Boston Bombing

Running for Cover

Because there was no official "terrorism" certification, policy exclusions were not triggered.
By: | December 1, 2013 • 6 min read

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

Exclusive | Hank Greenberg on China Trade, Starr’s Rapid Growth and 100th, Spitzer, Schneiderman and More

In a robust and frank conversation, the insurance legend provides unique insights into global trade, his past battles and what the future holds for the industry and his company.
By: | October 12, 2018 • 12 min read

In 1960, Maurice “Hank” Greenberg was hired as a vice president of C.V. Starr & Co. At age 35, he had already accomplished a great deal.

He served his country as part of the Allied Forces that stormed the beaches at Normandy and liberated the Nazi death camps. He fought again during the Korean War, earning a Bronze Star. He held a law degree from New York Law School.

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Now he was ready to make his mark on the business world.

Even C.V. Starr himself — who hired Mr. Greenberg and later hand-picked him as the successor to the company he founded in Shanghai in 1919 — could not have imagined what a mark it would be.

Mr. Greenberg began to build AIG as a Starr subsidiary, then in 1969, he took it public. The company would, at its peak, achieve a market cap of some $180 billion and cement its place as the largest insurance and financial services company in history.

This month, Mr. Greenberg travels to China to celebrate the 100th anniversary of C.V. Starr & Co. That visit occurs at a prickly time in U.S.-Sino relations, as the Trump administration levies tariffs on hundreds of billions of dollars in Chinese goods and China retaliates.

In September, Risk & Insurance® sat down with Mr. Greenberg in his Park Avenue office to hear his thoughts on the centennial of C.V. Starr, the dynamics of U.S. trade relationships with China and the future of the U.S. insurance industry as it faces the challenges of technology development and talent recruitment and retention, among many others. What follows is an edited transcript of that discussion.


R&I: One hundred years is quite an impressive milestone for any company. Celebrating the anniversary in China signifies the importance and longevity of that relationship. Can you tell us more about C.V. Starr’s history with China?

Hank Greenberg: We have a long history in China. I first went there in 1975. There was little there, but I had business throughout Asia, and I stopped there all the time. I’d stop there a couple of times a year and build relationships.

When I first started visiting China, there was only one state-owned insurance company there, PICC (the People’s Insurance Company of China); it was tiny at the time. We helped them to grow.

I also received the first foreign life insurance license in China, for AIA (The American International Assurance Co.). To date, there has been no other foreign life insurance company in China. It took me 20 years of hard work to get that license.

We also introduced an agency system in China. They had none. Their life company employees would get a salary whether they sold something or not. With the agency system of course you get paid a commission if you sell something. Once that agency system was installed, it went on to create more than a million jobs.

R&I: So Starr’s success has meant success for the Chinese insurance industry as well.

Hank Greenberg: That’s partly why we’re going to be celebrating that anniversary there next month. That celebration will occur alongside that of IBLAC (International Business Leaders’ Advisory Council), an international business advisory group that was put together when Zhu Rongji was the mayor of Shanghai [Zhu is since retired from public life]. He asked me to start that to attract foreign companies to invest in Shanghai.

“It turns out that it is harder [for China] to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

Shanghai and China in general were just coming out of the doldrums then; there was a lack of foreign investment. Zhu asked me to chair IBLAC and to help get it started, which I did. I served as chairman of that group for a couple of terms. I am still a part of that board, and it will be celebrating its 30th anniversary along with our 100th anniversary.

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We have a good relationship with China, and we’re candid as you can tell from the op-ed I published in the Wall Street Journal. I’m told that my op-ed was received quite well in China, by both Chinese companies and foreign companies doing business there.

On August 29, Mr. Greenberg published an opinion piece in the WSJ reminding Chinese leaders of the productive history of U.S.-Sino relations and suggesting that Chinese leaders take pragmatic steps to ease trade tensions with the U.S.

R&I: What’s your outlook on current trade relations between the U.S. and China?

Hank Greenberg: As to the current environment, when you are in negotiations, every leader negotiates differently.

President Trump is negotiating based on his well-known approach. What’s different now is that President Xi (Jinping, General Secretary of the Communist Party of China) made himself the emperor. All the past presidents in China before the revolution had two terms. He’s there for life, which makes things much more difficult.

R&I: Sure does. You’ve got a one- or two-term president talking to somebody who can wait it out. It’s definitely unique.

Hank Greenberg: So, clearly a lot of change is going on in China. Some of it is good. But as I said in the op-ed, China needs to be treated like the second largest economy in the world, which it is. And it will be the number one economy in the world in not too many years. That means that you can’t use the same terms of trade that you did 25 or 30 years ago.

They want to have access to our market and other markets. Fine, but you have to have reciprocity, and they have not been very good at that.

R&I: What stands in the way of that happening?

Hank Greenberg: I think there are several substantial challenges. One, their structure makes it very difficult. They have a senior official, a regulator, who runs a division within the government for insurance. He keeps that job as long as he does what leadership wants him to do. He may not be sure what they want him to do.

For example, the president made a speech many months ago saying they are going to open up banking, insurance and a couple of additional sectors to foreign investment; nothing happened.

The reason was that the head of that division got changed. A new administrator came in who was not sure what the president wanted so he did nothing. Time went on and the international community said, “Wait a minute, you promised that you were going to do that and you didn’t do that.”

So the structure is such that it is very difficult. China can’t react as fast as it should. That will change, but it is going to take time.

