Colorado theater shooting raises complex insurance questionsPosted On: Jul. 29, 2012 12:00 AM CST
AURORA, Colo.—The Colorado theater shooting that left 12 dead and dozens injured could tap various types of insurance covering the owner of the movie chain as well as outside entities.
James Holmes, 24, remained in custody last week as the suspect in the July 20 shootings at a Century 16 theater in Aurora, Colo., during a premiere screening of “The Dark Knight Rises.” Dressed in body armor and his hair dyed orange, the suspect in the mass slaying has said little if anything to police since his arrest.
While such an event may trigger commercial property and business interruption policies as well as reputational and crisis management coverage, the brunt of the insurance response will fall under commercial general liability coverage, industry experts say.
Cinemark Holdings Inc., the owner of the theater chain, is self-insured for general liability claims with a cap of $250,000 per occurrence and approximately $2.7 million annually, the Plano, Texas-based company said in a filing with the Securities and Exchange Commission. It also is self-insured for medical claims up to $125,000 and fully insured for workers compensation claims.
Cinemark did not return repeated calls seeking comment.
Janice Ochenkowski, managing director of global risk management for Jones Lang LaSalle Inc. in Chicago, said general liability coverage will respond to third-party claims after a shooting.
“The insurance policies themselves don't have any exclusions for random acts of violence or mass events,” Ms. Ochenkowski said.
Cinemark's $250,000 cap per occurrence is a reasonable retention for a claim, said Alex Levine, New York-based senior placement broker at Willis North America Inc.'s casualty corporate placement team.
“They'll probably have an umbrella program that sits on top. It could be as small as $5 million or as large as hundreds of millions,” Mr. Levine said.
In the Century 16 shootings, general liability coverage likely would indemnify and defend the property owners, said Dan Kleiman, Schaumburg, Ill.-based vp of customer industry segments and head of the real estate segment for Zurich North America Commercial.
Other parties potentially connected to a theater operation, such as a property management company and other contracted third-party providers, likely would have their own general liability coverage that may respond as well, he said.
“From a litigation standpoint, everyone's going to get pulled in,” Mr. Kleiman said, noting that plaintiff attorneys will examine the contracts of multiple parties that may be involved.
While general liability insurance is the first line of defense in claims by victims, other endorsements are available for large, one-time events, said Mary Craig Calkins, a Los Angeles-based partner at Jenner & Block L.L.P. who focuses on insurance recovery for policyholders.
Despite that availability, “I doubt that that's the type of situation that we have at Cinemark because it was a Thursday night—it wasn't the weekend, it wasn't a one-time event,” she said. “Those types of other policies probably would not be available for this type of situation.”
Several insurers offer crisis response coverage that could be part of a company's general liability umbrella coverage or be an endorsement added to other types of coverage, said Tracy Knippenburg Gillis, New York-based leader of Marsh Inc.'s risk consulting and reputational risk and crisis management practice.
“It provides support in terms of getting assistance with crisis management response and it can also include real-time response,” Ms. Knippenburg Gillis said, noting such insurance would cover the cost of providing post-traumatic counseling as well.
That particular endorsement typically is a $50,000 sublimit depending on the insurer, she said.
While coverage for random acts of mass violence is available under general liability policies, it is important to minimize underwriter concerns that could lead to higher pricing, Ms. Ochenkowski said.
“When speaking to underwriters who are evaluating the risk, it's very important to talk about your property's preparedness for the potential of an act of violence and to discuss and explain the security and staff training measures that have been implemented,” she said.
While an incident such as the Aurora theater shooting is unexpected and tragic, victims and their families will seek recovery from multiple parties involved even if there's no liability or no steps that could have been taken to avoid such an attack, Ms. Craig Calkins said.
Still, victims must demonstrate negligence or prove that the danger posed should have been known by the theater and other parties to win such litigation, experts say.
“There may well be an issue as to whether there are a single or multiple occurrences with so many people being injured and the number of deaths,” Ms. Craig Calkins said.
The issue of single or multiple occurrences could affect how Cinemark's retention is applied, Willis' Mr. Levine said.
“If it's $250,000 per injured person, the theater is going to have a lot more self-insured exposure than if it's $250,000 for the incident itself,” Mr. Levine said.