Types of Policies that May Respond
Insurance for losses caused by disasters such as Sandy can be provided under several different types of insurance policies. This coverage is not only provided under the ordinary “property” policy. It also may be provided under other policies, such as those providing coverage for “environmental” losses, “maritime” losses, and “warehouse” losses. Thus, it is important for an insured to review all of its policies in order to determine the extent of its coverage. Many property insurance policies cover losses to real property caused by all perils. Some policies cover all causes of loss not expressly excluded. Because of the breadth of coverage afforded by an “all risk” policy, the burden of proof shifts to the insurer to show that the loss is not covered, once the insured demonstrates it has suffered a loss.
Coverage for Real and Personal Property
First-party property policies generally provide insurance for “direct physical loss of or damage to property.” Traditional losses under first-party property policies involve tangible property, including buildings, permanently installed machinery or equipment, inventory, and fixtures. They may also involve personal property owned by the insured that is used to service and maintain buildings and premises, such as fire extinguishing equipment. Most property insurance policies also insure personal property. This coverage usually is provided under an “unscheduled personal property” provision and typically provides coverage for unscheduled personal property that is “usual or incidental to the occupancy of the premises” or “used by an insured while on the described premises.”
Exclusions
There are many possible causes of loss stemming from a natural disaster such as a hurricane: wind, wind-driven rain, storm surge, flooding, power outages, orders by civil authority, and looting—just to name a few. In some cases, more than one cause may have contributed to an insured’s losses. An insured needs to carefully assess its policies and the precise cause(s) of its particular loss before it characterizes that cause. Different characterizations can have significant impacts on the deductibles and sub-limits of liability. Casually labeling a storm as a “hurricane” or a “flood,” either internally or externally may be inaccurate in the context of specific losses and negatively impact coverage, particularly because damage may have taken place before or after the storm was designated as a “hurricane” and because “flood” definitions vary.
Making a Claim
Insurance policies typically impose on an insured obligations that must be satisfied to collect insurance. In seeking coverage, many businesses may overlook, or not be aware of, their duties.
To preserve coverage, insureds should recognize and perform these duties. While an insurer may waive its right to insist on performance, insureds should proactively seek to comply with
coverage obligations. They may include: (i) providing prompt notice (often “as soon as possible”); (ii) cooperating with the insurer’s investigation; (iii) submitting a sworn statement in proof of loss; and (iv) giving testimony at an examination under oath.
Many property insurance policies contain a contractual limitations period (that is, a contractual statute of limitations). It is thus extremely important that insureds take all appropriate steps to ensure that suits, if necessary, are filed in a timely fashion. Unfortunately, insureds may not find clear answers and may have to initiate litigation to preserve their rights given possible disputes over which law controls (e.g., the law of the jurisdiction where the insured is headquartered and the policy was brokered, or the law of the jurisdiction where the loss was suffered).
]]>Kidnapping for ransom has historically been a profitable enterprise. As American companies expand their bases of operations and global reach, the number of targets and the number of countries with perceived threats has increased exponentially. According to the United States Department of State, for example, Mexico reported a 300 percent increase in such crimes between 2005 and 2011. Latin America has long been the region with the most reports of kidnapping for ransom, followed by the Asia Pacific region, Africa, and the Middle East—all popular or budding locations for business and recreational travel by American executives.
In addition to identifying the geographical threats, there are many lessons to be learned from prior incidents of kidnapping for ransom. First, by all accounts, the vast majority of kidnaping for ransom incidents (more than 60 percent of reported incidents) end with the captive’s release in exchange for the payment of ransom—approximately $2 million on average. Close to 20 percent are released without payment, with the remainder of victims dying or being killed, being rescued, or, albeit infrequently, escaping. Given the reality that the police in many high-risk countries may also be the kidnappers, many kidnappings go unreported and even fewer have official police involvement.
In response to this unique risk, individuals and entities with a global presence are looking into a specialty line of insurance coverage known as “kidnap and ransom” insurance.