R&I: That’s interesting, because during the financial crisis in 2008 there was talk that China, given their more centralized authority, could react more quickly, not less quickly.

Hank Greenberg: It turns out that it is harder to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.

R&I: Obviously, you have a very unique perspective and experience in China. For American companies coming to China, what are some of the current challenges?

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Hank Greenberg: Well, they very much want to do business in China. That’s due to the sheer size of the country, at 1.4 billion people. It’s a very big market and not just for insurance companies. It’s a whole range of companies that would like to have access to China as easily as Chinese companies have access to the United States. As I said previously, that has to be resolved.

It’s not going to be easy, because China has a history of not being treated well by other countries. The U.S. has been pretty good in that way. We haven’t taken advantage of China.

R&I: Your op-ed was very enlightening on that topic.

Hank Greenberg: President Xi wants to rebuild the “middle kingdom,” to what China was, a great country. Part of that was his takeover of the South China Sea rock islands during the Obama Administration; we did nothing. It’s a little late now to try and do something. They promised they would never militarize those islands. Then they did. That’s a real problem in Southern Asia. The other countries in that region are not happy about that.

R&I: One thing that has differentiated your company is that it is not a public company, and it is not a mutual company. We think you’re the only large insurance company with that structure at that scale. What advantages does that give you?

Hank Greenberg: Two things. First of all, we’re more than an insurance company. We have the traditional investment unit with the insurance company. Then we have a separate investment unit that we started, which is very successful. So we have a source of income that is diverse. We don’t have to underwrite business that is going to lose a lot of money. Not knowingly anyway.

R&I: And that’s because you are a private company?

Hank Greenberg: Yes. We attract a different type of person in a private company.

R&I: Do you think that enables you to react more quickly?

Hank Greenberg: Absolutely. When we left AIG there were three of us. Myself, Howie Smith and Ed Matthews. Howie used to run the internal financials and Ed Matthews was the investment guy coming out of Morgan Stanley when I was putting AIG together. We started with three people and now we have 3,500 and growing.

“I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

R&I:  You being forced to leave AIG in 2005 really was an injustice, by the way. AIG wouldn’t have been in the position it was in 2008 if you had still been there.

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Hank Greenberg: Absolutely not. We had all the right things in place. We met with the financial services division once a day every day to make sure they stuck to what they were supposed to do. Even Hank Paulson, the Secretary of Treasury, sat on the stand during my trial and said that if I’d been at the company, it would not have imploded the way it did.

R&I: And that fateful decision the AIG board made really affected the course of the country.

Hank Greenberg: So many people lost all of their net worth. The new management was taking on billions of dollars’ worth of risk with no collateral. They had decimated the internal risk management controls. And the government takeover of the company when the financial crisis blew up was grossly unfair.

From the time it went public, AIG’s value had increased from $300 million to $180 billion. Thanks to Eliot Spitzer, it’s now worth a fraction of that. His was a gross misuse of the Martin Act. It gives the Attorney General the power to investigate without probable cause and bring fraud charges without having to prove intent. Only in New York does the law grant the AG that much power.

R&I: It’s especially frustrating when you consider the quality of his own character, and the scandal he was involved in.

In early 2008, Spitzer was caught on a federal wiretap arranging a meeting with a prostitute at a Washington Hotel and resigned shortly thereafter.

Hank Greenberg: Yes. And it’s been successive. Look at Eric Schneiderman. He resigned earlier this year when it came out that he had abused several women. And this was after he came out so strongly against other men accused of the same thing. To me it demonstrates hypocrisy and abuse of power.

Schneiderman followed in Spitzer’s footsteps in leveraging the Martin Act against numerous corporations to generate multi-billion dollar settlements.

R&I: Starr, however, continues to thrive. You said you’re at 3,500 people and still growing. As you continue to expand, how do you deal with the challenge of attracting talent?

Hank Greenberg: We did something last week.

On September 16th, St. John’s University announced the largest gift in its 148-year history. The Starr Foundation donated $15 million to the school, establishing the Maurice R. Greenberg Leadership Initiative at St. John’s School of Risk Management, Insurance and Actuarial Science.

Hank Greenberg: We have recruited from St. John’s for many, many years. These are young people who want to be in the insurance industry. They don’t get into it by accident. They study to become proficient in this and we have recruited some very qualified individuals from that school. But we also recruit from many other universities. On the investment side, outside of the insurance industry, we also recruit from Wall Street.

R&I: We’re very interested in how you and other leaders in this industry view technology and how they’re going to use it.

Hank Greenberg: I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.

R&I: So as the pre-eminent leader of the insurance industry, what do you see in terms of where insurance is now an where it’s going?

Hank Greenberg: The country and the world will always need insurance. That doesn’t mean that what we have today is what we’re going to have 25 years from now.

How quickly the change comes and how far it will go will depend on individual companies and individual countries. Some will be more brave than others. But change will take place, there is no doubt about it.

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More will go on in space, there is no question about that. We’re involved in it right now as an insurance company, and it will get broader.

One of the things you have to worry about is it’s now a nuclear world. It’s a more dangerous world. And again, we have to find some way to deal with that.

So, change is inevitable. You need people who can deal with change.

R&I:  Is there anything else, Mr. Greenberg, you want to comment on?

Hank Greenberg: I think I’ve covered it. &

The R&I Editorial Team can be reached at [email protected]