As evidenced by recent events as well as trends over the last decade, the risks of political turmoil and civil unrest are drastically increasing. These risks range from terrorist acts to protests and civil commotion to riots to looting and vandalism. Strikes, riots, and civil commotion (SRCC) threats, as they are characterized in insurance policies, not only pose a significant danger to the public but are also estimated to cost businesses millions of dollars every year. Although insurance carriers have traditionally included SRCC coverage as part of a standard policy, the increased frequency and severity of these risks have made this practice impracticable.
Reflecting on Past Events
A pivotal moment in the history of SCCR coverage in the United States occurred in 2020, following the death of George Floyd. The subsequent protests, demonstrations, and civil unrest that swept through approximately 140 U.S. cities brought light to the immense social and economic impacts of such events. For instance, reports detailed over $500 million in damages in the Twin Cities alone during that tumultuous year. i These events serve as stark reminders of the far-reaching consequences of civil unrest and political discord.
More widely, the Black Lives Matter protests spurred to life by George Floyd's death happened over a period of months and across approximately twenty states. ii This large swath challenged traditional definitions of "occurrence" in standard property insurance agreements and led insurers to emphasize using more clearly defined language to describe included risks in the SRCC world. iii The BLM protests also illustrated that many policyholders should contemplate obtaining a political violence extension in addition to the standard SRCC coverage to ensure that any damage sustained was covered. iv
While 2021-2023 did not witness the same intensity of protests as seen in 2020, civil commotion, protests and similar events remain a concern. In fact, with the recent protests on college campuses around the country regarding the Israeli-Palestinian conflict it is certain that any hot-button social issue has the potential to result in property damage or bodily injury. Current trends also indicate that elections and outcomes in certain trials tend to lead to increased social unrest. Although civil unrest has obvious ebbs and flows, the issues of climate change, wars around the globe, police brutality, labor disputes and countless more are not leaving the collective consciousness anytime soon. These developments have insurers and policyholders on alert.
Political Unrest on College Campuses
In recent widely reported events, numerous colleges and universities across the United States have experienced significant unrest in response to the ongoing conflict in the Middle East. Student groups and faculty members have engaged in protests, sit-ins, and walkouts, some of which have led to property damage, heated confrontations, and campus closures. These events highlight the intensity of the political and social divisions surrounding the conflict, with opposing views on either side clashing publicly and violently in locations that promise a safe space for students.
Insurance policies that address Strikes, Riots, and Civil Commotion (SRCC) risks are becoming increasingly relevant as colleges become hotbeds of political expression. For university administrators and insurers alike, the rise in campus unrest poses new questions regarding liability, damage to property, and the potential for business interruption if the unrest leads to class cancellations or campus shutdowns.
Universities must also navigate legal complexities such as whether protest-related incidents are considered civil unrest for insurance purposes. As campuses continue to be arenas for political activism, policies must be examined to determine if coverage extends to both physical damage and the consequential financial impacts on university operations.
Concerns Over Political Unrest During Upcoming Elections
As the 2024 election quickly approaches, concerns about potential political unrest have escalated, particularly given the highly polarized political environment. Past elections have shown that contentious outcomes can trigger widespread protests, demonstrations, and in some cases, violence. Businesses located near polling stations, government buildings, or in urban areas prone to political activity must carefully consider exposure to potential damage from protests or riots that could occur in response to election results.
Insurers and risk managers are on high alert for SRCC incidents, especially given the unpredictability of election-related civil unrest. In light of these concerns, businesses should review their insurance their insurance policies to ensure coverage is sufficient to address both property damage and business interruption. For example, certain policies may require specific extensions to cover damages from civil authority actions or third-party claims resulting from politically motivated violence.
Both businesses and insurers are being urged to take proactive steps by monitoring developments leading up to and following the election, reviewing security protocols, and assessing the adequacy of their insurance coverage to mitigate potential risks stemming from political instability.
