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Civil unrest in the US: property insurance considerations

Recent protests and unrest have been accompanied by rioting and looting in many cities. Various insurance policies may respond to property damage and losses.

People raising fist with unfocused background in a pacifist protest against racism demanding justice

The death of an African-American man in Minneapolis police custody on May 25 has spurred widespread protests and unrest across many American cities. In some cases, this unrest has been accompanied by acts of violence and destruction that has led to significant property losses and damage.

As the unrest continues, risk professionals should understand the relevant specific terms and conditions in their property insurance policies and how those policies may respond to losses.

Property Insurance Coverage

Traditional property insurance policies typically require insured physical loss or damage to trigger a response. In the US, many property policies are written on an all-risk basis, covering direct physical loss or damage to insured locations unless otherwise excluded. If coverage is provided on a specified named perils basis, a review of covered perils will be necessary to determine whether a specific cause of loss could apply.

Some policies contain potentially relevant exclusions – including those relating to strikes, riots, and civil commotion — introduced in the wake of prominent cases of unrest in the past, such as Hong Kong and Chile. Policyholders and their advisors should review their policies to assess the extent to which this type of exclusion – or others — might apply to locations affected by current events.

Terrorism and Political Violence

Some of the people who have engaged in protests, rioting, and looting have been characterized as domestic terrorists. At present, there does not appear to be credible evidence that any of the widespread destruction has been caused or directed by terrorist organizations, but that understanding could change as events and investigations unfold. This may raise questions about whether any of the property destruction could be considered an act of terrorism that may be excluded in property policies.

In addition to property insurance policies, some businesses also purchase political violence policies or standalone terrorism policies endorsed with political violence perils such as riots and civil commotion, which may provide coverage for the rioting and/or civil commotion currently transpiring in the US. If both property and political violence/standalone terrorism with political violence policies could cover the same loss or damage, there will need to be an assessment about which policy should be primary and respond first based on the other insurance provisions in both policies.

Single or Multiple Occurrences

Amid the ongoing unrest, businesses may suffer multiple losses at a single location or losses at multiple locations in the same or different cities nationwide. As of this writing, riots and/or looting have occurred in several major American cities, including Minneapolis, New York, Los Angeles, and Chicago.

This may raise the question of whether any losses are, collectively, a single “occurrence” or separate, multiple “occurrences.” The answer to this question may affect features of available coverage, including the applicable deductible(s) and any sublimits. Insurers will review their policies’ “occurrence” definitions and the facts and circumstances of any losses to assess the number of occurrences.

Some “occurrence” definitions will have time period limitations — commonly, 72 hours — and may include “riot” and/or “civil commotion.” According to such provisions, another loss occurring within 72 hours of a first loss suffered by an insured may be considered part of one occurrence. If losses occur at the same insured location, but at different times — for example, outside of a 72-hour window — or at different locations involving the same insured, insurers may consider such losses to be separate occurrences.

The Insurance Service Office’s Property Claims Service unit has assigned a PCS catastrophe serial number (2033), also known as an ISO CAT code, to classify losses arising from riots in specified cities and specified states for the period May 26 to June 1. If multiple losses from riots have occurred in designated areas during this period of time, insurers will be allowed to consider all such losses as one event — one occurrence as defined under a policy and subject to a single deductible. Insurers, however, are not obligated to follow this ISO CAT code designation. In addition, any losses occurring after June 1 or outside the areas specifically identified by PCS have so far not been considered part of the original ISO CAT code designation, but may be in the future.

Reasonable Expenses

If an insured has sustained loss(es) from the ongoing civil unrest and takes measures to protect its property from further damage, reasonable expenses associated with such actions may be insured under the protection of property or sue and labor provisions, both of which are extensions sometimes included in property policies. Typically, any expenses associated with either of these provisions are subject to applicable policy deductibles; some conditions may also be subject to sublimits.

Business Interruption

Under many property policies, in order for coverage — including any business interruption or other time element coverage — to be triggered, there must be an insured physical loss or damage to property of the type insured under the policy due to a covered cause of loss. This application of coverage also applies to relevant time element extensions, including interruption by civil authority.

Many businesses are currently shut down due to orders that public authorities have issued to contain the spread of COVID-19. This could complicate the adjustment of any business interruption claims related to civil unrest.

Generally, an insurer will seek to calculate an insured’s actual loss by estimating the period of recovery — the time period from the date of insured physical loss until the property is repaired, replaced, and made ready for normal operations. If, following the date of the damage due to civil unrest, a shutdown order is lifted by the relevant public authority, an insurer will take into consideration what the business would have earned had the losses related to civil unrest not occurred during the estimated period of recovery. An insured business, therefore, may be expected to demonstrate what it would have earned during the period of time after the shutdown is lifted even though the business was prevented from operating due to damage relating to the civil unrest.

If access to an insured’s covered locations is prevented by an actual order of civil authority even though the location in question has sustained no physical loss or damage, a business interruption and other loss may be insured under the time element extension known as interruption by civil authority. The descriptions and triggers of coverage vary under this type of time element extension, and coverage will depend on several factors, including whether:

  • An insured loss or damage has occurred to property of the type insured under the policy.
  • An insured location is subject to a distance limitation within the extension.
  • Any relevant applicable waiting period has been met.

Policyholders should also note that the interruption by civil authority is commonly subject to sublimits and/or time limitations.

Responding to Potential Losses

Policyholders should work with their advisors to review applicable policy language and better understand whether and how property and business interruption coverage may be triggered as unrest continues across many cities. Businesses that have suffered losses should also follow general guidance on managing losses and preparing claims. Among other actions, businesses should be sure to collect appropriate loss data and present their claims to insurers in a prompt and timely manner.

For more information, contact your Marsh representative.

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