When the Emotional Toll of a Mass Shooting Requires a Building to Be Torn Down, How Can Risk Managers Foot the Bill?
When a young man bent on mass murder entered Sandy Hook Elementary on Dec. 14, 2012, no one could have predicted the loss and devastation that followed. Twenty school children, ages six and seven years old, and six adult staff members lost their lives.
Four years later, a would-be killer entered the Pulse Nightclub in Orlando, killing 49 and wounding 53. This past February, a former student stormed the Marjory Stoneman Douglas High School in Parkland, Fla., fatally shooting 17 students and faculty.
In the wake of a mass shooting, the tremendous human cost is front and center. And rightfully so; the grieving never ends, and the lives lost cannot be replaced.
But the ever-prepared risk manager knows that other factors play a role during a mass shooting event: Namely, what happens to the building after the violence subsides?
“A challenge with this [risk] is that some active shooter events have resulted in minimal or no physical damage to an insured property,” said James English, property practice lead, Gallagher’s Great Lakes and Midwest regions.
“Respect for shooting victims and compassion for their families is a priority. Therefore, some decision makers and other stakeholders have evaluated significant modification to, or even demolition of, a location where an active shooting incident has occurred, despite reduced indemnity from coverage limitations.”
In the case of Sandy Hook, the entire building was demolished and rebuilt. The Pulse Nightclub was slated for demolition, but later the owner decided to renovate the facility as a memorial and build her nightclub elsewhere. Parkland shuttered the ninth-grade building where the horrors happened, with no immediate plans to reopen.
“Liability exposures, crisis management resources and other relevant services were the primary focus of many early active shooter insurance policies,” said English.
“These policies contained a nominal limit, if any, to remediate direct physical loss or damage to insured property.
“No doubt underwriters and brokers continue to look for better ways to address this unmet coverage need, some of which has not historically ‘fit’ within a traditional property insurance policy.”
The Insurance Challenge of Rebuilding
Gun violence has erupted in schools, churches, movie theaters, entertainment venues, workplaces, newsrooms, government buildings and more. That’s a lot of property to protect with different needs in terms of coverage.
“There are a few layers to property solutions following tragedies; insurance companies would not provide coverage for demolition of a building unless it was a covered loss,” said Thomas Fazio, senior account manager, major accounts, Conner Strong & Buckelew. “The active shooter policies I’ve seen would not provide coverage in this instance either.”
A typical active shooter policy would be focused on medical expenses, funeral costs, public relations firms, security firms and the like. It would not cover the demolition or rebuild of the building.
Yet places like Virginia Tech, Columbine, the Aurora Theater in Colorado and a church in Charleston, S.C. still looked to completely renovate the areas affected by violence.
“It’s clear that there is a potential need for an insurance product to address these situations,” said Fazio. “I view this as something that would be better addressed under a property policy than an active shooter policy.”
However, property still has its limits.
“These active shooter events result in minimal to no physical damage to the asset. And if there’s no damage to the asset, does it trigger the property policy?” asked English.
Reiner Braun, West Coast property practice leader, Beecher Carlson, echoed English’s sentiment. For a teardown/rebuild policy to work, a definitive coverage trigger would need to be designated. He also added that, in order for this type of coverage to really come to light, wording must be crafted to address various scenarios.
“Is it worse if there’s a mass shooting at an elementary school versus gang violence at a Friday night football game? Who decides how bad a situation needs to be for the building to come down?” he said.
“Should this exposure — the cost of taking down and rebuilding an elementary school — be transferred to the insurance marketplace or should society take on that cost?” Cliff Simpson, national property practice leader, Beecher Carlson, added.
Sandy Hook spent $50 million to demolish its building and rebuild. A $250,000 to $1 million coverage isn’t nearly close enough to cover that cost, Simpson said.
“The industry would need to brainstorm and come up with very specific wording to define insured events and assets and how decisions are made after an event to trigger cover.”