Coverage and Legal Considerations
For businesses impacted by civil unrest, turning to an insurer for assistance is a natural first step. However, the nuances of coverage can be complex. Policies may differ in their definitions of covered events, exclusions, and limitations, making it crucial for businesses to have a clear understanding of their insurance terms. v Issues such as determining the number of occurrences and understanding the actual cause of loss can significantly impact claim outcomes. Even more complex in recent years is the fact that many businesses lost income not only due to the unrest, but also as a result of local authorities imposing curfews and blocking access to certain areas. Unless direct, physical loss can be shown because of the incident, often the policy does not cover the loss.
These difficulties are why it is paramount to realistically assess the potential threat level for each individual insured. In a report published by Chubb, the authors offer this guidance, "It is critical for risk managers and business leaders to be aware of how the risk spectrum is evolving and the consequential effects this will have on their insurance programs. Now more than ever, insurance policies should analyze potential exposures, location, proximity to recent civil commotion events and any prior losses due to SCRR events." vi Experts agree that with the increasing number of SRCC claims, insurers should strive to write policies with transparent, clear, and detailed descriptions of terms with well-defined boundaries and limitations on coverage. Although it may be difficult to contemplate all possible scenarios, a transparent policy will serve the best interest of both sides in the end.
Coverage Considerations
Damage to Business Property: Damage to business property resulting from SRCC and political violence incidents often falls within the scope of coverage provided by a comprehensive all-risk insurance policies or business owners policies. vii These policies are designed to protect against various perils that can cause physical harm to property. However, when it comes to the loss of income stemming from such events, business income or business interruption insurance may be triggered. It is important to note that this coverage usually applies if there is direct physical damage to the insured's premises that forced the business to cease normal operations during a period of restoration.
Moreover, the availability of coverage can be influenced by the timing and cause of the damage. viii This means that if the damage is not directly linked to perils listed in the policy or if it occurred outside of the policy period, coverage may be impacted. Writing a detailed definition of each term may eliminate any confusion later. It is also important to note that some commercial policies require supplemental or add-on insurance to cover costs due to broken glass resulting from a SRCC incident.
Civil Authority Coverage: Another consideration is civil authority coverage, which typically comes into play when government orders restrict access to a specific area due to rioting or another identified danger to the public. This has been of particular interest following COVID because many businesses only had business income or business interruption coverage both of which require direct, physical damage to the property. Had they secured civil authority coverage, their claims may have been approved. ix
Vacancy Provisions: Vacancy provisions in insurance policies can also complicate what may otherwise seem straightforward, and most policies limit coverage for buildings that have been vacant for an extended period of time- a usual number is sixty days as a common threshold. Disputes are also likely to crop up regarding the actual cause of the loss, particularly in situations where the nature of the loss is ambiguous or subject to any kind of debate. Therefore, a thorough examination of the specific terms and conditions outlined in the policy is imperative to navigate these intricacies effectively.
War Exclusions: Property insurance policies frequently contain exclusions related to various war risks, such as" insurrection, rebellion, revolution, war and civil commotion amounting to or assuming the proportions of an uprising." x If an insurrection or other war-related event is declared in connection with SRCC risks, losses stemming from such events may be expressly excluded from coverage. Defenses such as governmental immunity, contractual obligations, and identifying responsible parties amid chaotic events further complicate legal proceedings. These intertwined and often messy factual scenarios underscore the importance of comprehensive policy review and precise legal analysis when addressing insurance claims related to riot-related damages and associated business interruptions.
Third Party Claims: Governmental entities may also face potential third-party liability claims stemming from various circumstances. These claims can encompass a range of scenarios, such as businesses asserting property damage or lost revenue due to alleged failures by authorities to prevent riots or take sufficient measures to control them. Businesses may also claim damages due to law enforcement activities, such as road closures or barricading businesses entries, impacting their operations and profits. xi
Furthermore, individuals may pursue claims for bodily injuries caused by law enforcement actions involving substances like pepper spray, projectiles, or tear gas. Additionally, there may be claims related to civil rights violations or allegations of false arrest and malicious prosecution against government entities or officials.
Governmental Immunity: Navigating these claims involves addressing numerous defense and legal barriers, with governmental immunity being a significant factor. Governmental immunity often necessitates claimants to demonstrate willful or intentional misconduct on the part of the government, establishing a high threshold for liability. xii Some states also provide immunity to government entities and public officials for claims arising specifically from rioting, civil commotion, mob actions, or related prevention efforts. Understanding these legal nuances is crucial when assessing the potential liabilities and defenses in third party claims against government entities.
