Tensions in the United States are high. The pandemic has served to catalyze long-standing issues, especially in regard to political polarization and racial injustice. Already in 2020 we have witnessed expensive episodes of civil unrest as peaceful protests following George Floyd’s death turned to rioting in a few major cities, resulting in over $2 billion of damage. Five months later, a paramilitary group plotted to kidnap the Governor of Michigan, citing governmental overreach regarding orders meant to fight the pandemic. Now the U.S. braces for more unrest after one of the most contentious elections in the nation’s history.
The U.S. Department of Homeland Security in its October 2020 Homeland Threat Assessment noted that “racially and ethnically motivated violent extremists…will remain the most persistent and lethal threat” within America. Two-thirds of attacks deemed to be “terrorist” in North America in 2020 were carried out by domestic violent extremists, according to an analysis from the Center for Strategic and International Studies. In testimony to Congress in September 2020, Federal Bureau of Investigation Director Christopher Wray lamented that 2020 had already become the deadliest year for domestic extremist violence in 25 years.
Defining terrorism
While law enforcement might refer to attacks of this nature as “domestic terrorism,” the Treasury Department has the final say on what qualifies as terrorism for insurance purposes. Under the U.S. Terrorism Risk Insurance Act (TRIA) of 2002 and its subsequent renewals, insurers are required to offer coverage within property & casualty policies for losses arising from “acts of terrorism” as certified by the treasury secretary. While insurers must offer this coverage, insureds are able to decline.
Additionally, we can look to Congress for clues as to what might qualify as terrorism. The post-9/11 Patriot Act defines terrorism as an act intended to:
- Intimidate or coerce a civilian population
- Influence the policy of a government by intimidation or coercion
- Affect the conduct of a government by mass destruction, assassination or kidnapping
Yet domestic terrorism is not considered a federal crime and Congress remains reluctant to grant federal law enforcement officials the ability to declare acts as such.
What insurance will cover
In addition to considering the risk of an event not being certified under TRIA, the nature of these incidents raises further issues in terms of insurance coverage. Traditional property policies require physical damage in order to trigger coverage, even if the loss relates primarily to business interruption due to business impact long after repairs are made. Equally, it is common to find exclusions relating to vandalism, strikes, riots and/or civil commotion within insurance policies. This is particularly salient in the case of properties that may lie dormant for more than 60 days during the pandemic, providing insurers with grounds for denying a claim. Given these limitations, it is often wise to consider a separate “terrorism and political violence” policy to fill important coverage gaps.
Employers must also consider the legal consequences of a violent act occurring on their premises, given the duty imposed on them to provide a safe work environment. While many large firms will have protection under directors’ and officers’ coverage, smaller organizations may find themselves exposed to potential suits from employees, in addition to any members of the public that are harmed on the property.
Alternatives
The proliferation of “active assailant” events, the extent of financial losses that may be incurred by such violence and their uneasy fit into traditional policies, has spurred innovation in the “crisis risks” insurance market. New products provide organizations with cutting-edge prevention techniques in order to establish a formidable line of defense.
Other means to safeguard employees, customers, clients and assets during unrest include:
- Encouraging work from home
- Keeping properties adequately secured
- Establishing contingency plans to ensure business continuity
A proactive approach to crisis management, with predefined responsibilities, resilient lines of communication and access to the right expertise when you need it, will see your business emerge from these events with your reputation upheld.
The anxiety in the U.S. is palpable. Whatever the eventual outcome of the election, large portions of the population will remain deeply unhappy and organizations must be prepared for the fact that, sadly, some may resort to violence. Ensuring that your risk management strategy adequately addresses the realities of today’s environment can help remove a layer of uncertainty.
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