COMMERCIAL PROPERTY COVERAGE FOR PUBLIC CONFRONTATIONS, PROTESTS

Rough Notes, Oct 2004 by McCormick, Roy C

The definitions of "riot" and "vandalism" carry significant weight

In light of recent civil unrest occurrences, it is almost certain that owners and lessees of commercial buildings, as well as business insureds, will be asking coverage questions.

Disturbances ranging from protests at international banking meetings to violence in the streets have become a major matter of concern. Strikes that result from labor disputes can escalate into violence. Turmoil and bloodshed in the inner cities frequently follows the use of firearms by police. Disturbances resulting from the enforcement of immigration policies are ongoing, as are demonstrations by immigrants on issues relating to events in their native countries. Likewise, demonstrations by environmentalists and other activists can generate the type of commotion that requires intervention by law enforcement officers.

Many of these occurrences can involve damage to commercial property, buildings, and their contents belonging to property owners other than those who are the object of the protests.

Definitions

In order to understand the way in which property insurance applies, one must begin with the meaning of pertinent terms. "Riot"-with which we are primarily concerned-is covered under direct damage provisions of commercial property insurance written under named peril forms and those that cover perils except as specifically excluded. Note that the term is not specifically defined in policies.

The dictionary definition often governs underwriting and claims handling guidelines that have been established by a series of major court decisions.

"Riot" is defined by statute in various states and in dictionaries as the assemblage of three or more people which results in the use of force or violence against individuals or property.

"Civil commotion" has been described in courtrooms as "an uprising among a mass of people which occasions a serious and prolonged disturbance and an infraction of civil order, not attaining the status of war or armed insurrection. It requires the wild or irregular action of many persons assembled together."

The riot or civil commotion coverage that is basic to widely used commercial property insurance applies to property damage resulting from such occurrences. Identifying the peril as "riot or civil commotion" expands the scope of coverage in states where occurrences might not be covered if only the term "riot" were used.

Businessowners policies carried by stores and offices provide helpful guidelines with respect to coverage for the exposure that is also included in insurance forms designed for larger risks. Property insurance under ISO and AAIS businessowners policies written on a named peril basis includes coverage for direct physical loss caused by riot or civil commotion.

The peril is also covered by special businessowners policies which apply to risks of direct physical loss unless otherwise excluded.

Coverage for riot or civil commotion is subject to a significant exclusion of loss caused by war, civil war, insurrection, rebellion, attack and defense by any government using military personnel or other agents.

Bouvier's Law Dictionary has summarized five elements essential for a riot: "At least three persons must be involved; there must be a common purpose; there must be actual inception or execution of that purpose; there must be an attempt to help one another or to cooperate by force if necessary; there must be a display of force or violence in such manner as to alarm a person of reasonable courage."

Vandalism and looting

Agents should expect questions about coverage for the taking of merchandise and other property from businesses during the course of a riot-an all too familiar sight on television news shows and in newspaper coverage. The pertinent insuring agreement specifically includes looting at the time and place of the occurrence. Reasonably, the coverage applies to the taking of property only when it occurs during the violence and only at the time the rioting or civil commotion occurred. For example, there would be no coverage if looters entered an unprotected store that was damaged by a riot which had ended 48 hours earlier.

Theft coverage, if in force, would be applicable.

Questions are likely to arise regarding damage to property that occurs after rioting has ended but results from the atmosphere that the riot has produced. Coverage would not be found under riot or civil commotion coverage but likely would be found under vandalism and malicious coverage, which is also a basic feature of commercial property insurance.

Vandalism-willful and malicious damage to property-is carried out in a stealthy manner and is not a direct part of a mob action. Insureds who suffer severe damage to buildings and contents will likely incur loss of business and will ask about the application of insurance to it. The answer is that direct damage insurance will not apply.

Earnings (business interruption) insurance, under riot and civil commotion provisions, will cover loss of earnings caused by damage to an insured's building and personal property. These conclusions are also relevant to the consequences of vandalism physical loss.