The number of riot incidents that have occurred globally in the five years since 2010 is already double that which occurred in the previous ten years, and these events are happening across both the developed and developing regions of the world. Experience has shown that these events can have a direct, and costly, effect on engineering projects.
A working group of the International Association of Engineering Insurers (IMIA), which included Paul Lowrie of Clyde & Co, have issued a paper which explores strike, riot and civil commotion (SRCC) coverage and raises awareness in relation to the emerging and changing SRCC peril. The IMIA paper can be found here.
SRCC cover is often an afterthought, included by underwriters for little or no extra premium. Whilst construction projects are increasingly looking to extend their coverage to include SRCC, understanding this unpredictable risk can be a challenge.
It is not uncommon for large engineering projects to trigger public controversy. This, combined with the inherent uncertainties of the potential exposure, creates a combustive mixture in terms of insurance coverage.
Policy Wordings and Definitions
In an insurance context, determining where SRCC cover starts and stops is key. For example, determining when an act of malicious damage becomes damages caused by a riot, and when civil commotion develops into civil war may be vital to determining whether a claim is covered.
Not all policies will define the words "strike", "riot" and "civil commotion", and SRCC exclusions are often brief. Whilst the words themselves might be in common usage and familiar to the general public, in many jurisdictions the ordinary meaning of the words have been supplemented or replaced by more complex legal definitions.
Different jurisdictions interpret these terms in different ways. A good example concerns the definition of riot. Under English law twelve people or more are required in order for an incident to be considered a riot. Further, a person will only be guilty of rioting if he intends to use violence or is aware that his conduct may be violent. Under Indian law however, only five people are required in order for there to have been riot and the use of violence is not always required.
Other global differences include the approach taken to the meaning of a strike. Generally, strikes are confined to employment related activities. However, in some countries, for example Azerbaijan, the definition is not limited to employment related activities.
Turning to a definition of civil commotion, English case law suggests that whilst the phrase is used to indicate a stage between a riot and a civil war, it is "probably not capable of any precise definition". What is accepted, however, is that turbulence or tumult is essential. This definition is considerably different from the ordinary (dictionary) meaning of the words which suggests that riot and civil commotion are essentially synonymous.
Engineering underwriters are most used to dealing with tangible risks. Getting to grips with something that is inherently unpredictable and based on human factors may be out of many underwriters' comfort zones.
Consideration ought to be given to a number of characteristics of the project, in particular:
- The project type and location- i.e. nature and size of the activity and site, security, proximity to rural or populated areas.
- Environmental - i.e. project induced pollution, change of landscape, loss of habitat/ wildlife endangerment.
- Economic, social and political - corruption, lack of transparency, land rights disputes, displacement of communities, repression of labour, social unrest.
Given the potential exposures at risk, it is important that engineering underwriters gain a better understanding of the scope of SRCC cover, and how it can be rated. IMIA conclude that the more knowledge an underwriter gains of a risk, the better the pricing exercise can become and the better the needs of the client can be reflected in the Policy.