Issue Spotting the Marathon Bombings

The impact of the bombings broadened considerably on Friday, April 19, 2013, following an early-morning shootout in the Boston suburb of Watertown that left one of the two suspected bombers dead and the other wounded and on the run. Massachusetts Governor Deval Patrick urged residents of Boston and its surrounding suburbs to “shelter in place” while authorities conducted a manhunt for the second suspected bomber. The streets of Boston were abandoned as Bostonians heeded Governor Patrick’s order. Public transit was shut down entirely. Taxi service was suspended, nearly every business closed for the day, and residents remained indoors.

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In addition to the extensive physical and emotional toll left by the bombings, the evacuations, closings, and cancellations that followed the attack caused financial harm, as well. As the dust following the Boston Marathon bombings begins to settle, the question of who will bear the brunt of the financial losses will need to be addressed.

While some victims of the bombings may be able to receive compensation through One Fund Boston, a fund established by state and city officials to assist individuals affected by the bombings, others affected also are likely to bring claims against a number of governmental and nongovernmental entities. Various types of insurance are likely to be implicated by such claims, including health, life, general liability, property, terrorism, business income, and event cancellation, among others.

Potential Claims

Those involved in organizing and supervising the marathon may be faced with claims alleging the negligent failure to undertake proper security measures. While the City of Boston and other government entities will be a target of these allegations, such claims against them are subject to a statutory damages cap, and certain entities may be shielded by governmental immunity.

Victims of the bombings also may bring claims against the Boston Athletic Association (BAA), a non-profit organization that hosts the Boston Marathon. Massachusetts law imposes a $20,000 cap on the tort liability of charitable organizations, except where a tort is committed in the course of activities that are “primarily commercial” in nature. Although this exception has been narrowly construed by Massachusetts courts, the considerable revenue to the BAA generated by the marathon may be sufficient to satisfy the exception, such that the statutory cap would not apply.

Event sponsors and promoters of the Marathon also may face claims for injuries resulting from the bombings. “Sponsorship liability” may be incurred even where a sponsor does not directly control the conditions that lead to injury. An example is the Rhode Island nightclub fire in February 2003, in which a fire erupted in a crowded nightclub after a rock band set off pyrotechnics as part of its performance. The fire killed 100 people and injured scores more. A federal court in Rhode Island refused to dismiss claims against a radio station whose on-air personality had served as a master of ceremonies for the event, even though, as a sponsor, the radio station neither set off the pyrotechnics nor participated in arrangements to use them at the event. According to the decision in Gray v. Derderian (2005), the radio station “had the opportunity to set down some conditions or guidelines before it agreed to sponsor the concert.” The court based its decision on the common law of negligence, essentially ruling that as an event sponsor, the radio station undertook a duty to ensure that the conditions of the event would not cause injury to those in attendance.

In the circumstances of the marathon bombings, numerous entities acted in the role of sponsors and promoters, utilizing their names and distinctive marks to attract interest and draw patrons to the event. Questions will inevitably arise regarding the extent to which any of the sponsors or promoters had the “opportunity to set down some conditions or guidelines” before agreeing to sponsor the marathon.

For instance, did any of the sponsors or promoters participate in security arrangements, crowd control, or safety programs for the participants or spectators? Might those sponsors or promoters, even if they did not directly participate in those activities, have had the opportunity to set down conditions in those areas before agreeing to become sponsors? The answers to these questions may lead to some degree of sponsorship liability in the wake of the Boston Marathon bombings.

Available Insurance Coverage

In the face of such potential claims, questions also will arise as to what insurance is implicated by these claims and whether the bombings and resulting losses will trigger coverage. Here are several types of policies that could be invoked.

Terrorism Coverage and Exclusions. Following the events of 9/11, Congress established the Terrorism Risk Insurance Act of 2002 (TRIA). Under TRIA and its subsequent extensions and modifications (including the Terrorism Risk Insurance Program Reauthorization Act of 2007), insurers are required to make terrorism coverage available to commercial policyholders, although policyholders are not required to purchase the coverage. Thus, many policies offer terrorism coverage to the extent that TRIA is triggered, while other policies may still include terrorism exclusions. Some commercial policies may provide coverage for terrorism beyond the scope of that afforded under the TRIA program.

However, although the President and the media have referred to the marathon bombings as an act of terrorism, such statements do not necessarily indicate that the incident will qualify as such under TRIA, which requires a certification by the Secretaries of Treasury and State, as well as the U.S. Attorney General. References to “terrorism” in speeches and news reports do not determine the application of policy provisions expressly granting or excluding terrorism coverage.

