Boston Bombing

Running for Cover

Because there was no official "terrorism" certification, policy exclusions were not triggered.
By: | December 1, 2013

A strict reading of insurance policies could have compounded the pain suffered by two restaurants on Boylston Street, both damaged after homemade bombs killed three people and injured more than 250 others near the finish line of the Boston Marathon in April.

The restaurants’ policies excluded coverage for terrorism, said the attorney who handled their claims, Jim Harrington. And neither eatery had purchased separate terrorism coverage, said Harrington, a partner in the Boston office of Robins Kaplan Miller & Ciresi.

However, insurers ended up ignoring the terrorism exclusions, Harrington said.

Indeed, out of 27 commercial property claims and 133 business interruption claims filed after the bombing, none have been impacted by terrorism exclusions, according to the Massachusetts Division of Insurance. The data covers claims filed as of Oct. 18.

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“I was impressed with the goodwill that the insurers extended,” Harrington said, noting that only one client’s losses exceeded the deductible. “In both cases, they agreed to adjust the loss and make a payment if the loss measured out as payable, even before receiving a request to do that.”

Policyholders are being advised not to count on the same response should there be a next time.

While most claims from the Boston bombing appear to have been resolved with less conflict than expected, insurers, brokers and attorneys have been warning clients about potential coverage issues exposed in the aftermath of the first major terrorist attack on U.S. soil since Sept. 11, 2001 — and the first test of federal laws and insurance policies crafted in response.

“Even though these have been pretty standard provisions now for over a decade since 9/11, there has been no occasion for them to be interpreted in a U.S. event,” said Nick Insua, a partner in the insurance coverage group at law firm McCarter & English in Newark, N.J.

“I think the fact that it won’t be certified, or has not been so far, is a win for policyholders, particularly small businesses.”
— Eamon P. Kelly, attorney, Sperling & Slater

The bombing in Boston was allegedly carried out by two brothers born in the Russian province of Chechnya but living in the United States. The older brother, Tamerlan Tsarnaev, was killed during a manhunt after the attack. As of press time, the younger brother, Dzhokhar Tsarnaev, was awaiting trial.

Attention has fallen primarily on the federal process for determining whether the event was terrorism.

The Tsarnaevs’ alleged actions were denounced as terrorism by elected officials, including President Barack Obama. But under the Terrorism Risk Insurance Act, enacted in 2002, insurance policies often require a formal declaration from the Departments of Justice, State and Treasury. The law, known as TRIA, offers a backstop for private terrorism policies if aggregate losses exceed $100 million.

The threshold for certifying a terrorist act is lower: aggregate property and casualty damage exceeding $5 million. P&C losses from the Boston Marathon bombing were around $2.5 million, according to the Massachusetts Division of Insurance. The event has not been declared a terrorist act under TRIA, and is unlikely to be, attorneys said.

“I think the fact that it won’t be certified, or has not been so far, is a win for policyholders, particularly small businesses,” said Eamon P. Kelly, an attorney at Sperling & Slater in Chicago.

Certification would have triggered terrorism exclusions in many insurance policies, and small businesses generally don’t buy TRIA-backed terrorism coverage to fill the gap, Kelly said.

Exclusions may not have held up anyway said another attorney who has handled Boston-related claims. Jon Cowen of Posternak Blankstein & Lund said that policyholders could have cited the lack of certification, among other factors.

“We don’t know what the ultimate purpose was of this violence that occurred,” Cowen said.

Limited Property Damage

But not every policy hinges upon TRIA certification. Harrington said the exclusions in his clients’ policies did not depend on certification of the Boston Marathon bombing.

“Given the clarity and breadth of the terrorism exclusions, if invoked, they would have applied, and they would have prevented coverage,” Harrington said. The relatively limited property damage may have played into insurers’ decisions to ignore the exclusions, he added.

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Even if they have terrorism coverage, policyholders could face challenges. They may be covered after events certified as terrorism under TRIA, but not after events that aren’t certified.

Following a non-certified event, businesses could be liable for damages between their deductible and the $5 million threshold set under TRIA, said Aaron Davis, a managing director with the brokerage firm Aon.

“For many clients, $5 million is not that big compared to their retentions,” Davis said. “For other clients that may have loan covenants requiring a much smaller deductible, it is a real exposure.”

The solution, Davis and others said, is a broader policy that offers coverage of non-certified events. That coverage is available on the stand-alone terrorism market, where policies are not backed by TRIA.

