Potential Claim and Insurance Implications of the Boston ... · Implications of the Boston Marathon Bombings Edwards Wildman Palmer LLP Darlene K. Alt, Chicago Stephen M. Prignano,

5/23/2013

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© 2013 Edwards Wildman Palmer LLP & Edwards Wildman Palmer UK LLP

Potential Claim and InsuranceImplications of the Boston Marathon

Bombings

Edwards Wildman Palmer LLP

Darlene K. Alt, Chicago

Stephen M. Prignano, Providence

Brian J. Green, New York

Laura E. Bange, Boston

May 23, 2013

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Agenda

Circumstances of the Bombing and Potential Claims

Coverage Issues Under Potentially Available Insurance:

♦ Commercial General Liability Insurance: Sponsorship Claims

♦ Terrorism Coverage and Exclusions

♦ Property Insurance:

Business Interruption Coverage

Contingent Business Interruption Coverage

Civil Authority Coverage

Ingress/Egress Coverage

Extra Expense Coverage

♦ Event Cancellation Insurance

Regulatory Issues

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Circumstances of the Bombing and Potential Claims:What Happened?

April 15,2013

• Patriots Day, Monday April 15, 2013: Two bombs explodednear the finish line of the Boston Marathon.

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*Source: cbsnews.com, April 15, 2013


April 15,2013

• Race suspended; business owners and residentswere immediately evacuated from the area.

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*Source: guardian.co.uk

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April 15-19,2013

• Fifteen blocks surrounding Boston’s Copley Square werecordoned off as federal, state and local authoritiesinvestigated the bombings.

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*Source: dailymail.co.uk


April 19,2013

• Authorities conducted a manhunt for the suspectedbombers, and Boston and surrounding communities wereput on lockdown by way of “Shelter-In-Place” advisory.

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*Source: csmonitor.com

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April 19,2013

• Evening of Friday, April 19, 2013: Shelter-In-Place Lifted;Suspected Bomber Apprehended

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*Source: dailymail.co.uk


April 24,2013

• Boylston Street remained closed to the public untilWednesday, April 24, 2013.

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*Source: abcnews.com

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Circumstances of the Bombing and Potential Claims:Likely Claimants

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Bodily Injury Claimants

Bombing resulted in the tragic deaths of 3 people; More than 265 others injured, many severely.

*Source: nydailynews.com


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Emotional distress claimants without bodily injuryPsychological injuries may be widespread:

Wounded victims struggling with new disabilities; Family members and friends of victims; Anyone else who was affected by the bombing

*Source: NBCnews.com

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Businesses Inside the crime scene perimeter: closed for 9 consecutive days;

♦ Two hotel properties, The Lennox and The Charlesmark (255bedrooms combined)

♦ Numerous restaurants, bars, and shops♦ Estimated that collectively, these businesses lost millions of

dollars as a result of the bombings.

Businesses outside of the crime scene perimeter

*Source: NBCnews.com


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The One Fund Established by state and city officials to assist individuals affected by the bombings

Has collected $30.5 million to date

Four categories of compensation based on the severity of injury:

♦ Families of victims killed, double amputees, and those who sustained brain damage;

♦ Victims who lost a single limb;

♦ Victims who required overnight hospitalization; and

♦ Victims who were treated as outpatients for injuries such as lacerations and brokenbones

*Source: cityofboston.gov

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Circumstances of the Bombing and Potential Claims:Likely Targets of Claims

Government

♦ City

♦ State

♦ Immunity Issues

Limited waiver of sovereign immunity

Broad police protection

Event organizers and promoters

Event sponsors

Property owners

Property and casualty insurers

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Coverage Issues Under Potentially Available Insurance:Sponsorship Claims

Sponsorship liability

♦ Wide range of participation by sponsors

♦ Grounded in common law negligence

♦ Based on “Control” of the event

♦ Rhode Island nightclub fire

Sponsor had “Opportunity” to control conditions of event

♦ Sponsorship agreements may demonstrate “Control”

♦ Causation will be an issue

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Potentially applicable coverages

♦ Commercial general liability

Has there been an “Occurrence”?

Has there been an “Accident”?

Is the target of the claim an “Insured”?

♦ Event coverage

Built-in or endorsed to existing CGL coverage

Stand alone event policies

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Potentially applicable exclusions

♦ Terrorism exclusion

♦ Expected or intended injury exclusion

♦ Criminal acts exclusion

♦ Employers liability exclusion

♦ Athletics activities exclusion

Excludes claims by participants

May not exclude claims by spectators

May not exclude “Failure to Assist” claims

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Terrorism?

Aurora shootings?

♦ Not terrorism

Sandy Hook massacre?

♦ Not terrorism

Boston Marathon bombings?

♦ President Obama: “act of terrorism”

Dzhokhar Anzorovich "Jahar" Tsarnaev Tamerlan Anzorovich Tsarnaev

and

= terrorists

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TRIA (Terrorism Risk Insurance Act)

The Terrorism Risk Insurance Program requires that private insurersmake available terrorism coverage to commercial customers andprovides a federal backstop in the event of a large certified terroristevent that exceeds $100 million in aggregate insured losses

“Act of terrorism” must be certified by the Secretary of the TreasuryDepartment, Secretary of State John Kerry and Attorney GeneralEric Holder

Currently set to expire on December 31, 2014

Fostering Resilience to Terrorism Act of 2013

♦ “The Boston Marathon bombings last month serve as a starkreminder that terrorism and mass violence remain both ahomeland security and economic threat . . . .”

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Terrorism Coverage?

According to reports, take-up rates are highest in the Northeastbut many businesses did not purchase terrorism coverage.

Many coverages are dependent on TRIA certification.

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Terrorism Exclusions?

Sample ISO Terrorism Exclusion (Commercial Property)

CERTIFIED ACT OF TERRORISM EXCLUSION

We will not pay for loss or damage caused directly or indirectlyby a "certified act of terrorism". Such loss or damage is excludedregardless of any other cause or event that contributesconcurrently or in any sequence to the loss.

Sample ISO Terrorism Exclusion (CGL)This insurance does not apply to:

TERRORISM

"Any injury or damage" arising, directly or indirectly, out of a"certified act of terrorism".

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Terrorism Exclusions (Cont.)

Non-TRIA exclusion (drafted for post-TRIA CGL policies / ISO)

EXCLUSION OF TERRORISM

We will not pay for "any injury or damage" caused directly orindirectly by "terrorism", including action in hindering ordefending against an actual or expected incident of "terrorism"."Any injury or damage" is excluded regardless of any other causeor event that contributes concurrently or in any sequence to suchinjury or damage. But this exclusion applies only when one ormore of the following are attributed to an incident of "terrorism” . .. .

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Business Loss Coverages

Time Element Coverages Implicated by the Boston MarathonBombings

♦ Business Interruption Coverage

♦ Contingent Business Interruption Coverage

♦ Civil Authority Coverage

♦ Ingress/Egress Coverage

♦ Extra Expense Coverage

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Business Interruption (BI) Coverage

Requirements:

♦ Direct physical loss or damage;

♦ To insured property at insured location;

♦ Caused by covered loss or peril;

♦ Resulting in actual loss of income;

♦ Because of a necessary suspension of insured’s operations.

Physical Loss or Damage:

♦ Loss of use alone sufficient to trigger coverage?

♦ Loss of functionality?

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Contingent BusinessInterruption (CBI) Coverage

BI v. CBI: What’s the difference?

CBI Insuring Clauses:

♦ “We will pay for the actual loss of Business Income you sustain due tothe necessary suspension of your operations …. caused by the directphysical loss of or damage to ‘dependent property’ at a premisesdescribed in the Schedule caused by or resulting from any CoveredCause of Loss.” (ISO Form CP 15 08 10 00) (emphasis added)

♦ “This policy covers against loss of earning … resulting from necessaryinterruption of business of the insured caused by damage to ordestruction of … property, by the perils insured against under thispolicy, of any supplier of goods or services which results in theinability of such supplier to supply an insured locations.” (emphasisadded)

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CBI Coverage (Cont.)

Two “Causes”

♦ Physical damage to dependent property caused by covered peril.

♦ Loss of income to insured caused by the physical damage.

Arthur Andersen LLP v. Federal Ins. Co., 3 A.3d 1279 (N.J.Super. A.D. 2010) (insured failed to prove property damageprevented clients from receiving services after 9/11 terroristattack on WTC).

“Dependent Property” may include:

♦ Contributing locations

♦ Recipient locations

♦ Manufacturing locations

♦ Leader locations

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CBI Coverage (Cont.)

Who is a “Supplier”?

♦ Privity of contract required?

♦ Subsidiaries of the insured?

♦ Direct v. Indirect Suppliers:

Archer Daniels Midland Co. v. Phoenix Assurance, 936 F.Supp. 534 (N.D. Ill. 1996);

Pentair, Inc. v. Guaranty & Liab. Ins. Co., 400 F.3d 613 (8th

Cir. 2005);

Millennium Inorganic Chem., LTD v. National Union FireIns. Co. of Pittsburgh PA, 893 F. Supp.2d 715, (D. Md.2012), appeal pending (4th Cir. Feb. 2013).

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BI/CBI Coverage

“Suspension of operations”

♦ Temporary reduction or slowdown sufficient?

GBP Partners Ltd. v. Maryland Cas. Co., 2013 U.S. App. Lexis563 (5th Cir. Jan. 4, 2013) (complete cessation of operationsrequired)

♦ Suspension must be “necessary”

Time element: Coverage for lost income limited to “period ofindemnity” or “period of restoration”

♦ Generally, time necessary to rebuild, repair or replace thedamaged property with "reasonable speed" or "due diligence”;

♦ Objective standard

♦ When does it begin? End?

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Civil Authority Coverage

Insuring Clause:

♦ “We will pay for the actual loss of Business Income you sustain …caused by action of civil authority that prohibits access to thedescribed premises due to direct physical loss of or damage toproperty, other than at the described premises, caused by orresulting from any Covered Cause of Loss.” (ISO CP 00 30 04 02)(emphasis added)

Requirements:

♦ Action or order of civil authority;

♦ Prohibits access to insured’s premises;

♦ Physical damage to premises (usually other than that of the insured);

♦ Loss caused by a covered peril;

♦ Loss of business income.

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Civil Authority Coverage (Cont.)

Generally, order must completely prevent or prohibit access to insured'sproperty.

♦ Philadelphia Parking Authority v. Federal Ins. Co., 385 F. Supp. 2d 280(S.D.N.Y. 2005) (FAA flight ban did not “prohibit” access to insured’s parkinggarages at airport for civil authority coverage)

♦ Kean, Miller, Hawthorne D’Armond McCowan & Jarman, LLP v. Nat’l FireIns. Co. of Hartford, 2007 WL 2489711 (M.D. La. Aug. 29, 2007) (advisory tostay off streets did not forbid access to trigger civil authority coverage).

“Shelter-in-Place” advisory

Once access to insured’s premises is restored, coverage ends.

♦ Abner, Herrman & Brock, Inc. v. Great Northern Ins. Co., 308 F. Supp. 2d331, 336-37 (S.D.N.Y. 2004), (civil authority coverage ceased oncepedestrian access to insured’s building restored, even though vehicularrestrictions continued).

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Civil Authority Coverage (Cont.)

Causal connection required between civil order and damage to propertyother than that of the insured.

♦ Dickie Brennan & Co., Inc. v. Lexington Ins. Co., No. 10-30381, 2011U.S. App. LEXIS 5843 (5th Cir. Mar. 22, 2011) (mandatory evaluationorder issued in anticipation of damage; “[n]othing in the record … showsthat the issuance of the order was ‘due to’ physical damage toproperty”).

♦ United Airlines, Inc. v. Insurance Co. of the State of Pennsylvania, 439F.3d 128 (2nd Cir. 2006) (FAA shutdown order of airport was issued as amatter of national security, not as a result of physical damage toPentagon).

Is threat of damage sufficient to trigger damage?

♦ South Texas Medical Clinics, P.A. v. CNA Financial Corp., 2008 WL450012, (S.D.Tex. Feb. 15, 2008) (civil authority coverage not triggeredby mandatory evacuation order due to anticipation of physical damage).

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Ingress/Egress Coverage

Civil Authority v. Ingress/Egress coverage

Example Insuring Clause:

♦ “The Company will pay for the actual Business interruption losssustained by the Insured due to direct physical loss or damage toproperty of the type insured under this Policy, from an insured perilduring the period of time, when as a result of such insured peril,ingress to or egress from the Insured's premises is prevented.”(emphasis added).

