Civil Unrest: A Serious Liability Risk to Real Estate Owners

What steps should property owners, managers, and developers take to mitigate liability and handle claims during a time of civil unrest? Riots, vandalism, and civil unrest present increased exposure to loss for property owners, managers, and developers across the country. The risk of physical property damage, business interruption, and civil authority is heightened during such unrest. However, bodily injury and personal injury exposures also increase dramatically during this time and are often overlooked.

These types of claims are often filed under a commercial general liability policy (CGL). There are two sources of liability claims—bodily injury and personal and advertising injury. Bodily injuries are defined in the policy and generally include any bodily injury, sickness, or disease suffered by a person, including death resulting from any of these at any time. One example is a simple slip and fall lawsuit.

Personal and Advertising Injury Claims

Many property owners carry a standardized commercial general liability policy. It is often the unendorsed ISO form CG0001(04-13) which defines personal and advertising injury coverage as (1) false arrest, detention, or imprisonment, (2) malicious prosecution, and (3) wrongful eviction from, wrongful entry into, or invasion of the right of private occupancy of a room that a person normally occupies. Large claims can and do occur under the often unnoticed CGL coverage part addressing personal injuries. It is important to negotiate and enhance the basic ISO form to address any unique exposures faced by the insured.

Our team has fielded questions from many real estate owners and managers who are considering hiring security contractors to protect their buildings and operations. Proactive risk management is generally a good thing. However, we advise you to discuss the use of security guards on your property with your broker and perhaps your attorney.

Security Guards: Mitigation and Risk

Appropriate training and education is crucial for security guards who are navigating a tense civil unrest situation. Armed or unarmed guards, if poorly selected or trained, might fail in their duty to protect the premises during a civil disturbance. If weapons, including stun guns, tasers and pepper sprays, are used in the wrong situation, property owners could face significant bodily injury or personal injury claims.

Security is not law enforcement, according to ASIS International, an Alexandria, Virginia-based organization for security professionals. "The goal is not to arrest protesters but to prevent problems," the organization states in a 2017 article Preparing for Protests. "To address an upcoming protest or riot, it is essential to assess the threat based on intelligence collection. After gaining an understanding of the threat, the security director can choose a protective approach that best fits the situation, applying various concepts designed to calm the event and prevent harm."

Take Three Steps to Protect Your Real Estate Liability

We recommend that property owners take three steps to mitigate their risk during times of civil unrest.

1. Have written policies and procedures for security personnel.

Real estate firms should utilize formal written policies in order to clarify the appropriate use of force, weapons, detainment of individuals, and police involvement. Security contractors who are equipped with weapons should complete adequate training and hold the required licenses. If the security firm is an outside vendor, be very careful to evaluate and ensure that there is appropriate risk transfer in the contract. Security vendors should maintain professional, property, and casualty insurance with appropriate limits from quality carriers.

The property owner should be (1) held harmless (2) named as an additional insured including products and completed operations coverage (3) provided with primary and noncontributory status (4) and granted a waiver of subrogation by the vendor's commercial general liability carrier. Formal contractual risk transfer is extremely important to clarify responsibility and liability.

2. Property owners should review key coverage, terms, and applicable exclusions in their policy.

Consider the following timely questions in your review:

• Does the definition of bodily injury under your program include coverage for mental anguish, shock or fright?
• How will the criminal acts exclusion respond to a claim? Note that ISO CG0001(04-13) exclusion D precludes personal and advertising injury arising out of a criminal act committed by the insured or at the direction of the insured.
• Does your program have the appropriate carve-back for expected or intended bodily injury claims? In the CGLs exclusion A, expected or intended bodily injury or property damage, from the perspective of the insured, is usually excluded. There is a giveback in coverage for bodily injury resulting from the use of reasonable force to protect persons and property. This might come into play during the current crisis.
• Do you have the option to add law enforcement or security legal liability coverage?

3. Consider purchasing security and law enforcement services liability coverage.

This added coverage can be procured by your broker as an endorsement to certain CGL policies offered by specific carriers. The coverage often, but not always, provides:

• "Occurrence" added as a definition meaning an act or omission committed in providing or failing to provide "security and law enforcement services."
• "Security and law enforcement services" added to definitions as any of the official activities or operations of a security organization or department that you employ or contract with to enforce the law and protect persons or property on your behalf.
• Bodily injury is redefined to mean (1) any harm, including sickness or disease, to the health of a person and (2) includes mental anguish, injury or illness, or emotional distress.
• Personal injury definition is expanded to include (1) false or improper services of process (2) violation of civil rights protected under any federal, state, or local law, or (3) offensive physical or non-physical acts of a sexual nature.
• Bodily injury is redefined to include the offenses listed above.
• Up to $25,000 per policy period supplementary payments for physical damage to personal property that is in a person's possession at the time of detention.
• Expected or intended injury exclusion does not apply to bodily injury or property damage resulting from providing or failure to provide "security and law enforcement services."

Safeguard Your Reputation and Balance Sheet

In early June, Property Claim Services (PCS), part of the Verisk Analytics firm, officially designated the riots in Minneapolis, Minnesota as a catastrophe, meaning that insurers will pay out at least $25 million in losses there. The last time PCS made a similar designation was in 2015 in Baltimore following the death of Freddie Gray.

According to the Insurance Institute, the 1992 riots in Los Angeles, which were connected with the police beating of Rodney King, have been considered the costliest American civil-disorder event.

Those riots totaled about $775 million in insured losses at that time. In comparison, Hurricane Katrina, a natural disaster in 2005, resulted in $41 billion in insured damage.

As current protests continue to unfold on city streets throughout the country, we recommend that real estate firms take an informed, proactive approach to reduce the potential for adverse claims.

Risk and financial managers should reach out to a trusted advisor familiar with the unique risk transfer and financing options available to address the unfolding circumstances our country is facing. Before you hire or expand your security services, remember to take the steps outlined above to protect your properties, tenants, and residents. We are standing by to help.