Adjacent Property Owners: There are additional avenues for claims beyond governmental entities as well, extending to adjacent businesses or property owners. These claims could arise due to loss of use, such as when one business sustains damage during a SRCC event, which consequently prevents an adjacent business from operating. Claims may also stem from businesses employing force to safeguard property or individuals, such as when a business hires private security leading to injuries inflicted on protesters, rioters, or bystanders. xiii Furthermore, claims may arise from businesses failing to fulfill contractual obligations due to riot-related disruptions, like the inability to manufacture or deliver products due to business shutdowns or access limitations caused by riots.
Key Takeaways from Chubb Report
- "Property damage insurance used to cover losses related to civil unrest without much inquiry, but that is no longer best practice. Today, insurers must be more thorough in underwriting policies in preparation for high dollar SRCC- related claims.
- Policies and extensions in political violence policies that address SRCC as an independent risk are more likely to provide comprehensive protection.
- Standard terrorism insurance typically covers isolated, covert terrorist attacks, but not street level civil unrest.
- Standard all-risks property policies usually exclude terrorism or war related events. This typically includes insurrection, rebellion, revolution, war and civil commotion amounting to or assuming the proportions of an uprising.
- Different policies may define perils in different ways, so a successful property and SRCC uses clear, definitive, and well examined language.
- SRCC cover is increasingly offered by specialty insurers, which employ stricter definitions and aggregate losses.
- It is important to pay attention to the language of the policy and work closely with brokers and insurers, in order to avoid headaches when there is a claim.
- Distinctions between different terms and definitions can become blurred as civil unrest episodes develop in complexity and scope.
- Traditional definitions of political violence and civil unrest have bene challenged by recent events in Chile and Hong Kong as well as the BLM movement in America.
- Working with their insurers, businesses need to monitor key risks closely and protect themselves by securing their premises, people, and supply chains, and having an effective business continuity plan.
- It is critical for both risk managers and business leaders to be aware of how events and circumstances may evolve over time, potentially triggering different insurance policies."
Moving Forward Strategically
As the landscape of political risks and civil unrest evolves, proactive risk management and legal strategies are critical for businesses and insurers alike. This involves thorough policy reviews, risk assessments tailored to specific locations and industries, and contingency planning for potential disruptions. Collaboration between legal experts, risk managers, and insurers can help businesses navigate complexities and ensure adequate coverage and protection in times of uncertainty. Understanding the broader social and political context can also inform proactive engagement and community initiatives, fostering resilience and stability in challenging times. As the landscape evolves, it's essential for businesses and insurers to stay informed and adapt strategies accordingly. Understanding policy specifics, risk mitigation, and legal frameworks can better prepare stakeholders for SRCC incidents.
_____________________________________
i Larry Buchanan, Quoctrung Bui and Jugal K. Patel, "Black Lives Matter May Be the Largest Movement in U.S. History," The New York Times, 03/07/2020.
ii Piers Gregory, Kevin Smith, Patrick Foss, Jonathan Embling, "Confidence in Conflict: Insuring Your Business Against Civil Unrest," Chubb Report.
iii Ibid.
iv Ibid.
v L.S. Howard, "As Strikes, Riots and Civil Commotion Risks Increase, Insurers Respond with Exclusions" Insurance Journal, October 27, 2021.
vi Chubb Report at p. 8.
vii Sarah Anderson and Scott M, Seaman, "Part Four: Reviewing Key U.S. Insurance Decisions, Trends and Developments: Civil Unrest, Riots and Strikes" Hinshaw Law Legal Update, March 1, 2022.
viii Civil Unrest Series #1: Pharmacists Mutual Blog 4/13/24.
ix Alycen A. Moss and Elliot Kerzner, "Protests, Riots Raise Questions of Civil Authority Coverage," Best's Review, March 2021.
x Chubb Report at p. 11.
xi Hinshaw.
xii Hinshaw.
xiii Hinshaw.