Chile: civil commotion or something else?

The protests in Chile, sparked by the rise of subway fares in the capital Santiago, have been well documented in the press. These protests and riots have often been violent, with regrettable loss of human life. There has been damage to public and private property, and looting and vandalism have been widely reported. Many businesses decided to stop production and send workers home to avoid being the subject of aggression.

A state of emergency was declared by President Piñera, which enables the government to restrict freedom of movement and assembly for 15 renewable days. Under the Constitution, serious alteration of the public order or damage (or threat of) to the Nation’s safety and security are the required triggers. A night curfew had been in place as well, but it was lifted very recently.

Although the unrest continues, it appears the worst has now passed, with centre-right Piñera having replaced relevant Cabinet members and promised the left-wing protesters a series of measures minimum wage, pensions, and health insurance cover improvements. Interestingly, the President conceded that "Chile has changed and the government also has to change to deal with these new challenges and times[…] our government has listened to the clear and strong message sent by Chileans, who demand and deserve a more just and supportive country with more opportunities and less privilege"[1]. We discuss what this means for insurance below.

Many insurers have been considering how to apply these events to specific coverages or exclusions that may have application. Whilst the protests in Chile were unexpected, this is nothing new for the market. Lloyd’s has insured riots and civil commotion in Latin American since 1910[2]. There are several variations of strikes, riots, and civil commotion (SRCC) cover.  Under the classic LMA 3092 clause[3], property policies respond to physical damage to, or loss of, tangible property caused, amongst others, by civil commotion, malicious damage, riot, sabotage, and strike. Interestingly, whereas civil commotion only requires a “common purpose or intent” of a “substantial violent uprising” and riot adds that the common purpose “threaten the public peace”, neither go into the perpetrator’s underlying motives, which are irrelevant as long as such motives do not infringe with exclusionary language. 

In contrast, sabotage and terrorism policies are sometimes written as stand-alone cover. Here the underlying motives are the cornerstone of the cover the language often referencing political, religious, ideological or similar purposes including the intention to influence or overthrow any government. Governments are often swift to categorise events as terrorist in nature[4] and deflect attention from the underlying economic conditions which have led to protest, but ultimately the issue is one of fact to be determined in every case.

Whilst conceptualising political violence along a spectrum starting with riot, civil commotion or terrorism can sometimes assist, the reality is that such clear demarcations are often illusory. Such perils often overlap in certain respects and there is no short cut to an analytical approach.

Property policies may exclude sabotage and terrorism. Terrorism and political violence policies tend to cover SRCC, sabotage and terrorism but exclude common theft or looting. There are combinations of political risk, political violence, and property terrorism policies out there and, as always, what is actually covered is down to the specific wording.

Grey areas will surface around the “number of occurrences” (application of deductibles [possibly the incorporation of 72-hour clauses] and limits), whether business interruption cover has been triggered in instances of wide area damage, whether policies incorporate non damage extensions for denial of access/loss of attraction - loss of revenue due to potential customers staying away from businesses subsequent to the event - and if so whether such extensions (often heavily sub-limited) are nevertheless caught by relevant exclusions.

What is certain, from previous experience, is that as soon as things start to normalise the insurance regulator in Chile will be asking insurers to be proactive in adjusting declared losses, of which there will be many. A swift determination of the facts and how policy language applies to those facts will therefore be the primary objective against the backdrop of the strict regulatory regime which applies to the adjustment process in Chile.

We will continue updating the market as developments unfold.

[1] https://www.bbc.com/news/world-latin-america-50207883?intlink_from_url=https://www.bbc.com/news/topics/cvenzmgyg45t/chile&link_location=live-reporting-story

[2] https://www.lloyds.com/about-lloyds/history/innovation-and-unusual-risks/pioneers-of-travel

[3] http://www.lmalloyds.com/LMA/Wordings/LMA3092.aspx

[4] https://www.theguardian.com/commentisfree/2019/oct/24/democracy-chile-protesters-pinera-pinochet