Years ago, a woman walked into a suburban mall in Pennsylvania and started firing a semi-automatic rifle. The individual, who later was ruled criminally insane, killed three and wounded seven. Nonetheless, a jury ruled that the woman's crime was the fault of the shopping mall and that owners were liable to the victims for damages. Although the amount of settlement was never made public, those in the liability insurance industry estimate it was in the millions.
A thousand miles away and several years later, another woman was abducted from a shopping center parking lot and shot; her date was killed. The woman sued the owner of the shopping center and its management. A jury awarded her $2.5 million, believing the plaintiff's expert that there were a high number of prior crimes in the shopping center's parking lot and measures taken by the center were inadequate.
In another abduction and assault case, a jury exonerated the shopping center owner — but the owner spent $800,000 in court costs.
When you add to this scenario threats of terrorism, civil unrest and other events that could threaten scores of patrons in one incident, you have some idea of the nightmares shopping center and mall owners face nowadays — and some of the reasons they seek liability insurance.
Along with the rise in real danger, mall owners face an increased willingness of consumers to sue. That's the assessment of Donald P. Pipino, chairman emeritus of Youngstown, Ohio-based Gallagher Pipino Inc., a wholly owned subsidiary of Arthur J. Gallagher, the nation's fourth-largest public insurance broker that specializes in the shopping center industry. People who are injured in a shopping mall today are looking to recover — regardless of fault.
“As a result, lawsuits are proliferating,” says Pipino. “Coupled with this are juries who are re-defining the degree of care owed to patrons, making it almost impossible for the owner to protect himself. Owners are required to provide a degree of security on their properties that no municipality could hope to comply with and it's getting worse. Juries are sometimes requiring housekeeping standards for parking lots and concourses that would require minute-by-minute surveillance of every inch of space.”
Thus, shopping center owners need adequate liability insurance because they may be liable to the people who frequent their property and may suffer damage or injury. “We have viewed an increasing trend of juries to award multi-million-dollar verdicts for claims arising from wrongful death caused by criminal assaults with allegations of inadequate security and rapes and abductions alleged to be caused by inadequate security,” adds Mary Pipino, president and CEO of Gallagher Pipino. “Therefore the need for insurance becomes mandatory.”
Since September 11 — and also because rates had been falling due to cut- throat competition over the past several years — premiums for liability insurance have skyrocketed. Liability insurance for retail property owners has always been important, but nowadays additional issues are being raised on coverage including terrorism, says Ben Viloski, an attorney with Shopping Center Law Associates in Pittsburgh.
Viloski notes that one of the big issues in the 1990s was hazardous materials and how shopping center and mall owners could be affected. “Say a gasoline company truck runs off the road into the mall, spreading fuel,” says Viloski. “What is the owner going to do? Who cleans it up? What if the company that owns the truck is next to broke or their insurance company is — what happens then?”
In a short time, Viloski says, the retail industry has gone from concerns over items such as hazardous materials to new worries such as terrorism. At the same time, patrons and other parties have become more aggressive. “It used to be that if someone drove their car over a pot hole and blew a tire, they'd say ‘Oops, my bad luck.’ But not any more. They're looking for someone to blame, someone with deep pockets.”
Increasing litigation and the new threat of terrorism has created a double-whammy of sorts, says Frank DeLucia, vice president of Kaye Insurance Associates of New York — part of Hub International, one of the 10 largest insurance brokers in the country.
“Costs have increased, that's one problem, but even obtaining coverage has become a larger problem,” says DeLucia. “One of the concerns today is that insurance companies are limiting their capacity. They don't want to take on that much of the risk. There are fewer players willing to participate, so fewer companies are assuming more of the risk and pricing is reflecting that.”
Premiums for liability insurance have increased dramatically and the added costs for the new threat of terrorism isn't helping. “Terrorism insurance is another area,” says DeLucia. “It depends on where the shopping center is located, if it's well-known and if the insurance companies consider it a terrorism target. Sometimes owners must buy a separate terrorism policy and that dramatically increases premiums.”
DeLucia says the liability insurance market for shopping centers is tough right now but may change in the next 18-24 months. “It'll be a hard market for a while and then it will change,” he continues. “In the 1980s, it was a difficult market and then all of a sudden a couple of companies were willing to gamble and started to write more insurance. Somehow the market will eventually turn.”
In the meantime, some retail owners are deciding to take more risks on their own by simply buying less coverage. Still others are opting to insure themselves. However, say those in the industry, both strategies can be extremely risky. For instance, a retail center might set up insurance units that cover losses to a certain level, putting aside money should claims need to be settled. This may be a dangerous practice, particularly with jury awards rising. One broker likened it to playing Russian roulette.
“We know of one owner who has a number of properties and does not have liability insurance,” says DeLucia. “He says he can't afford the $400,000 premium for liability. We're trying to help him, but some people have no choice. Some owners have decided to take a big deductible, and take care of the first $15,000 or so in claims themselves. People who do that think they're clear for the year. But liability claims take years. You need legal counsel and before you know it, you've spent the savings you thought you had.”
Even so, while costs for liability insurance for shopping centers and malls have risen dramatically, the vast majority of retail owners feel they have no choice but to pay the piper. To do otherwise, they believe, would be foolhardy. In fact, in light of the global situation, owners should reexamine their individual coverage, notes Michael Reiter, director of Young Adjustment Co. Inc., of Blue Bell, Pa. — one of the United States' largest public adjusting firms that has been assisting with claim settlements for more than 80 years. “It is better to know what type of insurance you have prior to standing in a burnt shell of a ruin and hearing the words, ‘you're not covered for that’,” Reiter says. “Protect yourself now. It is too late later.”
Searching for more liability insurance?
Or need to renew a policy?
Experts offer some helpful hints:
Seek specialists
In these days of micro specialization, make sure your broker has some specialized expertise in the shopping center industry. There are many aspects of general liability that are unique to the shopping center industry such as reciprocal easement agreements, lease indemnity provisions and so forth. Select a broker who understands the industry.
Examine their expertise
Look for a broker that has a staff with depth and continuity. “You cannot afford to rely on a broker that cannot provide a sufficiently large staff to back up the account in the event of the incapacity of one or two of your key players,” stresses Don Pipino of Gallagher Pipino.
Investigate the insurers
Consider the educational credentials of your brokers. There are a number of professional courses of study and designations available. Check to see whether they have taken such educational activities. Be sure your broker staff has credentials such as Certified Property and Casualty Underwriter and/or Associate in Risk Management.
Review your insurance at least once a year with your broker or agent
Either before or right after you receive the policy, have your coverage reviewed by a competent professional such as a licensed qualified public adjuster who has had experience in shopping centers, says Reiter of Young Adjustment.
Deal with brokers attuned with the market
“Make sure the broker has alternatives for you,” says DeLucia of Kaye Insurance. “If they don't have any alternative for you, change brokers.”
Constantly assess risk
“Set up a risk management team to assess the situation,” says Viloski of Shopping Center Law Associates. “If the owner is large enough, perhaps they might set up an in-house review team.”