Insurance Coverage Alert
July 20, 2009
Authors:
Thomas M. Reiter
thomas.reiter@klgates.com
+1.412.355.8274
Douglas J. Simmons
Potential Losses Arising out of the Pittsburgh
G-20 Summit: Selected Insurance Coverage
Considerations
Introduction
doug.simmons@klgates.com
+1.412.355.8312
Jeremy C. Smith
jeremy.smith@klgates.com
+1.412.355.6505
K&L Gates is a global law firm with
lawyers in 33 offices located in North
America, Europe, Asia and the Middle
East, and represents numerous GLOBAL
500, FORTUNE 100, and FTSE 100
corporations, in addition to growth and
middle market companies,
entrepreneurs, capital market
participants and public sector entities.
For more information, visit
www.klgates.com.
Confronted with the possibility of partial or complete interruption of their operations
caused by expected disruptions associated with the upcoming G-20 Summit,
Pittsburgh businesses and other organizations may wish to review their property
insurance contracts for coverage opportunities. It is generally understood that
property insurance policies typically provide coverage both for losses caused by
physical damage to property owned by businesses and for lost profits arising out of a
complete shutdown of business operations caused by such physical damage to a
business’s property. What may be less widely understood, but of potential
significance to Pittsburgh businesses, is that property insurance policies may also
protect businesses against:
•
the cost of certain preventative measures against threatened and imminent
physical damage to a business’s property, even if the physical damage ultimately
does not occur;
•
complete or partial interruption of business operations;
•
business interruption losses due to physical damage to property of third parties
(such as utilities or certain other providers of necessary services or products),
even if no such physical damage is sustained by the business’s own property;
and
•
business interruption losses caused by the actions of government authorities
preventing or limiting access to business operations.
Property insurance wordings vary significantly regarding the extent of insurance
protection afforded for these and other losses, and many insurers may seek to apply
their wording in a restrictive manner. Nonetheless, a review of property insurance
wording will be an important component of a prudent business continuity plan for
Pittsburgh businesses and other organizations addressing the challenges, as well as
the opportunities, presented by the upcoming G-20 Summit.
Background on the Pittsburgh G-20 Summit
The Group of Twenty (“G-20”) Finance Ministers and Central Bank Governors will
hold the next G-20 Summit in downtown Pittsburgh at the David L. Lawrence
Convention Center on September 24-25, 2009. At the Pittsburgh G-20 Summit,
President Barack Obama will chair the meeting of leaders of the 20 largest
economies around the world to discuss the progress made at the prior G-20 summits
in Washington, D.C., and London and to discuss policies to promote the recovery of
the global financial markets. The G-20 Summit offers a unique opportunity for the
City of Pittsburgh to showcase itself in the international spotlight, and presents
unique benefits for the Pittsburgh business community. Nevertheless, in light of the
demonstrations that have occurred at prior economic summits, and the violence,
Insurance Coverage Alert
destruction of property, and bank break-ins that have
occurred,1 businesses should be prepared for
disruptions that may result from the Pittsburgh G-20
Summit.
arising out of physical damage to the service
provider’s property;
•
“contingent business interruption” coverage,
which may cover the insured with respect to
certain economic losses, including lost profits,
as a result of physical damage to property of a
supplier, a customer or some other business
partner or entity;
•
“civil authority” coverage, which may provide
coverage for losses arising from an order of a
government authority, which interferes with
normal business operations, such as where there
is damage within a certain distance of the
business;
Identifying Possible Coverage
The most common source of available coverage for
most businesses is likely to be first-party property
insurance coverage, typically in the form of broadly
worded “all risk” policies. Evaluation of the specific
policy wording is critical because in many instances
this insurance is supplemented by ancillary
coverages or extensions applicable to specific
situations. Such all risk property insurance coverage
may include the following coverage features:
•
•
•
•
1
“property damage” coverage with respect to
any property that qualifies as “insured
property,” which often is broadly defined by the
policy or applicable law, including property
owned, leased, or for which the insured business
is legally responsible;
•
“extra expense” coverage, which may cover
the insured for certain extra expenses incurred
to minimize the disruption of normal operations
and/or to mitigate its losses;
•
“business interruption” coverage, which may
cover the insured’s lost profits resulting from
damage to the business operations caused by an
insured peril;
“ingress and egress” coverage, which may
cover the insured for lost profits when access to
a business premises is blocked for a period of
time by a property damage event; and
•
“claim preparation” coverage, which may
cover the insured for the costs incurred in
compiling and presenting a claim.