“We try to get that coverage as much as possible for our clients,” said Tarique Nageer, a senior vice president for brokerage firm Marsh Inc. in New York City.

Overall, he said, the Boston bombing sharpened clients’ interest in terrorism insurance. “I’m not sure if it’s resulted in a significant uptick in purchases,” he said. “But it’s certainly an uptick in trying to find out what the coverage is.”

“If you look at the statute, there has to be an intent to coerce the government or civilian population. Maybe we had that, or maybe we didn’t have that.”
— Brian Green, attorney, Edwards Wildman Palmer

Further driving interest in the stand-alone market is the pending reauthorization of TRIA, which expires at the end of 2014, Nageer added. Companies may want coverage that is not tied to the law, given that its renewal is uncertain.

In a survey undertaken this summer by RIMS, the risk management society, 69 percent of risk professionals said failure to renew the law would make terrorism coverage harder or impossible to find.

If the law is renewed, it should include a deadline for official declarations of terrorism, so insurers can act quickly after an event, said Bob Rheel, executive vice president and head of U.S. property & casualty for Aspen Insurance in New York City. If insurers are left waiting for certification, they could face complaints from customers, especially if elected officials have already described an event as terrorism.

“Insurance companies then have to make a decision to declare it one way or another by themselves,” Rheel said.

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But while government officials may be able to estimate aggregate damage in a short time, other elements needed for a terrorism certification may be harder to pin down, complicating the task of certification, attorneys said.

They cited the law’s requirement that a certified act be “part of an effort to coerce the civilian population of the United States or to influence policy or affect the conduct of the United States by coercion.”

More than six months after the Boston bombing, the attacker’s motives remain largely unknown, said Brian Green, counsel in the insurance and reinsurance department of law firm Edwards Wildman Palmer in New York City.

“If you look at the statute, there has to be an intent to coerce the government or civilian population,” he said. “Maybe we had that, or maybe we didn’t have that.”

If a future attack inflicts greater damage, the government might face more pressure to issue certification, Green said. But the aims of attackers may remain murky, even if elected officials speak with clarity.

The Marathon bombing is not the first time insurers have had to grapple with a clash between political rhetoric and policy language.

In 2001, then-President George W. Bush decried the attacks on the World Trade Center and the Pentagon as acts of war, said Lon Berk, a partner in the McLean, Va., office of Hunton & Williams. “Not one insurance company invoked the war exclusion,” he said. “They understood that what they meant in their contracts was different from what people were saying in politics, and I think that that’s the same here.”

Joel Berg is a freelance writer and adjunct writing teacher based in York, Pa. He has covered business and regulatory issues. He can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Scenario

The Betrayal of Elizabeth

In this Risk Scenario, Risk & Insurance explores what might happen in the event a telemedicine or similar home health visit violates a patient's privacy. What consequences await when a young girl's tele visit goes viral?
By: | October 12, 2020
Risk Scenarios are created by Risk & Insurance editors along with leading industry partners. The hypothetical, yet realistic stories, showcase emerging risks that can result in significant losses if not properly addressed.

Disclaimer: The events depicted in this scenario are fictitious. Any similarity to any corporation or person, living or dead, is merely coincidental.

PART ONE: CRACKS IN THE FOUNDATION

Elizabeth Cunningham seemingly had it all. The daughter of two well-established professionals — her father was a personal injury attorney, her mother, also an attorney, had her own estate planning practice — she grew up in a house in Maryland horse country with lots of love and the financial security that can iron out at least some of life’s problems.

Tall, good-looking and talented, Elizabeth was moving through her junior year at the University of Pennsylvania in seemingly good order; check that, very good order, by all appearances.

Her pre-med grades were outstanding. Despite the heavy load of her course work, she’d even managed to place in the Penn Relays in the mile, in the spring of her sophomore season, in May of 2019.

But the winter of 2019/2020 brought challenges, challenges that festered below the surface, known only to her and a couple of close friends.

First came betrayal at the hands of her boyfriend, Tom, right around Thanksgiving. She saw a message pop up on his phone from Rebecca, a young woman she thought was their friend. As it turned out, Rebecca and Tom had been intimate together, and both seemed game to do it again.

Reeling, her holiday mood shattered and her relationship with Tom fractured, Elizabeth was beset by deep feelings of anxiety. As the winter gray became more dense and forbidding, the anxiety grew.

Fed up, she broke up with Tom just after Christmas. What looked like a promising start to 2020 now didn’t feel as joyous.

