It’s a Riot, No Seriously

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Unfortunately, we have all watched in horror as swaths of cities across America (and other parts of the globe) went ablaze.  The otherwise meaningful dialogue on inequality and civil rights took a back seat to the much more sensational and shocking images of burning buildings and belligerent confrontations.    In Seattle, incredibly, tensions were uniquely escalated with the “permitted” creation of an autonomous “zone/area/protest/country?” (let’s just label it CHAZ for this article) in a four block arear near downtown.  Thankfully, at the time of printing, this dystopia has settled down.  But as discussions rightly continue, the tension in the U.S. remains palpable, like a tinder box waiting for that one spark.  Against this backdrop some very interesting cargo insurance issues arise.  What happens if my coffee – innocently stored in a downtown warehouse – is caught up by a riotous and perhaps even righteous mob?  As is the answer in most hypotheticals… it depends.  The short answer:  the ubiquitous Strikes, Riots, and Civil Commotions Endorsement would apply (assuming a proper storage endorsement is found on the policy):   This insurance also covers:  Physical loss of or damage to property insured directly caused by strikers, locked-out workmen, or persons taking part in labor disturbances or riots or civil commotions … by vandalism, sabotage or malicious acts … by the act or acts of one or more persons, whether or not agents of a sovereign power, carried out for political, terroristic or ideological purposes and whether any loss, damage or expense resulting therefrom is accidental or intentional.    Slam dunk.  No problem.  Well, not exactly.  If we continue:  … by acts committed by an agent of any government, party or faction engaged in war, hostilities or other warlike operations, provided such agent is acting secretly and not in connection with any operation of military or naval armed forces in the country where the described property is situated.  Herein lies the rub.  Who makes the determination as to what constitutes an “agent acting secretly?”  What is considered military armed forces?  Who knew what, when?  I will also leave aside the nuances of the more universal exclusion of flat out War (on land), and the very fine line between civil commotion and civil war.  The most notorious case in the U.S. could be considered the events propagated by the Symbionese Liberation Army and its’ poster child, Patty Hearst.  Between 1973 and 1975 the public was certainly under the impression that the SLA had the means to provide “military operations” and there was very little shred of secrecy to their brazen acts and aggrandized communiques to the media.  In hindsight, many years later, it was shown just how insignificant their gang actually was.  Fast forward 30 years and the discussion becomes even more complicated with the introduction of “terrorism.”  After the horrible events of 9/11, the insurance industry was reeling from a peril that had far reaching consequences.  Fortunately, the U.S. Government authorized a backstop to insurers to help shoulder the damage from any future events –  the Terrorism Risk Insurance Act.    Every policy had to mandatorily price and offer such protection to its policyholders.  Costs were everywhere.  Policyholders, for various business reasons, could and quite often did decline such coverage.  Luckily – and touching wood – we have not had to test such coverage.  It is important to note, however, one key phrase which coverage hinges upon:  “losses resulting from certified acts of terrorism.”  Now we are back to our original hypothetical which boils down to some hard talk questions for your insurer:    What if that riotous mob that burned up the warehouse was adjudged an extremist faction cloaked in the cover of the otherwise peaceful protest?   Would there be any insurance difference if your warehouse was  located within the CHAZ?  What if there was a CHAZ equivalent in other nations?      A very wise client once told me to stop talking about what was ‘included’ and to simply explain what was excluded.    This is still really good advice.  Answers focus you into coverage and operational decisions, perhaps even  endorsements that mention Patty Hearst and the infamous SLA.    Endorsements, as referenced above, are one way to handle the various twists and turns the actual facts of the loss can take to squirm its way off the policy.  Additionally, insurance policies often try to avoid duplicating coverage better handled by a more specific line.    Knowing such intricacies is key to helping you avoid an unexpected loss and is certainly no laughing matter. 

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