1. Riot, Strike, Civil Commotion & Terrorism
Presented by:
Shahrukh Subzwari
Divisional Head (Actuarial),
State Life Insurance Corporation of Pakistan

2. Agenda This presentation would cover the following topics:
SLIC’s scope of coverage.
Interpretation of various terms.
Rationale of various exclusions.
Treatment of complicated cases.
Some general observations.

3. Accidental Death & Disability Modes of Coverage
Individual Life policies
Basic policy
Accidental Death Benefit (ADB) rider
Accidental Indemnity Benefit (AIB) rider
Group Life policies
Accidental Permanent & Total Disability (PTD) rider

4. Individual Life Policies
Basic Policy
Death by all causes covered except suicide within 13 months of the commencement of risk.
ADB & AIB riders
Exclusions include
War declared or undeclared,
Strikes, riots, civil commotion,
Revolution, any war like operation,
Assault or murder, participation in brawl,
Committing a felony.

5. Group Life Policies Basic policy ADB rider PTD rider
Death by all causes usually covered.
ADB rider
Exclusions include
War or any act of war whether declared or undeclared
Participating in a riot
Committing an assault or felony.
PTD rider
War or any act of war whether declared or undeclared.

6. Other Details of Coverage
Various terms used in the exclusion clause are not defined in the policy contract, which means they are intended to have their usual meanings.
The accident riders are subject to termination
Either on any policy anniversary, at prior notice of thirty days, given either by policyholder or State Life to the other party
Or termination of the basic policy
Or on attainment of age 60 by the life assured
Or if the assured ceases to be a member of the group in case of group coverage.

7. Riot
Unlike many of the terms appearing in standard exclusions, “riot”, has a technical meaning derived from the criminal law.
It is a general principle of insurance law that technical terms of the criminal law shall have the same meaning in insurance law.
Different jurisdictions define “riot” in different ways.

8. Riot Under Pakistan Penal Code it is defined as follows:
Whenever force or violence is used by an unlawful assembly, or by any member thereof, in prosecution of the common object of such assembly, every member of such assembly is guilty of the offence of rioting.
Under Public Order Act 1986 of England it is defined as follows:
Where twelve or more persons who are present together use or threaten unlawful violence for a common purpose and the conduct of them (taken together) is such as would cause a person of reasonable firmness present at the scene to fear for his personal safety, each of the persons using unlawful violence for the common purpose is guilty of riot.

9. Riot
It is immaterial whether or not the twelve or more use or threaten unlawful violence simultaneously.
The common purpose may be inferred from conduct.
No person of reasonable firmness need actually be, or likely to be, present at the scene.
Riot may be committed in private as well as in public places.
If there are fewer than twelve people present, it is described as "Violent Disorder”, for which there is a requirement for at least three persons to use or threaten unlawful violence together. This is defined similarly to riot, but no common purpose is required.

10. Civil Commotion It denotes a stage between a riot and a civil war.
It means an insurrection of the people for general purposes though not amounting to a rebellion.
The element of tumult or turbulence is essential.
If the tumult or disturbance occurs after the criminal act it does not amount to civil commotion.

11. Strike
A strike, is work stoppage caused by the mass refusal of employees to perform work.
A strike usually takes place in response to employee grievances.
Sometimes strikes may become violent.
From a life insurance point of view strikes are significant only if they become violent.

12. Terrorism
Terrorism does not appear in the list of exclusions of State Life per se.
There is considerable disagreement regarding what it means but since this term is not used in SLIC’s policy documents the need to define it is not present.

13. Insurrection and Rebellion
The two terms “ insurrection” and “rebellion” have similar meanings.
Insurrection means a rising of the people in open resistance against established authority with the object of supplanting it.
When an insurrection is more organized or bigger in size it becomes a rebellion.

14. Revolution
In a revolution a state or a political regime is overthrown and thereby transformed by a popular movement in an irregular, extra constitutional and/or violent fashion.
Sometimes a revolution may bring about a fundamental social, economic and/or cultural change, during or soon after the struggle for state power.
A revolution itself rarely lasts for longer than a few weeks or days but it may be preceded by an extended period categorized as civil commotion or insurrection or rebellion etc.

