An interesting article on insurance ramifications of the Marathon bombings in Boston, appeared in the Wall Street Journal, April 25, 2013.
Property insurance payouts hinge on “proximate cause.” In order to be a covered claim, the principal cause of the loss must be a covered cause.
Since 9-11, terrorism has been an option offered to policyholders which they can accept or decline. The premiums for accepting the coverage for most of my California clients have been modest. However, many small businesses don’t think a terrorism loss to their business is very likely, and therefore have chosen to decline coverage and save the money.
Now comes the Boston Marathon bombing, which caused a minimum amount of property damage to local businesses, with the exception of two locations that suffered damage from the direct bomb blast. The principal damage to the businesses downtown was business interruption, as the area was closed off for nine days while forensics teams were gathering data.
What is the proximate cause of loss? If it’s terrorism, then in order for a business interruption claim to be successful, the affected businesses must have accepted the terrorism offer and paid the premium.
If terrorism coverage was rejected by the individual business, it is likely that there is no coverage for a business interruption claim resulting from the bombing.
Interesting points from the article:
The determination of an event as ‘terrorism’ rests with the US Treasury secretary, in concurrence from the secretary of state and US attorney general.
Among conditions that must be met for a certification: Insured damage must hit at least $5M and the attacks had to have been ‘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.’
This is going to be interesting, and will provide one of the first opportunities to see how this will play out politically, the ramifications of which will ripple through the insurance industry.
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