First Coronavirus, Now Civil Unrest: Be Prepared

Winter 2020/2021 Issue
By: James “Chip” Stuart and David Chmiel
Property damage caused by civil unrest and rioting has been a major concern for building owners during the second half of 2020. Getty Images

Weeks of rioting across the U.S. this summer caused up to $1 billion in property damage.

In June, Trepp, a provider of information and data analytics for the commercial real estate industry, noted that commercial mortgage delinquencies reached 10.32% this summer. That was just shy of the all-time record of 10.34% in July 2012. With retail outlets closed and office spaces emptied because of the COVID-19 pandemic, many businesses are unable to keep up with payments.

Government subsidies helped at first. But as they run out, it’s unclear how long it will take the commercial real estate market to recover. Another wave of COVID-19 cases looms, and many businesses are planning to extend work-from-home through the first half of 2021.

Meanwhile, real estate owners and tenants also need to be aware of the risks associated with civil unrest, such as looting and vandalism.

The Insurance Information Institute (III) estimates that unrest across the U.S. in the aftermath of the death of George Floyd, who died in police custody in Minneapolis in May, exceeded $1 billion, and may be as high as $2 billion. III calls it “the costliest civil disorder in U.S. history.”

In light of recent events, securing the right coverages and taking protective steps can help weather the storms of 2020.

Coverage to Secure

There are a variety of coverages that protect owners and occupants from damage of various kinds, including the effects of civil unrest and riots. For example, typical property coverage reimburses an owner for damages to the property itself, including the costs required to clean up the property and restore it. It is possible to include and insure stock and inventory, as well as tenant improvements. Crime coverage, on the other hand, reimburses a business for financial loss due to burglary and other crimes. And business-interruption coverage – possibly the most useful over the past year — can offer much-needed revenue to keep a business going until it can reopen.

While these coverages are helpful, it’s challenging to protect a business during a pandemic closure. And with protests and civil unrest possibly growing, a closed storefront is likely to be an attractive target to looters and other criminals. It’s also possible that regular coverages won’t kick in, or might be reduced, if a business has been vacant or abandoned.

The core of this issue is the difference between vacant and unoccupied. Legally, vacant means “completely empty.” A vacant space has no one consistently living or working there and it is likely empty of belongings as well. Unoccupied, on the other hand, means the space looks like the owners or occupiers could return at any moment to continue where they left off.

An unoccupied business could be a storefront that is closed, but its security system is running, its lights are on and an employee could have just stepped out to grab lunch. A vacant business may be full of things — office furniture or items for sale, for example — but it is clear that no one is watching over the property.

Steps to Take

First and foremost, organizations that could be affected by civil unrest or rioting should keep employees out of harm’s way by reviewing safety and security procedures, crisis management and business-continuity plans with all employees.

Among other tasks, remove all perishables and valuables from inside the building and secure doors and windows. If looters want to get in, they will.

To date, most carriers are being lenient on claims due to looting and vandalism, so they are not likely to drop coverage because of a claim. On the other hand, due to the overall increase in claims during 2020, the insurance market is hardening, meaning premium increases at renewal. All businesses and property owners can expect 10%-15% premium increases moving forward. These will be much higher for high-risk businesses with recent claims.

Building owners and occupiers must take proactive steps to protect their buildings and businesses during any kind of closure. And when it comes to filing a claim, consider these tips:

Time is of the essence. Do not wait to file the claim, even if another claim was filed recently.

Document it. Collect video footage, photos and any other documentation of the damage. Share it with the broker, claims consultant and adjuster.

Maintain records. Create a detailed inventory of what was taken and its financial value. Note any clean-up and board-up charges. Take account of what is left as well.

Clean up and board up. Clean up as well as possible and board up the storefront to protect what’s left. (This is required by policy conditions.)

Stay in constant contact. Even after the claim has been filed, maintain constant contact with the broker, claims consultant and adjuster. As questions surface for the adjuster, or the claim needs to be updated, being in touch will further facilitate the claims process — and may even result in a faster resolution. Remember, the broker works for the client, and the adjuster works for the insurance company.

The coronavirus pandemic has been unparalleled in its reach. With widespread shelter-in-place orders — and even lockdown in some places — a complete lifestyle shift has occurred. What’s more, uncertainty in the world has led to greater civil unrest than the U.S. has seen in years.

Commercial real estate owners and occupiers can’t afford to sit by the sidelines, hoping to avoid the worst of the looting and vandalism. Future riots could cause even more damage — and taking proactive steps now will go a long way toward protecting not just the property, but the business.

James “Chip” Stuart is the North American real estate practice leader for HUB International. David Chmiel is HUB’s senior vice president and the national director of claims.