Right around the end of the year, she plucked a copy of her father’s New York Times from the table in his study. A budding physician, her eyes were drawn to a piece about an outbreak of a highly contagious virus in Wuhan, China.

“Sounds dreadful,” she said to herself.

Within three months, anxiety gnawed at Elizabeth daily as she sat cloistered in her family’s house in Bel Air, Maryland.

It didn’t help matters that her brother, Billy, a high school senior and a constant thorn in her side, was cloistered with her.

She felt like she was suffocating.

One night in early May, feeling shutdown and unable to bring herself to tell her parents about her true condition, Elizabeth reached out to her family physician for help.

Dr. Johnson had been Elizabeth’s doctor for a number of years and, being from a small town, Elizabeth had grown up and gone to school with Dr. Johnson’s son Evan. In fact, back in high school, Evan had asked Elizabeth out once. Not interested, Elizabeth had declined Evan’s advances and did not give this a second thought.

Dr. Johnson’s practice had recently been acquired by a Virginia-based hospital system, Medwell, so when Elizabeth called the office, she was first patched through to Medwell’s receptionist/scheduling service. Within 30 minutes, an online Telehealth consult had been arranged for her to speak directly with Dr. Johnson.

Due to the pandemic, Dr. Johnson called from the office in her home. The doctor was kind. She was practiced.

“So can you tell me what’s going on?” she said.

Elizabeth took a deep breath. She tried to fight what was happening. But she could not. Tears started streaming down her face.

“It’s just… It’s just…” she managed to stammer.

The doctor waited patiently. “It’s okay,” she said. “Just take your time.”

Elizabeth took a deep breath. “It’s like I can’t manage my own mind anymore. It’s nonstop. It won’t turn off…”

More tears streamed down her face.

Patiently, with compassion, the doctor walked Elizabeth through what she might be experiencing. The doctor recommended a follow-up with Medwell’s psychology department.

“Okay,” Elizabeth said, some semblance of relief passing through her.

Unbeknownst to Dr. Johnson, her office door had not been completely closed. During the telehealth call, Evan stopped by his mother’s office to ask her a question. Before knocking he overheard Elizabeth talking and decided to listen in.

PART TWO: BETRAYAL

As Elizabeth was finding the courage to open up to Dr. Johnson about her psychological condition, Evan was recording her with his smartphone through a crack in the doorway.

Spurred by who knows what — his attraction to her, his irritation at being rejected, the idleness of the COVID quarantine — it really didn’t matter. Evan posted his recording of Elizabeth to his Instagram feed.

#CantManageMyMind, #CrazyGirl, #HelpMeDoctorImBeautiful is just some of what followed.

Elizabeth and Evan were both well-liked and very well connected on social media. The posts, shares and reactions that followed Evan’s digital betrayal numbered in the hundreds. Each one of them a knife into the already troubled soul of Elizabeth Cunningham.

By noon of the following day, her well-connected father unleashed the dogs of war.

Rand Davis, the risk manager for the Medwell Health System, a 15-hospital health care company based in Alexandria, Virginia was just finishing lunch when he got a call from the company’s general counsel, Emily Vittorio.

“Yes?” Rand said. He and Emily were accustomed to being quick and blunt with each other. They didn’t have time for much else.

“I just picked up a notice of intent to sue from a personal injury attorney in Bel Air, Maryland. It seems his daughter was in a teleconference with one of our docs. She was experiencing anxiety, the daughter that is. The doctor’s son recorded the call and posted it to social media.”

“Great. Thanks, kid,” Rand said.

“His attorneys want to initiate a discovery dialogue on Monday,” Emily said.

It was Thursday. Rand’s dreams of slipping onto his fishing boat over the weekend evaporated, just like that. He closed his eyes and tilted his face up to the heavens.

Wasn’t it enough that he and the other members of the C-suite fought tooth and nail to keep thousands of people safe and treat them during the COVID-crisis?

He’d watched the explosion in the use of telemedicine with a mixture of awe and alarm. On the one hand, they were saving lives. On the other hand, they were opening themselves to exposures under the Health Insurance Portability and Accountability Act. He just knew it.

He and his colleagues tried to do the right thing. But what they were doing, overwhelmed as they were, was simply not enough.

PART THREE: FALLING DOMINOES

Within the space of two weeks, the torture suffered by Elizabeth Cunningham grew into a class action against Medwell.