Understanding Kidnap and Ransom Insurance
Kidnap and ransom insurance policies provide coverage for high-profile and high-net worth individuals, executives travelling abroad, and individuals who appear to fit one of those categories. These types of policies then obligate the insurer to pay those costs necessary to secure the safe return of an “insured person” kidnapped in a “covered territory.” These costs include, most notably, the ransom amount paid (up to policy limits) on behalf of the insured person in
exchange for his or her release.
Additionally, depending on the terms of a particular policy, kidnap and ransom coverage can provide indemnity for a variety of other expenses related to the negotiation and delivery of a ransom payment. For instance, at the policyholder’s request, many kidnap and ransom insurers will hire and dispatch experienced security consultants to coordinate the negotiation and payment of the ransom. A number of policies likewise cover the cost of hiring an interpreter, if necessary,
to facilitate negotiations with the kidnapper. Some kidnap and ransom policies also cover payments to “informants” who possess and provide information concerning the whereabouts of the kidnapped individual or the kidnapper’s identity.
Many policies also cover the costs of medical and psychiatric care for the kidnapped individual following his or her release. Kidnap and ransom policies also commonly cover travel expenses incurred by the policyholder to fly the released individual (or his or her relatives) home.
Although kidnap and ransom policies can provide broad coverage for the various
expenses associated with negotiating and delivering a ransom, these policies generally contain
various exclusions as well. Some policies bar coverage for kidnappings that take place in certain
excluded geographical regions. Others purport to exclude coverage for kidnappings planned or
facilitated by a relative or employee of the policyholder.
Common Policy Conditions
Kidnap and ransom policies also typically include a number of policy conditions, some of which can impact coverage in significant ways. Because policyholders with kidnap and ransom coverage could be attractive targets for kidnap plots if the existence of the insurance was known, many policies contain confidentiality clauses prohibiting the insured from discussing the coverage with third parties. Breach of these confidentiality provisions can result in a forfeiture of Policyholders should also expect to see certain notice-related provisions in their kidnap and ransom policies. In particular, kidnap and ransom policies commonly require the policyholder to immediately notify the insurer and local law enforcement agencies of a
kidnapping. Failure to provide prompt notice of a kidnapping can, depending on the particular policy language at issue, jeopardize coverage.
Purchasing the Right Policy
Because the scope of coverage can vary widely from policy to policy, it is important that policyholders carefully evaluate their coverage needs prior to purchasing kidnap and ransom insurance. Indeed, by keeping a few tips in mind, policyholders can avoid many typical coverage disputes and ensure that they purchase policies that suit their particular needs.
For one, when purchasing a kidnap and ransom policy, the policyholder should pay close attention to who is insured under the policy. Insured executives may also want to purchase coverage for their relatives, friends, or employees. A good rule of thumb is to purchase a policy that covers each individual for whom the policyholder would pay a ransom in the event of his or her kidnapping.
Furthermore, policyholders should make sure that their policies provide coverage in the desired geographical regions. Some policies provide worldwide coverage, whereas others exclude coverage for kidnappings taking place in certain specified geographic regions. Therefore, when purchasing a kidnap and ransom policy, policyholders should take stock of their coverage needs and select a policy that provides the desired scope of coverage.
Policyholders should also carefully consider the practical consequences of policies with stringent notice requirements. Many kidnap and ransom policies purport to void coverage if the policyholder fails to immediately provide notice of a kidnapping to both the insurer and local law enforcement agencies. Such provisions may seem relatively uncontroversial, but they can
prove problematic in instances where the kidnapper forbids the policyholder from notifying local police or other authorities. To avoid coverage disputes over the enforceability of such notice-related terms, policyholders should attempt to negotiate more favorable provisions. For instance, policies that only require immediate notice “where practicable” can give policyholders much-needed flexibility when responding to a kidnapping.
Finally, prior to purchasing kidnap and ransom coverage, policyholders should closely review all policy exclusions and other limiting terms. In some instances, policyholders may be able to negotiate more favorable terms, often without any significant increase in premium. For example, the policyholder should take into account the quality and experience of the response team or security consultants hired by and paid for by the insurer.