The bombers’ attack was a violent act and resulted in damage in the U.S., which are both statutory requirements under TRIA and usually a requirement of terrorism coverage grants and exclusions. Additionally such provisions generally require that the act be committed as part of an effort to coerce the U.S. population or influence the U.S. government policy. At this time, the motivations of the suspected bombers, whether personal or political, are not yet established. Ongoing investigations may provide some of these answers in the coming weeks and affect the application of terrorism coverage grants and exclusions.

It remains unknown whether the BAA, the marathon’s sponsors, or any of the commercial property owners who suffered losses as a result of the bombings purchased terrorism coverage and, if so, whether coverage was triggered or whether the commercial policies included terrorism exclusions. Even though reports state that terrorism coverage is purchased in the Northeast more than in other regions of the country, many have chosen not to purchase such coverage. The marathon bombings, however, may well serve as a catalyst for the increased purchase of terrorism coverage going forward.

Business Income Coverage. While not extensive, physical damage to property still occurred as a result of the bombings. Businesses that sustained direct physical damage as a result of the bombings may seek reimbursement for profits lost as a result of the attack. Business interruption coverage is often included in commercial property policies and compensates an insured for economic loss sustained as a result of direct physical damage from a covered peril, which in turn interrupts the insured’s operations. If the bombings constitute a covered peril under the applicable policy, those businesses physically damaged may be able to recoup lost profits arising from the explosions.

The majority of claims arising out of the marathon bombings, however, are likely to concern coverage that does not require direct physical damage to the insured’s property to trigger coverage.

Businesses farther removed from the bombing sites may be entitled to recover if they have contingent business interruption insurance. Contingent business interruption does not require physical damage to the insured’s property. Rather, it insures against economic losses to the insured arising from direct physical loss to the property of a third party critical to the insured’s business. Such coverage is typically obtained by companies that are highly dependent on key suppliers or primary customers and protects against the economic impact of physical damage to those essential third parties. As a result, insured companies whose suppliers’ or customers’ properties were physically damaged by the attack, thereby disrupting the insured’s business, may be able to recoup their lost income. However, some of those businesses may not have been open for operation on Patriots’ Day as it was a state holiday. Businesses that lost income on subsequent days may face a challenge in establishing the requisite connection to physical damage.

Civil authority coverage, which also requires physical damage to property other than the insured’s property but typically within a certain proximity of the insured’s premises (e.g., adjacent to, within 1,000 feet of, or within the vicinity of) may be available to businesses that were prohibited from gaining access to their premises due to the evacuation orders and other mandatory closures ordered by police and state officials.

Similarly, businesses that were denied access to their premises because of property damage to property other than their own may seek reimbursement under ingress/egress coverage even if access to their premises was not prohibited by civil authorities. However, as with the other business income coverages, civil authority and ingress/egress coverage turns on whether there was physical damage caused by a covered peril. If it is determined that the bombings were acts of terrorism excluded under the pertinent policies, the businesses are unlikely to recoup the profits they lost as a result of this tragedy. Another issue that may come into play is whether the closures ordered during the manhunt can be connected to any physical damage caused by a covered peril.

Event Cancellation Coverage. From the Boston Red Sox, Bruins, and Celtics to the Boston Symphony Orchestra and the Big Apple Circus, a wide range of organizations canceled or postponed events due to the marathon bombings, related evacuations, or the subsequent “shelter in place” order. Such organizations may seek reimbursement for their resulting financial losses under event cancellation policies.

Event cancellation policies insure against losses arising out of the cancellation, interruption, or rescheduling of a covered event. Coverage is potentially available for cancellations and postponements stemming from a variety of perils, including earthquakes, floods, fires, extreme weather, physical damage to the venue, and problems associated with public transportation or roads leading to the venue. Many event cancellation policies also include optional coverage for terrorism and threats of terrorism.

Event cancellation policies are generally manuscript or nonstandard policies, however. Thus, the types of financial losses covered will depend on the particular terms of the insured’s policy. Policies typically cover lost profits and revenues. Costs associated with rescheduling a postponed or interrupted event also may be covered. Event cancellation policies also generally contain a number of exclusions, although the content of such policy exclusions varies widely from policy to policy.

Because event cancellation policies are nonstandard policies, whether coverage is provided for losses arising from the cancellation or postponement of events following the Boston Marathon bombings will depend on the language of each policy. Affected organizations should carefully review their policies to determine the scope of coverage provided.

Aftermath

The tragic events in Boston raise a host of questions about who should bear financial responsibility for the resulting losses and the availability of insurance coverage for both the victims injured by the blast and the scores of businesses impacted by the bombings. It is too early to tell how these issues will play out in the weeks and months ahead, but businesses and insurers affected by the tragedy should review their insurance policies carefully to understand the coverages potentially in play as a result of these events.