I couldn’t help myself with Halloween right around the corner to take a moment and
ponder the question of whether buildings that are “haunted” are covered by insurance. As I started to think through the question, a lot of thoughts popped into my mind—many of which were weird but worth exploring. Some of the questions that came to mind were:
1. Is there any coverage for a commercial building that is “haunted” and if so how would the coverage apply to either the owner or the tenant of the “haunted” building?
2. If there is coverage, would there also be coverage activated by the Business Income form for either the tenant or building owner
3. Is there anything in the lease that would allow a tenant out of their lease if the building were haunted and their business was being directly affected by the fact they were losing customers?
4. Is there any coverage on a Homeowners Policy if the home is considered “haunted”?
5. Lastly, there is the question about coverage for “haunted” buildings/houses that are fabricated as an attraction. This could be a yearlong attraction or one that is specifically set up for the Halloween period.
I actually began thinking about this earlier this year when I visited my daughter in Los Gatos. We were on the main street, Santa Cruz Ave, and there was a mansion built in 1891 that was in 1917 was turned into a funeral home. My daughter told me the building was vacant because it was haunted. Three restaurants had opened in the home including the Chart House, Charts and the last one, Trevese; all of which have closed. For the last ten years there have been ghost sightings primarily with a little girl appearing and “one ghost apparently likes to run up a huge bar tab in the middle of the night on the cash register and turn the bottles around”. Curiously enough another restaurant opened up there about 8 months ago named Palacio. Sounds like a fun dining experience to me! (http://knol.google.com/k/will-johnson/haunted-los-gatos-the-funeral-home/4hmquk6fx4gu/346#)
Right after that trip I was having dinner with my friend in Yuma, Arizona and she pointed out the Hotel Lee that was vacant because they had been experiencing “paranormal” activity since 1917. Guests reported hearing strange voices, “someone” entering their locked room during the night and shook them or pulled the linens from the bed; an apparition of a young girl spotted carrying towels in the Lee’s upstairs halls. The hotel had been opened and closed at least three times over the years and opened last in the early 2000’s and closed again in 2007. Apparently the building is now on the national historic registry. (http://www.waymarking.com/waymarks/WM42KW_The_Lee_Hotel_Yuma_Arizona)
Such stories come from all over the world such as the Wai’alae Drive In in Kahala, Hawaii that was closed due to local legend that a ghost of a faceless woman with long hair haunted the ladies’ room. The Wai’alae was located near an old cemetery
So what does this have to do with insurance? All of the buildings are vacant due to “ghosts”.
1. Is there coverage for the building itself due to ghosts being present and forcing it to be closed down?
The problem with all of these examples is that the ghosts did no “damage” to the buildings. Basically they scared off the customers. Another issue, however, related the buildings is that there needs to be insurance maintained even though they are vacant to protect the interests of the insureds (owners, bank) and the policy has to be written in such a way to respond to losses on long-term vacancy. Vandalism is very common in these types of buildings often by curious people who break in to see if they can spot a ghost or two. Vandalism is typically excluded on vacant buildings. An example was a building, known as the Harlaxton House, where a couple went around the back of the building and forced open a window which caused the double oak window frame to collapse inside the building, causing $6700.00 damage. This would be covered if the building insurance included coverage while vacant.
2. Is there a coverage for the loss of income from the tenant or loss of rents from the owners standpoint due to it having to be closed?
For the same reason. Most business income policies respond to “damage” to premises that then results in a loss of income or rents. In these cases there was no damage.
Now let’s change this up a bit with more destructive ghosts that are actually linked to damage to the buildings.
1. Some ghosts like to throw things around and if they do damage to the building that is over the policy deductible this should be covered by insurance. (No “ghost” exclusion on a Special Form Policy.
2. Ghosts also like to start fires and that is a “good” thing when it comes to an insurance policy paying a claim.
Most claims I have become aware of in this area relate to Homes where we could find coverage under the Homeowners Policy or a Dwelling Form. Fire is the most basic of perils and again there is no “ghost” exclusion. A case in point:
The claim occurred in October, 1988 as reported in the Chicago Tribune. The home was vacant since April 12, 1981 when the owners moved out on the advice of local police and fire officials. In all there were 26 separate incidents, 11 of which were witnessed by either police or fire investigators. There had been three fires in the home that month. Arson investigators ruled out any wrongdoing and in a period of 7 ½ months investigated arson, pranks, natural gas, methane gas, sewer gas and faulty electrical system and concluded there was no logical answer to the recurrent fires. The only “explanation” was paranormal activity or ghosts. Reason or no, Travelers Insurance Co. agreed it would pay off on the property if the house was torn down. The insurance settlement did not cover the cost of the house but the owners were left with no alternative but to bulldoze their home. http://articles.chicagotribune.com/1988-10-16/news/8802070618_1_gas-leak-third-fire-mysterious-fires
3. Some ghosts like to “hurt” customers which would be covered on the CGL
Accounts of people being physically injured by entities aren’t common, but they do exist — the entity usually manifests a furious energy that blasts people off their feet, causing them to bounce off walls. Injuries can also occur reacting to an entity; a trip and fall or taking a tumble down a flight of stairs may be accidental, but the trigger was the paranormal event. Entities have been known to trip or push people. When these attacks occur, serious injury is sometimes only narrowly avoided. There are reports too numerous to list of people being struck by flying objects that were propelled through the air by unseen hands. http://www.netplaces.com/ghost-hunting/spirit-help-and-psychic-shields/protection-from-physical-attack.htm
The answers to this point as to whether there was “direct” coverage hinges on damage and the exclusion of any causation that would otherwise have been excluded. From a liability perspective, the CGL has a very broad response to bodily injury that occurs on the insured’s premises.
Now to our next brief discussion on how would a lease respond to allowing a tenant to cancel their lease if they were unable to operate due to “ghosts”. Needless to say, every lease is different. In general terms if we were looking at a lease on an apartment or house we would look at the “Habitability Clause”. For a commercial risk, such as a restaurant, we would look for a comparable clause and to language providing that the premises “have to be fit for the intended purpose” or the insured can vacate the lease. So, clearly in the cause of “ghosts” disrupting a business there are escape mechanisms that can be explored in the lease.
The last discussion in this article has to do with a much more basic and perhaps “real” insurance question relating to haunted houses that are created as attractions. They could be attractions that are open all year round or ones specifically created for the holiday season perhaps at a park, church, school or put on by a group to raise funds. The confusion comes because very few insurance agents sell special-event coverage. If your church or civic organization plans to run a haunted house for the next Halloween, the terror should come from the witches and axe murderers lurking inside — not from potential liability to your organization. http://www.castlerockagency.com/haunted-house-insurance.html There are companies that specialize in these types of special event policies. There are underwriting considerations for such events that companies would like to have avoided such as: stunts that create increased hazard, pyrotechnics, open Flames, live animals, trap doors, etc.
Some of the coverages that are included in these special event programs include:
• General Liability
• Liquor Liability
• Automobile Liability and Physical Damage
• Third Party Property Damage
• Rented/Owned Equipment, Property, Props, Sets and Wardrobe
• Participants & Spectators Medical
As all of you in the community read this article you have already celebrated your 2011 Halloween and we hope it was a safe and fun event. Look to our upcoming newsletters for more articles on the “weird and curious” aspects of insurance.