PAG E 4 PROTECTING YOUR PROPERTY ® 800.382.2468 | AdjustersInternational.com Sheila E. Salvatore, Editor | Editor@AdjustersInternational.com | 126 Business Park Drive | Utica, NY 13502 Copyright © 2020 Rising Phoenix Holdings Corporation. All Rights Reserved. E01-1020-V1 Insights for Your Industry® is published as a public service by Adjusters International, Ltd. It is provided for general information and is not intended to replace professional insurance, legal and/or financial advice for specific cases. Human Hurricanes Why Insurers May Treat Riot Claims Different Than Pandemic Claims Continued of revenue they typically earn in the weeks following Memorial Day, the amount they were earning during the pandemic shutdown, or the amount they anticipated receiving as they reopened? Not an enviable task. Those “human hurricanes” So, why is a suspension due to a riot damage covered, but not a suspension due to a pandemic? After all, the victimized owner of a property or business was not at fault in either case? The title of this piece is “human hurricanes,” and it will help readers to understand how riots are similar to windstorms, whose damages are covered under property policies, but different in nature from pandemics, which insurers consider to be “uninsurable.” Like windstorms, riots arise occasionally and randomly, and strike a geographic area. The 2020 disturbances can be compared to a series of tornadoes during a season. The devastation can be great but is usually localized. Also, like windstorms, riots will leave behind a mix of partial and total losses to property, mostly the former. Some properties will be burned to the ground during a riot, and some victims will be traumatized by being targeted, but most property owners will clear the debris, replace broken windows, equipment, and merchandise, and resume operations once circumstances permit. If they have BI insurance, it may, for a time, pay the difference between a lower level of earnings after the riot and what it would normally have earned. To clarify further, riots and hurricanes, which are deemed to be insurable, are very different than earthquakes and floods, which are considered uninsurable, for the most part. Floods and earthquakes wreak devastation on vast numbers of properties and require long periods of restoration to allow waters to recede, properties to be dried out, and major structural repairs to be undertaken. In all of these examples, however, property owners and businesses can take steps before and after an event to limit the amount of loss and reduce the time needed to get back in operation. To ensure that commercial accounts have incentive to take such steps, commercial property policies will impose deductibles and may include “warranties” (loss control measures the insured must implement and maintain). The deductibles can be based on dollars or on time. None of these steps are possible regarding a pandemic, during which a pathogen circulates in a manner almost entirely outside the control of a business and its insurer. For that reason, insurance trade associations are supporting a public approach to addressing pandemics that is not linked to private insurance policies. We’ll see where that leads.
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