“sue and labor” coverage, which may provide
coverage for preventive costs incurred to
mitigate or limit threatened and imminent
damage to the insured’s property, even if the
physical damage ultimately does not occur;
“service interruption” coverage, which may
cover the insured for losses related to
interruptions in electric or other utility supplies
See, e.g., “Second Day of Violence? London Police Erect
Barricades Against Protestors at G-20 Summit,” N.Y. Daily
News, April 3, 2009; “G-20 Protest Cop Faces Manslaughter
Questions,” April 7, 2009. Indeed, various protest groups are
reportedly planning demonstrations, see, e.g., “Activists Plan
for G-20 with March, Demonstrations,” N.Y. Times, July 15,
2009; Sadie Gurman, “Group Encourages ‘Mass Action,’
Knowing Your Rights During G-20,” Pittsburgh Post-Gazette,
July 16, 2009, at B-1 & B-4; Mark Roth, “Protest Groups
Discuss Message, Tactics,” Pittsburgh Post-Gazette, June 28,
2009, and the Pittsburgh G-20 Summit has already been
designated a National Special Security Event (“NSSE”) by the
U.S. Department of Homeland Security. Jerome L. Sherman,
“G-20: Police Seek One Voice; Protesters Plan Many,”
Pittsburgh Post-Gazette, July 16, 2009, at B-1 & B-4.
Presenting a Claim
Most policies purport to identify specific procedures
that must be followed in presenting a claim (e.g.,
notice, proof of loss, suit limitation) and some of
these provisions may incorporate time deadlines and
other requirements. Failure to comply with these
procedural requirements, insurers will argue, may
invalidate an otherwise covered claim. Thus,
careful advance attention to these potential
requirements would benefit Pittsburgh businesses.
Common Insurer Responses and
Potential Coverage Issues
The availability of coverage may turn on a number
of policy provisions or insurer defenses, including
the issues described herein.
•
Did the alleged loss of income or extra
expense arise out of damage to “insured
property”? Under classic business interruption
July 20, 2009
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Insurance Coverage Alert
coverage, it is typically necessary that the
relevant property damage occur to property
owned or leased by the insured (or perhaps for
which the insured is legally liable), but this
requirement does not necessarily apply to all
coverages insuring the interruption of business
operations. For instance, where there is an
imminent threat of property damage to insured
property, recovery may be available under
policies containing “sue and labor” or “expense
to reduce loss” provisions, which provide
coverage for preventive costs incurred to
mitigate or limit the threatened and imminent
damage to the insured’s property even if the
physical damage ultimately does not occur, e.g.,
costs incurred by a policyholder to augment its
security measures or to safeguard its property
could be analogized to policyholder efforts to
board up windows in preparation for hurricanes,
which routinely have been covered under sue
and labor provisions. Likewise, many policies
provide “contingent business interruption”
coverage, which may allow recovery where a
supplier incurs property damage that results in
an interruption to the insured’s business.
Finally, there may be arguments for coverage
where an insured could not maintain normal
business operations because of inaccessible
roads or other compelling circumstances
resulting in a “loss of use” of the insured
property.
•
•
Was the damage to insured property caused
by an “insured peril”? While some first-party
policies are written on a “named peril” basis
providing coverage for only specifically listed
perils, many policies are “all risk” policies,
which cover all losses unless specifically
excluded. Even in such broadly titled policies,
however, numerous exclusions may need to be
analyzed in connection with losses associated
with the G-20 Summit, such as those barring
coverage for losses caused by “rebellion,
insurrection, or other hostile action.”
Did an “interruption” of business actually
result? First-party property policies vary
significantly in their threshold requirements for
compensable business interruptions. Some
insurers may take a narrow view of what
qualifies as an “interruption” – for example,
that the business’s entire operations must shut
down.
•
Was the interruption in business activities
“necessary”? Although typically not a
controversial issue in cases of catastrophic
losses that have dominated the first-party
insurance landscape lately (e.g., hurricanes,
floods), an insurer may attempt to dispute that
an interruption of business activities was
necessary in light of the G-20 protests – i.e.,
may contend this was a business decision, as
opposed to a “necessary” interruption, as
required by certain first-party policies.
•
How long is the applicable “period of
restoration”? Policies sometimes include
provisions specifying that the policy will only
cover loss of income and related expenses for a
specified period of time after an insured event
occurs.
•
What are the applicable
deductibles/retentions or “waiting periods”?
Some policies have language providing that
time element coverages only allow coverage
after a certain dollar threshold or a certain
period of time has expired. The application of
these policy features may have a significant
impact on the amount of the policyholder’s
potential recovery. Likewise, issues could
conceivably arise regarding the applicable
“number of occurrences,” i.e., whether all
damages/losses stemming from the G-20
Summit should be deemed a single occurrence,
or whether separate damage events across the
several-day Summit period should be deemed
separate occurrences.
Conclusion
The validity of any defenses or limitations to
coverage raised by insurers likely will vary
depending upon the specific policy wording at issue
and the applicable state law. Pittsburgh businesses,
however, may find that their property insurance
contracts afford protection against losses arising out
of the upcoming G-20 Summit.
July 20, 2009
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Insurance Coverage Alert
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July 20, 2009
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