Physical damage requirement

♦ City of Chicago v. Factory Mut. Ins. Co., 2004 WL 549447 (N.D. Ill.Mar. 18, 2004) (no ingress/egress coverage where access prohibiteddue to FAA order, not physical damage)

Limitations

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Cancelled and postponed events due to the Marathonbombings, related evacuations, or “Shelter-in-Place” advisory:

Professional Sports:♦ Boston Red Sox♦ Boston Bruins♦ Boston Celtics

Boston Symphony Orchestra Big Apple Circus Boston Comic Con

*Source: boston.com

Event Cancellation Coverage

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Event Cancellation Insurance Policies: Provide coverage for specific events at designated times and venues. Insure against loss arising out of the cancellation, interruption, or

rescheduling of a covered event. Potentially available for cancellations and postponements stemming from a

variety of perils, including:

♦ Earthquake

♦ Flood

♦ Fire

♦ Extreme weather

♦ Physical damage to venue

♦ Problems associated with public transportation or roads leading tovenue.

♦ Terrorism (Optional)


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Typical Coverages:

Generally manuscript (i.e., non-standard) policies.

Covered Loss:

♦ Loss of expenditures;

♦ Lost profits and revenues;

♦ Costs associated with rescheduling a postponed or interrupted event.

Insuring Agreement:

“This Insurance is to indemnify the Insured for their Ascertained Net Lossshould any Insured Event(s) be necessarily Cancelled, Disrupted,Rescheduled which necessary Cancellation, Disruption or Rescheduling is thesole and direct result of a cause not otherwise excluded which occurs duringthe period of insurance and is beyond the control of both the Insured and theParticipant therein.”


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Typical Exclusions:

Breach of contract

Actual or threatened war, invasion, rebellion

Civil commotion amounting to a popular uprising

Losses arising from communicable diseases that lead to quarantines

or travel advisories

Withdrawal, insufficiency, or lack of finance

Act or threat of terrorism


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April 25, 2013: Massachusetts Division of Insurance issues guidelinesconcerning claims handling procedures, premium payments, andunderwriting in connection with Boston Marathon bombings.

Claims Handling:

♦ Prompt investigation of all claims, including the investigation of the causation ofloss to ascertain whether coverage exists;

♦ Extensions to claimants who have been displaced from their homes orbusinesses as a result of the events if they are unable to meet reportingtimelines;

♦ Expedited claim processing procedures and simplified claim reporting formswhere appropriate.

*Source: mass.gov

Regulatory Issues

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Premium Payments:

♦ Prompt and immediate relief to policyholders impacted by the events,including the temporary suspension of premium payments;

♦ Work with policyholders with regard to the collection of premiums, includinggranting requests for reasonable payment plans.

*Source: mass.gov

Regulatory Issues

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Underwriting:

♦ Insurers should not re-rate, cancel, non-renew, or refuse to provide insurancecoverage due solely to an individual’s or business’ status as a victim of theMarathon bombings;

♦ Insurers should not change policyholders’ rating classifications or increasetheir insurance rates solely because they are victims of the Marathonbombings.

*Source: mass.gov

Regulatory Issues

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May 10, 2013: Massachusetts Division of Insurance announces it willrelease report on losses caused by the Boston Marathon bombings.

Report will describe:

♦ Types of claims that have been filed;

♦ Total dollar amounts of claims;

♦ Range of dollar amounts for individual claims; and

♦ Duration of time claims are open.

DOI is soliciting data from property/casualty as well as health carriers.

DOI has not received any complaints to date over the industry's handling of Bostonbombing claims to date, although it is continuing to monitor insurers.

*Source: mass.gov

Regulatory Issues

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Questions?

Conclusion

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Contact Us

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Darlene K. Alt

Partner


Chicago, IL

312.201.2670

[email protected]

Stephen M. Prignano

Partner


Providence, RI

401.276.6670

[email protected]

Brian J. Green

Counsel


New York, NY

212.912.2755

[email protected]

Laura E. Bange

Associate


Boston, MA

617.239.0481

[email protected]

Documents

Potential Claim and Insurance Implications of the Boston ... · Implications of the Boston Marathon Bombings Edwards Wildman Palmer LLP Darlene K. Alt, Chicago Stephen M. Prignano,