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Riots Covered By Your Insurance?

Don’t be too sure without reviewing your policy!

Riots are a covered peril under almost all property policies, and are just another liability exposure covered under almost all liability policies.

What could get in the way of that coverage?: a terrorism exclusion under the insurance industry’s crafty wordsmithing on the definition of terrorism.

The Exclusions

Policies can be quoted with different terrorism exclusions, with varying definitions.  Here’s one:

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.”

Another one adds a few twists (emphasis added):

“…violence against any persons or property for the actual or apparent purpose of …affecting society of some portion of society…”.

As you can see, the exclusions just quoted would put coverage for riots under severe jeopardy.

Some states have laws saying that fire from any cause (including riots) will be a covered peril under property policies in their states.  The laws do not apply to liability policies, nor do they address any of the many ways other than fire that rioters can damage property.

What if you accept the offer of terrorism coverage?

Your insurance proposal will usually contain an offer of terrorism coverage.  A premium is stated, and you will need to sign a form either accepting or rejecting the coverage.  If you accept, you may think you have solved the riot problem.  Not so fast.

TRIA (The Terrorism Risk & Insurance Act)

The TRIA law, passed after 9-11, 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 (“be committed as part of an effort to coerce the civilian population of the United States or to influence the policy or affect the conduct of the U.S. government by coercion”), and most importantly the actual declaration by the Secretary of the Treasury.

At first, when TRIA was enacted, coverage was clear.  The insurers excluded terrorism as defined under TRIA, and then offered a buy-back for a certain premium.  If you agreed to pay the premium, the exclusion was removed, and you were back in the full-coverage situation which existed pre-9/11.

The expanding definition

But then insurers, as they are destined to do, kept expanding the definition of terrorism in their exclusions, so that the exclusions encompassed both TRIA and non-TRIA terrorism.  By “non-TRIA” we mean terrorism that falls outside the scope of the federal law and that bleeds over into the vandalism/riot zone (per the language quoted in the examples above).  It became unclear what you were buying back if you paid the terrorism premium – TRIA and non-TRIA, or just the former.

If you pay the terrorism premium you will at least get TRIA coverage. But TRIA doesn’t address the rioter situation directly.  If you pay the terrorism premium and buy the coverage, did you obtain the coverage you need?

Here’s how you know:

Achieve coverage certainty this way: In return for payment of the terrorism premium, demand and expect removal of ALL terrorism exclusions so that the result is terrorism under anyone’s definition will be covered in full.

Have a risk manager on your side

The largest companies have entire risk management departments reporting to the CFO.  You need risk management too.

(c ) Licata Risk & Insurance Advisors, Inc. 2020

Frank Licata

[email protected];   617.718.5901

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Sep 09, 2020

Licata Risk Licata Risk & Insurance Advisors, Inc.
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LicataRisk Advisors is an independent risk management and insurance consulting firm. We are not brokers and we do not sell insurance. We are not connected to any insurance company or product in any way and do not receive commissions. This is an important difference as you will have an expert on your side who is only committed to you.

Licata Risk is not a law firm and does not practice law. General advice and contract input by the consultants, including those who are attorneys, is to provide insight into the risk and insurance aspects. Your attorney should be the final authority on any legal matter.