Teardown and Rebuild in Action
Yet despite the challenges, Dianne Howard, director of benefits and risk management for the Palm Beach County School District in Fla., and one of this year’s Risk & Insurance® Risk All Stars, was adamant on finding coverage.
“I kept thinking about Sandy Hook and how they rebuilt the school and how the families didn’t want to send their kids back,” she said.
“I asked myself, ‘what would we do?’ On top of all that liability from a tragedy, defending litigation and handling the media, we would be overwhelmed. And we all work so hard.”
Howard was traveling to London to visit with Lloyd’s for other coverages for her school district. She decided to bring up the possibility of defining a teardown/rebuild cover in the event of an active shooter, so she turned to her broker, The Beacon Group, which brought in The McGowan Companies for further assistance.
“I know it’s a low occurrence rate, but it’s a high cost. Not just in dollar ways. It’s catastrophic — children getting killed and the unrest.” — Dianne Howard, director of benefits and risk management, Palm Beach County School District
“Dianne is an aggressive risk manager. Anything that keeps her up at night, she wants coverage for,” said Paul Marshall, managing director – active shooter/workplace violence insurance programs at McGowan.
“She knew what she wanted, and she fought for it.”
Typically, he said, buyers look for liability, victim and then property coverage when talking about mass shootings. But, “in a way, we can view the entity as a victim — the entity has suffered a huge financial loss,” he said.
The challenge came when trying to define the coverage. What if there was no property damage, but the emotional toll left by the building warranted demolition? Carriers, Howard knew, would only look at visible property damage. Likewise, how could she publicly say the school district would rather put its policy money toward renovation when there might be lives lost and other litigation?
“I had to ask — could we have separate limits?”
Marshall, on the other hand, was trying to find what would even trigger this type of policy; an active shooter event wouldn’t work on its own, while property would only cover visible damage by its very nature.
“We didn’t want to incentivize clients to use the coverage without cause,” he explained. With this in mind, they created a copay system. “We wanted it in order to not create a moral hazard, and we encourage a 50 percent copay.”
For example, he said, an average school building costs about $20 million. Through their teardown/rebuild policy, the insured would be responsible for the first $10 million. McGowan would then match. In that sense, McGowan worked to build a partnership with its buyers.
“Coverages include teardown, memorials or rebuild,” he added. And as for what triggers the policy, the team behind this coverage settled on “emotional duress.”
Additionally, “the decision to tear down would usually come from the school or university board or a specific company executive management group,” said Marshall. “There is a partnership with the insurance company, and this also needs to be approved by the insurance underwriters.”
“I know it’s a low occurrence rate, but it’s a high cost,” Howard added. “Not just in dollar ways. It’s catastrophic — children getting killed and the unrest.” Mass shootings and other violent outbreaks have changed the way she looks at risk. “I have to expand my mind. Risks are changing.”
A Future for Teardown/Rebuild?
Deadly weapon attacks are hard to predict, but luckily, Braun said, certain coverages are already available to cover some of the risks, including property, liability and even extensions to terrorism covers.
But for this particular risk of teardown and rebuild, the policies are still in their infancy.
“This issue, from a property standpoint, appears to be driving greatest interest from ‘soft-occupancy’ risk profiles, including entertainment venues, educational institutions and health care organizations,” English said. “We’re not yet at a point where the broader of audiences is asking for this coverage.”
He did say that because there is interest in this cover and an audience exists, the industry has an opportunity to provide solutions for teardown and rebuild.
“Initial coverage limits have not been adequate for some organizations, but this is an area where underwriters, brokers and insureds are finding their way to better results. One challenge is pricing, based on limited loss experience.”
Additionally, “Collaboration is necessary to deliver optimal coverage options. We’ll get there for the broader audience,” English said, “our industry is just not there yet.”
“Active shooter is a new phenomenon; our society is still trying to figure out what to do about it,” said Simpson. “If the industry can figure a way to settle what the coverage trigger is, and underwriters are able to price the exposure and come up with the wording — they’d love to do it.” &