Terrorism, Strike, Riot or Civil Commotion?

Terrorism prosecutions have left businesses without insurance and the government scrambling for a compromise

Photo: Siam Square retailers salvage goods from their shop adjacent to the
Siam Theatre gutted by fire on May 19, 2010 (Business Report Thailand)

"Proposed test cases for affected businesses outside the ‘red zone’ may yet provide precedents, but liability remains contentious." 

Following events leading up to the military crack down of May 19 that left 38 buildings damaged or gutted  across Bangkok’s central business districts, the government has become embroiled in a legal dispute with insurance companies, international re-insurers and unrest-affected businesses. A dispute that has made little progress in four months and seems unlikely to be resolved in the coming year, or years.

With acts or incidents of terrorism specifically excluded from standard insurance policies in Thailand without the purchase of additional coverage, businesses have found their claims for compensation denied by insurance companies on the instruction of their international re-insurers - backers of over 90 per cent of the Thai insurance industry.

This has thrown the government into a protracted fight to try and win, or force, insurance companies to pay compensation to businesses. Sympathetic, but citing Thai law, the insurance market is standing firm.

Stemming from Abhisit’s first reference to terrorism two days after armed ‘black shirts’ confronted Thai troops on April 10th, public disputes have arisen on whether the incidences should in fact be defined as terrorism at all.

Without the government’s cry, incidences would have been narrowed down to standard definitions of strike, riot or civil commotion. Under standard Industrial All Risks (IAR) policy, incidences of strike and riot are covered, while civil commotion is excluded. However, many policies have a civil commotion extension, which means they might also be covered. Yet, in a further twist, this can also exclude ‘uprisings against government.’ 

Not all companies would have IAR policies, but with Thai insurance companies reined in by their international backers, the chance of a negotiated settlement remains remote and insurers say they are still facing pressure by the government to pay. 

Chairing a panel to provide assistance to unrest-hit businesses and individuals, Prime Minister’s Secretary General Korbsak Sabhavasu accused insurance companies in July of exploiting the ambiguity of the term terrorism to avoid payments. Sentiments that Secretary-General Komkai Busaranot of the Office of the Insurance Commission (OIC), the state regulatory body under the Ministry of Finance, seemed to support when prompting businesses to seek compensation from insurance companies through the Right and Freedom Protection Department. Industry insiders also speak of being called to meetings at the OIC - whose stated priority is to compensate unrest hit businesses - with discussions left off the record.

Resolute, Thai insurance companies say they are merely obeying the law and section 33.10 of the Thai Insurance Act 2535 BE (1992 CE) forbids the payment of any benefits outside of a policy. 

The deadlock has left even partially state-backed insurers hanging. Dhipaya Insurance, which insures state enterprises, has reportedly been unable to meet claims by the Metropolitan Electricity Authority, following objections by its re-insurers. In contrast to Central Pattana’s terrorism-insured Central World complex that is currently being rebuilt, the MEA building on Rama IV remains a charred shell.

The cabinet, in an effort to break the deadlock, has proposed tax breaks for the insurance companies, enabling them to write off payments that they make to claimants. Sound in theory, but the precedent in future liabilities leaves the industry wary of such an initiative and though ongoing, the cabinet has yet to pass the necessary resolution.

Against this, Thailand’s insurance industry is projected to grow 18 per cent this year. Within the industry, companies paint a different picture with domestic and foreign re-insurers creating cash reserves in case of future court rulings against them. 

The nature of the incidents can now only be decided by the Thai courts, but faced with damage to its credibility and the ongoing prosecution of red shirt leaders arrested in May, an about face by the government on the incidents’ definitions looks unlikely and the time line of such a ruling is hotly disputed. 

Government officials say that Administrative and Consumer Courts can rule on a case-by-case basis, which could then be settled within a year. The insurance industry, however, speaks only of the Supreme Court with a timeframe of seven years or more speculated in conversations with Business Report Thailand. How this process may be affected by the progress of ongoing separate criminal trials, or indeed a change in administration that might seek to quash or overturn charges of terrorism, remains a wildcard factor.

Proposed test cases for affected businesses outside the ‘red zone’ may yet provide precedents, but liability remains contentious. Though some facilities such as Central World were deliberately targeted - whether by angry protesters or on specific instructions remains uncertain - others may yet have been caught up in opportunistic destruction.  Moreover, in the final military assault, was all damage to buildings caused by red shirts or their sympathizers?  

Four months after the incidents government officials admit, “All the facts are not yet clear.”

Though larger businesses and corporations whose properties were damaged or destroyed on May 19th, accounting for approximately THB 12bn of the THB 15bn (USD 1.2bn) in estimated damages, have terrorism or all risks insurance, the current impasse has predictably hit smaller tenant businesses hardest. The government reported 403 insurances of THB 500,000 or less not covered for terrorism in June and the its committees have approved funds worth THB 8.6 bn to compensate businesses affected by the attacks in May. 

Whilst the government has appealed to insurers’ sense of national reconciliation to expedite payments, many smaller insurance firms cannot afford the outlays without government or re-insurance backing. Larger Thai firms, faced with the prospect of potentially losing large premiums and clients, may yet decide to cover some of the claims. Legally, however, these could not be disbursed under existing policies and the firms would need to absorb the loss.

That these incidents are largely unprecedented in Thailand and that terrorism insurance only debuted on the market six years ago goes some way to revealing the legal issues behind the impasse. The ramifications are not just immediate. Insurance premiums for terrorism coverage in Thailand is now reportedly two to three percent of the insured properties’ value. Globally, the market average is 0.5 per cent. Other international re-insurers are refusing to back new policies until the current issue and legal definition is resolved.  

This poses its own problems. 

Quizzed whether insurers are expecting further violence and claims, one country manager’s response - “Definitely" - was unequivocal.  Yet it seems unlikely that this will be on a par with May’s events. 

Sworn off large scale confrontations, the Red Shirts’ demonstration on September 19th, marking four years since the coup and four months since the crackdown, though large and noisy, was over by 8pm. 

But as explosions continue across Bangkok, the government has little cause to change its views leaving smaller unrest-affected businesses dependent on government hand outs and loans. BRT

This article was first published in Business Report Thailand, Issue 1, October 2010