Conclusion
With the continued globalization of business and business-related travel, more executives are contemplating the purchase of kidnap and ransom coverage. Although this coverage can be a valuable asset to those living and traveling in foreign countries, policyholders must make sure that they purchase policies that meet their precise coverage needs. Then, once a policyholder settles on a particular policy, the policyholder should carefully review all terms and conditions of the policy.
While one can never be completely prepared for a kidnapping, having the right policy in place—and understanding how it works—can provide peace of mind for those individuals living and traveling abroad in high-risk regions.
]]>Families save hard-earned dollars looking forward to an upcoming vacation or get-away. Our basic demands are few but fundamental. The experience must be safe and it must be fun. One individual’s unhappiness can often be remedied with an apology, a promise to make improvements, or a complimentary amenity. However, constant national news coverage reporting on hundreds of ill cruise ship passengers represents a hemorrhaging that is not easily stopped.
On January 21, 2014, Royal Caribbean’s Explorer of the Seas departed for what was scheduled to be a 10-day cruise. Within days, passengers and crew developed symptoms of the norovirus. By the time the ship docked in New Jersey eight days later, the whole world knew about the hundreds of sick passengers, ruined honeymoons, inspections by the Centers for Disease Control, and the general public asking whether a cruise ship is a “floating petri dish.”
This story line is not new. The headline over Memorial Day weekend in 2013 was the Carnival Triumph “dead in the water” following an engine room fire during a four-day trip from Texas to Mexico. There, reports of food shortages, raw sewage and tent cities on the deck quickly became the lead story on the national news. After the ship was towed to dry land, passengers were willingly photographed kissing the ground and telling their individual stories of horror. The first lawsuit was filed within hours of the last passenger disembarking, describing the ship as a “floating hell.”
In each case, every action and alleged inaction by the cruise company was under a microscope. In the case of the Explorer of the Seas, passengers were confined to their cabins for days and reports quickly surfaced that there may have been more than 1,000 sick passengers and crew—hundreds more than initially reported. In the case of Triumph, the free alcohol meant to appease passengers reportedly had the opposite effect. And once on land, a chartered bus reportedly broke down and a chartered flight was delayed due to an electrical failure. In both cases, passengers are interviewed on the national news, proudly declaring that they will never step foot on a cruise ship again.
Despite this, the cruise industry and the passengers onboard these ships are fortunate in many respects. In both cases, the ships themselves sustained limited physical damage and in neither case was a fatality or life-threatening injury reported. However, the cruise industry relies on the public perception that cruising is fun and safe, and that the experience largely outweighs the remote likelihood of an accident or outbreak. The cruise industry surely wants to avoid legal battles with its passengers. But the industry surely needs to avoid a public relations disaster.
All companies must be zealous about protecting their public image, both before and after a crisis. Crisis management insurance provides companies the financial flexibility to respond appropriately to a public relations issue. A crisis management policy generally obligates the insurer to advance the costs associated with responding to an event such as a man-made disaster or the contamination of foods, beverages or pharmaceutical products. This coverage is available to the insured regardless of fault. A crisis event is should include any occurrence that, in the good faith opinion of the insured, will result in damages if crisis management services are not utilized, as well as where the insured anticipates significant adverse media coverage. Crisis management services are those services performed by a crisis management firm, including advising the insured on how to minimize potential harm, and maintain or restore public confidence in the insured. The policy also covers medical and funeral expenses, psychological counseling, travel and temporary living expenses, expenses to secure the scene, and any other expenses pre-approved by the insurer. The future success of the cruise industry may depend on how quickly the public forgets the fact that the most recent incident may be the largest norovirus outbreak on a cruise ship in two decades.
As with any type of insurance, the scope of crisis management coverage depends on the precise terms of the particular policy. Companies should review their crisis management policies— both when purchasing them and when making claims for coverage.
Finally, keep the following tips in mind to get the most out of your crisis management coverage: