surveys and mapping and even deliver packages. Legislation regarding drones is still developing, which means that licensing requirements may rapidly change and what is allowed and not allowed in terms of size, flight regulations and permits may change as well. In the past, those who wished to operate a drone commercially had to obtain FAA approval and petition the FAA for exemption from requirements to prove the drone’s safety (size, location, purpose). Federal agencies must ensure that policies and restrictions protect the public against the potential of abusive interference of privacy.

When hiring a drone operator, a real estate licensee or appraiser must make sure the operator is licensed to operate the drone. Hiring a non-licensed operator may subject the employing licensee to liability and penalties.

There are also risks in operating drones. Drones can cause property damage or physical injury and invade people’s privacy. When hiring a drone operator, the real estate agent or appraiser can be responsible for the resulting injury, fine or penalty. California Civil Code Section 2338 holds for example, that a principal is responsible to third persons for negligence of his agent “in the transaction of the business of the agency…” In order to prevent such association with the drone operator, a proper agreement should be entered into holding that the drone operator is an independent contractor.

Moreover, intrusion “encompasses unconsented-to physical intrusion into the home, hospital room or other place the privacy of which is legally recognized, as well as unwarranted sensory intrusions such as eavesdropping, wiretapping, and visual or photographic spying.” Shulman v. Group W Productions, Inc. (1998) 18 Cal.4th 200, 230. It “is not when the plaintiff has merely been observed, or even photographed or recorded, in a public place.” Rather, “the plaintiff must show the defendant penetrated some zone of physical or sensory privacy surrounding, or obtained unwanted access to data about, the plaintiff.” Sanders v. American Broadcasting Co. (1999) 20 Cal.4th 907, 914. Even as an independent contractor, the real estate agent or appraiser can be liable for the drone operator if they directed the operator when or where to fly the drone and take aerial shots. In directing such activities, the employing licensee or appraiser should be clear where the drone can and cannot fly, while making sure to get permission, as necessary. This is not just a privacy concern. “Trespass is an unlawful interference with possession of property. The emission of sound waves . . . may impose [liability] for conduct which is intentional, reckless, negligent or the result of an extra- hazardous activity.” Staples v. Hoefke (1987) 189 Cal.App.3d 1397, 1406. Even if there is no physical damages, “the general rule is simply that damages may be recovered for annoyance and distress, including mental anguish, proximately caused by a trespass.” Armitage v. Decker (1990) 218 Cal.App.3d 887, 905.

Other possible claims that can attach to the real estate licensee or appraiser are negligence per se, when there is a violation of law. Nunneley v. Edgar Hotel (1950) 36 Cal.2d 493, 500. A claimant can argue that the drone operator violated various FAA and other regulations. Furthermore, there can be a claim for nuisance. California Civil Code section 3479 provides: “Anything which is injurious to health, including, but not limited to, the illegal sale of controlled substances, or is indecent or offensive to the senses, or an obstruction to the free use of property, so as to interfere with the comfortable enjoyment of life or property, or unlawfully obstructs the free passage or use, in the customary manner, of any navigable lake, or river, bay, stream, canal, or basin, or any public park, square, street, or highway, is a nuisance.” “In distinction to trespass, liability for nuisance does not require proof of damage to the plaintiff’s property; proof of interference with the plaintiff’s use and enjoyment of that property is sufficient.” San Diego Gas & Electric Co. v. Superior Court (1996) 13 Cal.4th 893, 937. When a drone flies over someone’s home or even interferes with people’s use of public space, there can be a claim for nuisance.

It is not clear to what extent the real estate licensee or appraiser will be responsible to third parties for acts of a hired drone operator. It may depend on how closely the claim is tied to the real estate activity and how much the employing licensee or appraiser had control. The California case of Norman J. Krug v. Praszker (1990) 220 Cal.App.3d 35 for is an example that found a continuing obligation to a third party private lender after the transaction had concluded, to warn lender of known facts relating to impairment of lender security. However, FSR Brokerage v. Superior Court (1995) 35 Cal.App.4th 69 found that there was no duty owed to guests injured at party when a defective deck collapsed. Coldwell Banker Residential Brokerage Co. (Salazar) v. Superior Court (2004) 117 Cal.App.4th 158 similarly found no duty owed to the children of a buyer for a mold-related injury.

With respect to property appraisers, California courts of appeal are split as to whether an appraiser may be liable for negligent misrepresentation where the claimant is a third party. In Christiansen v. Roddy (1986) 186 Cal. App. 3d 780 the court found no evidence to show that an appraiser knew investors would rely on his appraisal of the property. In Soderberg v. McKinney (1996) 44 Cal. App. 4th 1760 plaintiff trustee relied on appraiser’s valuation in deciding to invest in property through a mortgage broker. The borrower defaulted and the plaintiff was forced to foreclose, but there was evidence that the defendant knew that a group of potential investors would rely on his report. Hiring a drone operator may or may not be distinguishable from drafting an appraisal report.

While a drone operator may not be able to limit claims by third parties (a drone operator can be more like a vehicle driver who owes a duty to the public), the licensee or appraiser are one step removed. Therefore, they need to make sure their contract with the drone operator limits their liability. One form of protection the licensee or appraisers can have is inserting an indemnity agreement in the contract with the drone operator. There are many types of indemnity agreements. They can be general, specific, and they can be triggered by passive or active negligence. Attorneys should be consulted in regards to drafting indemnity agreements, but the more specific and passive, the more protection they may offer. If the indemnitor (drone operator) has to indemnity the indemnitee (real estate licensee or appraiser) for any damage relating to the drone, whether with or without fault of the operator, then that is the broadest form of indemnity. There are also legal restrictions on indemnity for example, California Civil Code section 2782(a) states that there can be no indemnity for the sole negligence or willful misconduct of the indemnitee, although this Code applies to construction contracts.

Most importantly, the real estate licensee or appraiser must make sure that the drone operator has insurance. If the policy is a general liability policy, then the client may also ask to be an additional insured on the drone operator policy. The real estate licensee or appraiser should also make sure that the policy covers claim for privacy: trespass and nuisance. Also important to note: the real estate licensee and appraiser should confirm that their own policy would cover such claims. Coverage under the “personal injury” section of a general liability policy, where it had not yet been endorsed specifically to exclude coverage for drone liability matters, may cover a drone related claim, but it is a poor vehicle for covering such claims, especially when the claim pertains to privacy violation or an administrative claim by the FAA. The definition of covered “personal injury” in a general liability policy generally includes invasions of privacy, yet there are sometimes disputes over whether there has been sufficient “publication” or disclosure of personal information to trigger the coverage. Surely, insurers may not have been thinking about these types of claims when they drafted their policies.

Moreover, there could be other limitations in general liability policies pertaining to professional services.  Is a drone operator performing a professional service? If yes, will an errors and omissions policy cover such claim? There can also be limitation relating to damages in the policies. If the claim is for invasion of privacy and the damages are emotional distress, these damages are often not covered by E&O policies. Similarly, if a claim involves an administrative complaint or other governmental enforcements, or if the damages are penalties, they may not be covered.

In conclusion, we cannot predict the kind of claims that may arise from drone incidents and both protections from drone operators and insurance coverage are going to evolve as drones are used more often. However, real estate licensees and appraisers should appreciate the risks and at the very least make sure that the drone operators they hire are licensed and that they have insurance. Common sense should be applied in assigning tasks to the drone operators. The licensees and appraisers should also have contracts with the drone operators and examine their own insurance policies to see if they would cover a drone related claim.