15. Civil War
This phrase is ambiguous and its meaning may vary according to the context
It clearly applies to an armed and organized rebellion under recognizable leadership which has assumed the power of government by making laws and punishing disobedience to them.
However it can also have a wider meaning where
The event is more serious than riot or civil commotion and warlike activities are present
Participants are guilty of high treason rather than merely felony
Some sort of organization is discernible.

16. War There is no precise technical definition of war.
A war may be either declared or undeclared.
In case of an undeclared war the scale of hostilities must be such that there is a general public perception of war.

17. War-like Operations This has a slightly wider meaning than just ‘war’.
According to English case law
It includes such operations as belligerents have recourse to in a war.
Nevertheless the acts must have been done in the context of a war.

18. Objective of the Insurer
An insurance company running on commercial lines desires to:
Avoid financial ruin or a big loss in any single year because the company cannot hope to recoup its losses in the future if it takes a knock out blow in a single year.
Make a reasonable profit or avoid a loss on the average in the long run because the company is in business to earn some profit for its shareholders.

19. Desired Characteristics of Commercially Insurable Risk
A risk is deemed to be commercially insurable if it has the following characteristics:
Many entities are exposed to it independently and desire to protect themselves against it.
It is not too heterogeneous.
Losses produced by it are definite as to cause, time, place and amount.
The expected loss for each insured during the policy period is calculable.
Its incidence is accidental from the view point of the insured.

20. Reasons for excluding Riot, Civil Commotion & Civil War
Losses caused by these perils are not mutually independent. Many insured persons can be affected at the same time resulting in total aggregate losses far beyond the capacity of the insurer.
In affected areas the cost of insurance would be so high that the demand for insurance may be non- existent.
Lack of homogeneity. Exposure to this risk can vary greatly with the location of residence, travelling habits, nature of work of the person.
These risks are heavily dependent upon the political climate and hence almost impossible to quantify. This creates severe pricing difficulties.

21. Some Complicated Cases
Sometimes due to presence of multiple causes it is difficult to determine whether the loss was caused by an excluded peril.
For example a person is a heart patient. He experiences a riotous event and suffers a heart attack. He remains hospitalized for prolonged period and eventually dies due to inability of the heart to recover. Would his death be deemed to be due to a riot?
A number of legal principles are available for deciphering such complicated cases.

22. Guiding Principles for Complicated Cases
The proximate cause principle: “Causa Proxima Non Remota Spectatur”.
This is a legal maxim which means – the immediate not the remote cause is to be regarded.
Cause and effect must be directly related. The cause which is truly proximate is that which is proximate in efficiency.

23. Classification of Causes
Causes may be classified under three headings:
Concurrent
Consecutive in broken sequence
Consecutive in un-broken sequence
In the first and third case the dominant effective cause which is proximate in efficiency is the deciding factor.
In the second case the proximate cause in time would be the deciding factor.

24. Minimization of Complications
To some extant complications and disputes can be minimized if the exclusion clause contains the phrase:
“Directly or indirectly, wholly or partly caused by war, civil war…etc.”
Many cases involving two or more causes can be excluded by use of this phrase. c

25. Some General Observations
Historically riots, strikes, civil commotion and terrorism have caused significantly more losses to general insurers than to life insurers.
As a rough guess an average man made disaster is nearly ten times costlier for general insurers than for life insurers, although due to unpredictable nature of such disasters this ratio could change in the future.
For the present at least this risk is felt more acutely by the general as opposed to the life insurance industry.
In case of terrorism not insuring this risk disrupts the economy, which plays into the hands of the terrorists since their objectives are achieved.
Hence not insuring terrorism is perhaps not a desired response since it may attract even more terrorism.

26. Some General Observations
On the other hand, as the severity of terrorist incidents have increased the insurability of this risk has increasingly been questioned.
Considering that insurance keeps the wheels of the economy well oiled and it is equally in the interest of the State to help contain terrorism, it is increasingly being realized that the State has a stake in helping the insurance industry to resolve this dilemma.
As a result in many countries, such as USA, UK, France and Germany State sponsored re-insurance schemes have been developed to help the insurance industry to cover the risk of terrorism.
It remains to be seen how the insurance industry in this country responds to the challenge posed by man made disasters.

27. Thank you