The Boston Bombing: Early Thoughts On Insurance Coverage

In the aftermath of the September 11th attacks, the insurance industry and federal government took a hard look at insurance coverage and put many provisions in place to address any future attacks. Thankfully, all of that work collected dust for over a decade. But the tragic Boston Marathon bombings changed that. While the property damage from the Boston attack was generally not as wide in scope as the insurance industry and federal government had in mind when addressing coverage in the post-9/11 era, questions about the availability of insurance coverage for Boston are being asked. Some initial thoughts follow, based on the information available, and speculated about, one week after.

I examine coverage for two types of affected businesses: those in the close proximity to the bomb blasts and those located nowhere near the blasts but were shut down on Friday April 19th on account of the manhunt for the second suspect. The following discussion is general, based on standard industry forms and not intended to be exhaustive of every policy term and condition and case law and everything else that comes into play when insurance coverage is being considered. This discussion does not look at any considerations that, owing to the unique nature of the claims, could be relevant to how they are adjusted.

Businesses in the close proximity to the Boston Marathon bomb blasts have been shut and of course properties in that area sustained physical damage. The Boston Globe reported on Sunday (6 days after the attack) that the exact timetable for the reopening of the six block crime scene area is unclear.

Businesses in the vicinity of the bomb blasts that sustained physical damage and have been shut because they are within the area cordoned off for the investigation, have an opportunity to make claims under their Commercial Property policies. Specifically, coverage may be available for property that was physically damaged, as well as business income lost and other expenses incurred while the property is being repaired (business interruption).

Businesses in the vicinity of the bomb blasts that did not sustain physical damage (or not enough to have caused them to close) but have been required to be shut because they are within the area cordoned off for the investigation, also have an opportunity to make claims for business interruption. These businesses would be seeking business interruption coverage based on access to them being prohibited by civil authority. The reason why these businesses may be able to make claims for business interruption, based on prohibited access by civil authority, will be clear when you see below why businesses that were shut down on Friday April 19, on account of the manhunt for the second suspect, are not able to make such claims.

For businesses in the vicinity of the bomb blasts that sustained physical damage and/or were shut because they are within the area cordoned off for the investigation, the consideration of any potential coverage (in addition to all other issues) must include an assessment of the Terrorism Exclusion. For businesses that did not purchase terrorism coverage, their commercial property policies likely include a Terrorism Exclusion.

Insurance Services Office's definition of a "certified act of terrorism," as contained in its Commercial Property Terrorism Exclusion, is as follows: "[A]n act that is certified by the Secretary of the Treasury, in concurrence with the Secretary of State and the Attorney General of the United States, to be an act of terrorism pursuant to the federal Terrorism Risk Insurance Act. The criteria contained in the Terrorism Risk Insurance Act for a "certified act of terrorism" include the following: 1. The act resulted in aggregate insured losses in excess of $5 million in the aggregate, attributable to all types of insurance subject to the Terrorism Risk Insurance Act; and 2. The act is a violent act or an act that is dangerous to human life, property or infrastructure and is committed by an individual or individuals as part of an effort to coerce the civilian population of the United States or to influence the policy or affect the conduct of the United States Government by coercion.

While President Obama stated that it is an act of terror whenever bombs are used to target innocent civilians, the definition of terrorism, for purposes of insurance coverage, is more technical than that. It is tied to the motivation of those that committed the act. Who knows why the Tsarnaev brothers allegedly did what they did. It remains to be seen if this motivation test is met. But at least based on the background of the older brother that is being unearthed by the media, it seems like the test may be met. It also seems unlikely that the President would call the act terrorism, but then have his Secretary of the Treasury, Secretary of State and Attorney General say otherwise, especially with the "terrorism" classification being tied to the type of criminal charges that can be brought (even with a caveat that their conclusion, that it is not terrorism, is only for purposes of the Terrorism Risk Insurance Act).

Therein lies a quirk with the definition of "terrorism" for purposes of insurance coverage. The President stated that whenever bombs are used to target innocent civilians it is terrorism. And many people seem to define terrorism as "I know it when I see it." But with the insurance definition of terrorism being more technical, an act that looks and feels like terrorism may not be so, if the actor's motivation was simply criminal, or caused by mental illness, and included no other agenda. Thus, for businesses in the vicinity of the blasts, if their commercial property policies include a Terrorism Exclusion, coverage is unlikely to be available for physical damage and business interruption.

As for businesses located nowhere near the blasts, but were shut down on Friday April 19, on account of being told by authorities to stay inside because of the manhunt for the second suspect, business interruption coverage is unlikely to be available. But this has nothing to do with Terrorism issues. Because these businesses did not sustain physical damage, any potential coverage would be for business interruption, based on prohibited access by civil authority.

However, for at least two reasons, these businesses are unlikely to obtain coverage for business interruption based on prohibited access by civil authority. First, for these affected businesses, the action of the civil authority was not taken in response to damaged property. Rather, it was taken in response to the manhunt for the second suspect. Second, there is a 72 hour waiting period before business income coverage, based on civil authority, begins.

Thus, business interruption coverage is unlikely to be available for businesses that were shut down on Friday April 19, on account of being told by authorities to stay inside. While this has nothing to do with Terrorism issues, any Terrorism Exclusion would serve as an additional potential impediment to coverage.

Coverage Opinions is a bi-weekly (or more frequently) electronic newsletter reporting or providing commentary on just-issued decisions from courts nationally addressing insurance coverage disputes. Coverage Opinions focuses on decisions that concern numerous issues under commercial general liability and professional liability insurance policies. For more information visit www.coverageopinions.info.

The views expressed herein are solely those of the author and not necessarily those of his firm or its clients. The information contained herein shall not be considered legal advice. You are advised to consult with an attorney concerning how any of the issues addressed herein may apply to your own situation. Coverage Opinions is gluten free but may contain peanut products.

Randy J. Maniloff is an attorney in the Philadelphia office of White and Williams, LLP.  He concentrates his practice in the representation of insurers in coverage disputes over primary and excess obligations under a host of policies. Randy is co-author of "General Liability Insurance Coverage - Key Issues In Every State" (Oxford University Press, 2nd Edition, 2012). For the past twelve years Randy has published a year-end article that addresses the ten most significant insurance coverage decisions of the year completed.

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