In addition to the violation of her privacy, the investigation by Mr. Cunningham’s attorneys revealed the following:

Medwell’s telemedicine component, as needed and well-intended as it was, lacked a viable informed consent protocol.

The consultation with Elizabeth, and as it turned out, hundreds of additional patients in Maryland, Pennsylvania and West Virginia, violated telemedicine regulations in all three states.

Numerous practitioners in the system took part in teleconferences with patients in states in which they were not credentialed to provide that service.

Even if Evan hadn’t cracked open Dr. Johnson’s door and surreptitiously recorded her conversation with Elizabeth, the Medwell telehealth system was found to be insecure — yet another violation of HIPAA.

The amount sought in the class action was $100 million. In an era of social inflation, with jury awards that were once unthinkable becoming commonplace, Medwell was standing squarely in the crosshairs of a liability jury decision that was going to devour entire towers of its insurance program.

Adding another layer of certain pain to the equation was that the case would be heard in Baltimore, a jurisdiction where plaintiffs’ attorneys tended to dance out of courtrooms with millions in their pockets.

That fall, Rand sat with his broker on a call with a specialty insurer, talking about renewals of the group’s general liability, cyber and professional liability programs.

“Yeah, we were kind of hoping to keep the increases on all three at less than 25%,” the broker said breezily.

There was a long silence from the underwriters at the other end of the phone.

“To be honest, we’re borderline about being able to offer you any cover at all,” one of the lead underwriters said.

Rand just sat silently and waited for another shoe to drop.

“Well, what can you do?” the broker said, with hope draining from his voice.

The conversation that followed would propel Rand and his broker on the difficult, next to impossible path of trying to find coverage, with general liability underwriters in full retreat, professional liability underwriters looking for double digit increases and cyber underwriters asking very pointed questions about the health system’s risk management.

Elizabeth, a strong young woman with a good support network, would eventually recover from the damage done to her.

Medwell’s relationships with the insurance markets looked like it almost never would. &

Bar-Lessons-Learned---Partner's-Content-V1b

Risk & Insurance® partnered with Allied World to produce this scenario. Below are Allied World’s recommendations on how to prevent the losses presented in the scenario. This perspective is not an editorial opinion of Risk & Insurance.®.

The use of telehealth has exponentially accelerated with the advent of COVID-19. Few health care providers were prepared for this shift. Health care organizations should confirm that Telehealth coverage is included in their Medical Professional, General Liability and Cyber policies, and to what extent. Concerns around Telehealth focus on HIPAA compliance and the internal policies in place to meet the federal and state standards and best practices for privacy and quality care. As states open businesses and the crisis abates, will pre-COVID-19 telehealth policies and regulations once again be enforced?

Risk Management Considerations:

The same ethical and standard of care issues around caring for patients face-to-face in an office apply in telehealth settings:

  • maintain a strong patient-physician relationship;
  • protect patient privacy; and
  • seek the best possible outcome.

Telehealth can create challenges around “informed consent.” It is critical to inform patients of the potential benefits and risks of telehealth (including privacy and security), ensure the use of HIPAA compliant platforms and make sure there is a good level of understanding of the scope of telehealth. Providers must be aware of the regulatory and licensure requirements in the state where the patient is located, as well as those of the state in which they are licensed.

A professional and private environment should be maintained for patient privacy and confidentiality. Best practices must be in place and followed. Medical professionals who engage in telehealth should be fully trained in operating the technology. Patients must also be instructed in its use and provided instructions on what to do if there are technical difficulties.

This case study is for illustrative purposes only and is not intended to be a summary of, and does not in any way vary, the actual coverage available to a policyholder under any insurance policy. Actual coverage for specific claims will be determined by the actual policy language and will be based on the specific facts and circumstances of the claim. Consult your insurance advisors or legal counsel for guidance on your organization’s policies and coverage matters and other issues specific to your organization.

This information is provided as a general overview for agents and brokers. Coverage will be underwritten by an insurance subsidiary of Allied World Assurance Company Holdings, Ltd, a Fairfax company (“Allied World”). Such subsidiaries currently carry an A.M. Best rating of “A” (Excellent), a Moody’s rating of “A3” (Good) and a Standard & Poor’s rating of “A-” (Strong), as applicable. Coverage is offered only through licensed agents and brokers. Actual coverage may vary and is subject to policy language as issued. Coverage may not be available in all jurisdictions. Risk management services are provided or arranged through AWAC Services Company, a member company of Allied World. © 2020 Allied World Assurance Company Holdings, Ltd. All rights reserved.




Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]