Unlike hurricanes, tornadoes, or blizzards, riots are rare. But when they happen, they can be just as costly and even more widespread. According to a recent report, the civil unrest in the summer of 2020 following the murder of George Floyd cost insurers around $2 billion, and the final number is likely to go even higher. That makes the last week of May and the first week of June 2020 the most expensive period of civil unrest in U.S. history. By comparison, the 1992 Los Angeles riots cost insurers $775 million (or $1.4 billion in today’s dollars), and the 1980 Miami riot cost $65 million ($204 million today).
“Riot or civil commotion” is a covered cause of loss under most commercial property policies. The ISO’s Basic (CP 10 10 10 12) and Broad (CP 10 20 10 12) Covered Causes of Loss forms expressly list “riot or civil commotion” as a covered peril. The Special Form (CP 10 30 10 12), on the other hand, provides all-risk coverage and does not exclude riot or civil commotion (though it does exclude war or insurrection). Accordingly, most businesses were covered for the damage to their buildings, fixtures, personal property, “stock,” and—in most cases—business income. One major difference between the three forms is the special form includes a coverage extension (F.3) which pays for “expenses incurred to put up temporary plates or board up openings if repair or replacement of damaged glass is delayed.” Many businesses likely found this extension helpful following the 2020 riots.
In May 2020, the national retail chain Nordstrom boarded up its 350 stores, hired extra security guards, and set up video monitoring equipment. Despite these efforts, several stores were broken into and all of them were closed. According to Nordstrom, it suffered approximately $25 million in losses either in damaged property or lost income.
In Nordstrom’s view, these losses resulted from a single event—George Floyd’s murder. Although Nordstrom’s five insurers did not dispute coverage under their respective policies, they did dispute its extent. The insurers, according to Nordstrom, concluded the damage to each store was a separate “occurrence” triggering a separate $1 million deductible. So, they paid Nordstrom only $4.7 million rather than the $25 million it claimed.
The insurers’ position is understandable. People often refer to riots by where they occurred because they are usually localized events. In the summer of 2020, however, several cities experienced violent riots within only a few days of one another. If a tornado had struck each of these cities as part of a nationwide tornado outbreak, insurers (and courts) would almost surely view each tornado as a separate occurrence. It appears that nationwide civil unrest resulting in multiple riots in multiple cities within a few days of one another has never happened before in United States’ history.
In March 2021, Nordstrom sued its five insurers for a declaration the 2020 civil unrest was a single occurrence triggering only a single deductible under each of its policies. The policies purportedly define “occurrence” in one of two ways:
a [l]oss or series of losses or several losses, which are attributable directly or indirectly to one cause . . . or to one series of similar causes arising from a single event . . . . All such losses are to be added together and the total amount of such losses shall be treated as one occurrence, regardless of the period of time or area over which such losses occur.”
or
any one loss . . . or series of losses arising out of one event. . . . [For purposes of civil commotion, the] one event . . . shall be construed to be all losses arising during a continuous period of 72 hours.
The first definition appears favorable to Nordstrom because it states all losses “directly or indirectly attributable to one cause . . . or to one series of similar causes arising from a single event” shall be treated as “one occurrence.” The italicized language suggests that, even if each “riot” arose independently in each city, it should still be considered “directly or indirectly” attributable to a “one series of similar causes” arising from a “single event”—i.e., George Floyd’s death.
The second definition is less favorable to Nordstrom because it refers only to “one event” and does not include the “directly or indirectly” language. The 72-hour period referenced in the second sentence further complicates the matter. It suggests “all losses” occurring within 72 hours should be treated as “one occurrence,” but Nordstrom’s losses occurred over a week or more. That suggests there were at least two if not three or more occurrences. Further, another memorable coverage dispute—the World Trade Center coverage litigation—involved similar “all losses during a continuous 72-hour period” language. In that case, the court concluded the 72-hour language rendered the meaning of “occurrence” uncertain and ultimately concluded there had been two occurrences even though the damage to the World Trade Center stemmed from a single, coordinated terrorist attack.
Unfortunately, we may never know whether the 2020 riots constitute one occurrence or several. Nordstrom’s complaint did not include the insurer’s denial letters, so we do not know their reasoning, only Nordstrom’s characterization of it. And, as of June 2021, the case is effectively stayed while the parties attempt early resolution through mediation.
Though Nordstrom may not yield new law, insurers are already moving to limit their liability from future riots. Reuters reports that in the lead up to the 2020 presidential election businesses faced double-digit premium hikes for policies providing civil commotion or riot coverage, and some insurers stopped providing such coverage altogether. And according to a Portland, Oregon, newspaper, many businesses in that city could not find any property insurance at all and those that could saw their premiums increased fourfold.
For these reasons, policyholders should carefully scrutinize their commercial property policies at renewal to ensure they contain adequate coverage for riot or civil commotion. They should also examine the definition of “occurrence” and either request a better definition or adjust their deductible to mitigate the risk of riot-related losses.
