Risk Management News & Reports

Below is a collection of important news and reports vital to protecting your company from risk.
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Beware of the Rains

Risk Intelligence Blog

Hurricane Joaquin is illustrating a phenomenon to which all property owners need to pay serious attention: flooding from storm related heavy rains is becoming a norm. You need flood insurance whether you are located near a body of water or not. You may not come to the water, but the water will come to you.

The record-setting weather, which dumped a foot of water over parts of South Carolina in a few days time, is, unfortunately, part of a longer term pattern of heavier and heavier rain totals.

Under flood insurance the definition of flood should, and usually does, include flooding from rainfall.

The FEMA flood program defines flood to include: “Unusual and rapid accumulation or runoff of surface waters from any source.”

The very best definitions of covered flood in the private insurance market are as broad as this one example, one of our favorites (emphasis added):

“Flood means any surface water; tidal or seismic sea wave; tsunami; storm surge, including but not limited to the rush of water over or onto land from any body of water caused by high winds associated with a cyclone, tropical storm, hurricane or any other storm and secondarily by the low pressure of the storm; rising (including overflowing or breaking of boundaries) or any body of water, including but not limited to seas, oceans, reservoirs, lakes, streams, rivers, ponds and harbors; all whether natural or man-made, and whether driven by wind or not, and including spray from any of the foregoing that results from, contributes to, or is aggravated by any of the above whether natural or man-made. Flood also includes physical loss or damage from water which backs up through sewers or drains that are below level as a result of flood.”

FEMA- established flood zones will not reflect this new phenomenon. In addition to what flood zone you are in, you need to pay careful attention to the elevation of your property in relation to surrounding land, and consider flood insurance.


This subject was addressed at the LicataRisk “Risk Advisory Breakfast” in Boston on September 24, 2015.  The event featured presentations by:

  • Daniel F. Conley, Suffolk County (MA), District Attorney ;
  • David  Holley, Berkeley Research Group Managing Director ;
  • Frank Licata, Licata Risk Advisors President .

One of the key topics was:

Terrorism Risk is Evolving – Is Your Insurance Coverage Keeping Up?

(As always with the insurance industry, the devil is in the details and the details are in the fine print).

A summary of that discussion is here:

Terrorism risk is evolving with the advent of the “lone wolf” phenomenon, causing the exposure to be more dispersed and localized.  So, business owners are taking second and third looks at risk and insurance.

Your broker gives you an offer of terrorism coverage and quotes a price.  It should be as simple as checking “accept” or “reject.”  It is not that simple, unfortunately.

The insurance industry has concocted a confusing mix of different terrorism exclusions, some of which can remain on the policy even after your pay your premium to purchase “terrorism coverage!”

First, a minute of background:

Prior to 9-11 there was no discussion of terrorism insurance.  Terrorism was just one of many things that could happen, and there was no such thing as a terrorism exclusion.  Therefore, it was covered.

Post 9-11 the insurance industry rushed to produce terrorism exclusions just as fast as their computers could spit them out.  They applied them to property policies and to liability policies.  A coverage that was immune, though, was workers compensation, and that holds true today: no terrorism exclusions apply to that line of coverage.  But for the insurance market in general, there was now a huge, gaping hole.  The federal government jumped into that breach with the Terrorism Risk & Insurance Act (TRIA) which mandated that insurers offer terrorism coverage to its insureds. (TRIA also provided a financial backstop to the insurance industry to fund the largest claims).

The insurers then began to propose offers of terrorism coverage and produced sign-up forms that asked the insured to check a box – either “accept” or “reject”–  and to  sign  the form.  It seemed at first like a clean solution.  We in risk management know it is never exactly what it seems in dealing with the insurance industry, so we watched and acted cautiously.  The insured community in general, though, was feeling comfortable that either they were going to knowingly assume the risk, or if they did not want to assume the risk that they would be “protected” from terrorism loss if they only paid the premium being asked by the insurer.

Broker promises and insurer advertisements are nice, but are little more than distractions, as the only thing that really controls is policy language.  Any proposal we receive at this firm must have the full and complete policy language attached, and terms and conditions are reviewed and negotiated prior to binding.  At first, in the market things went fine: the proposals contained a terrorism exclusion, but that exclusion was removed upon payment of the specific terrorism premium.

Over time, though, the situation went sour.

Another minute of background is necessary here.  The TRIA law defined terrorism and stated that the federal government would be the ones to certify whether an event is terrorism under their definition, and thus was born the concept of a “certified” terrorism event.  To be certified, an event had to meet certain guidelines such as a minimum of $5 million in losses, certain characteristics involving the intent of the terrorists, and most importantly the actual declaration by the Secretary of the Treasury.

As time went by after the advent of TRIA we began to notice a disconnect between payment of the premium under the insurers’ terrorism insurance offer, and the resultant coverage.  We were paying the special premium and the result was not the expected full coverage of terrorism.  What the insurers started doing was making a distinction between terrorism in general and “certified” terrorism.  Some, but not all, of the insurers were excluding terrorism as very broadly defined, and then in return for payment of terrorism premium giving back only a small portion of the exclusion: only the certified events.  Without announcement of any sort, the fine print of the policy was reneging on what everyone thought was the deal.  To be fair to the industry, at every turn they warn “read your policy.”  One flaw in that caveat though is that, absent LicataRisk or others on your side, are they even providing the policy language with the proposal (or do you only get it three months later when the policy shows up)?!  But we digress.

The breadth of the exclusions is illustrated in the following example proposed to one of our large real estate clients:

Terrorism (an excluded event) is defined as (emphasis added):

“an act…committed for political, religious, ideological or similar purposes including the intention to influence any government and/or to put the public, or any section of the public, in fear…”.  If the underwriters allege the exclusion is applicable, “the burden of proving the contrary shall be on the insured.”

Then in the proposal, in return for payment of the terrorism premium the insured got coverage for the certified event — ONLY.  As an example of how limited the scope of certified terrorism can be, note the Boston Marathon bombing was never certified.  So the form of “terrorism insurance” described above would be of little consolation to the businesses along Boylston Street in Boston after that fateful day.

Our position on behalf of our clients is: in return for payment of the terrorism premium we demand and expect removal of ALL terrorism exclusions so that the result is terrorism under anyone’s definition will be covered in full.

© Licata Risk & Insurance Advisors, Inc., 2015

Why we do the work we do…

This case[1] speaks to the consequences of not knowing what is in your policies….

The Cleveland Indians baseball team hired National Pastime Sports to produce Kids Fun Day events at Indians baseball games. The Kids Fun Day events had children’s attractions, including an inflatable bouncy castle and inflatable slide.

National Pastime submitted an application for insurance to Doodson Insurance Brokerage, stating on the application that the Kids Fun Day events would include inflatable attractions. The policy, however, excluded from coverage injuries caused by inflatable slides.

Douglas Johnson attended an Indians game in June 2010. While admiring a wall of fame display, he was crushed by an inflatable slide that collapsed onto him. Several days later, he sadly died from his injuries.

When National Pastime informed Doodson of the accident, Doodson replied that accidents caused by inflatables were not covered under the policy.

It’s painful to read this. The owners of a business are likely facing bankruptcy, When facing the day knowing that someone died at your facility, they can’t have the comfort which comes from being able to say “at least I’m insured”.

We find things like this, before the claim.

[1] Excerpted from FC&S Legal ‘s synopsis of

Johnson v. Doodson Insurance Brokerage, LLC, No. 14–1379 (6th Cir. July 15, 2015)

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