Collateral Damage - Can your insurance policy become a casualty of war?

by Mark Goldwich

Image courtesy of en.wikipedia.org

While just about everyone in America is talking (if not listening) about the racial problems facing the nation, and all the theoretical reasons for the discord, as well as the perceived solutions, I was also thinking about the real life property damage consequences from the Dallas attack and other demonstrations that sometimes begin peacefully, but don’t always end peacefully, as well as events such as the Orlando and San Bernardino attacks.

After giving the obvious due consideration for the loss of life, and everything that goes along with that loss of life, and the acts that led to the loss of life, I couldn’t help but think about the property damage involved in these types of events. Often, the property that is damaged does not belong to either the victims, or the perpetrators. Instead, the owners of the property that is collaterally damaged or destroyed are additional innocent victims of the various types of mayhem that seem to be more and more common. In fact, in Dallas, the explosive that ended the event, was introduced and detonated by the police, not the assailant. Should this make a difference? I thought, “If I’m wondering about this, maybe other people are as well.”

So what about it? Is property damaged like this covered? First, we’d need to break down the causes of the property damage, because determining coverage always begins with the cause of the damage. And as you might imagine, the cause might depend on who you are asking. Was the event a riot, a civil commotion, civil unrest, looting, arson, terrorism…?

Image courtesy of YouTube

Because we are talking about insurance, these terms are usually defined in either the policy, or in case

law (a legal ruling or judicial interpretation based on a past case, usually with similar facts). Still, what one person interprets as “riot”, another may consider “terrorism”. Without even getting into this very deeply, you can probably see that what should be clear cut, with just a little wordsmithing can be made to be as confusing as which bathroom should be used by someone born with male parts. Some will say, “that’s easy”, while others will promptly chime in, “not so fast.”

To illustrate how quickly and easily key terms can be interchanged, Brendan McKenna in a 2006 article found at Insure.com noted, “At 9:30 a.m. on Sept. 11, 2001, shortly after learning about the crash of a second airplane into the World Trade Center in New York City, President George W. Bush called the events an "apparent act of terrorism." Standard property/casualty insurance contract forms provided to the industry by the Insurance Services Office contain clauses excluding "war, including undeclared or civil war" and "warlike action by a military force, including action in hindering or defending against an actual or expected attack, by any government, sovereign, or other authority using military personnel or other agents." Just over a day later, Bush said that "the deliberate and deadly attacks which were carried out yesterday against our country were more than acts of terror. 

They were acts of war." While the President’s words have unequivocally stated the position of the United States, they may have muddied the waters concerning the insurance issues around the attacks on the World Trade Center and the Pentagon. Many property/casualty insurance policies are written to exclude coverage for acts of war, but not for acts of terrorism. If the act-of-war exclusion clause of the insurance contracts is invoked, insurance companies can refuse to pay the benefits on the policies, including payments on businesses, homes, and cars that were damaged or destroyed.” That would have been ruinous to countless Americans who suffered tens of billions of dollars in direct and consequential damages.

Most standard Homeowner’s or Business insurance policies exclude damage caused by war, and most do cover damage caused by riot or civil commotion, but so far, I have not seen or heard of many policies having specific coverages for, or exclusions against, terrorism (especially on the Homeowner’s policies – some Business policies already exclude terrorism, but allow terrorism coverage to be purchased). So far, at least, this trend benefits policyholders, as most of the events we are referring to here would not be considered “war”, even though we generally talk about “war on terrorism”, or note that radical jihadis have declared “war” on America. As far as I know, no insurance company would consider any of the cases above to be “war”.

According to an article by Gwen Moran in HouseLogic.com, “Several states, including Florida, Massachusetts, New York, Ohio, Pennsylvania, and Texas, forbid terrorism exclusions, according to a report on terrorism’s impact on homeowners insurance from the Missouri Bar Association.”

On the topic of terrorism insurance, according to the Insurance Information Institute (www.iii.org), most personal policies cover terrorism, and most commercial/business policies do not, and even if a business did have a terrorism policy or endorsement, some losses associated with terrorism could still not be covered (fire, nuclear, biological, chemical, radiological, and cyber-terrorism), so it is increasingly important to sit down with your insurance agent to consider these threats, especially if you own a business. While talking with an agent, it may be worthwhile to see how your various insurance policies (home, condo, rental, auto, business, life, health) would react to the scenarios mentioned above.

In conclusion, there are still many questions left unanswered with regard to the insurance coverage of these types of events, and changes continue to be made as additional events occur and more data is gathered by underwriters. That said, you can be pretty sure insurance executives everywhere are meeting at conferences and other industry events to consider how to address the seemingly growing costs associated with paying claims from these types of events. Whether they will adjust policy definitions, limit exposure to these types of losses, or exclude more of these events altogether, remains to be seen, but I have a hunch they will eventually determine a strategy for maximizing profits. They always do.

ps: As I write this I am reminded that terror is an international scourge.  This morning's news is filled with the tragic terror attack in Nice, France that claimed at least 50 lives, 2 of whom are American.

Mark Goldwich is president of Gold Star Adjusters, a group of public insurance adjusters dedicated to helping citizens get the maximum settlement for any insurance claim.