MARSH RISK MANAGEMENT RESEARCH

ADDRESSING THE RISK OF AN ACTIVE SHOOTER IN RETAIL AND RESTAURANT SETTINGS JUNE 2014

ii ADDRESSING THE RISK OF AN ACTIVE SHOOTER IN RETAIL AND RESTAURANT SETTINGSmarsh.com

1 INTRODUCTION

2 WHAT IS AN ACTIVE SHOOTER?

3 VIOLENCE IN RETAIL AND RESTAURANT WORKPLACES

6 PREPARING FOR A POTENTIAL ACTIVE SHOOTER EVENT

7 POST-EVENT MANAGEMENT

9 INSURANCE CONSIDERATIONS

11 CONCLUSION

CONTENTS

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INTRODUCTION

On a cold winter morning early this year, a young man entered

a clothing store in a shopping mall with a gun and explosives

hidden in his backpack. He shot and killed two store employees,

exited the store, and shot a mall customer in the foot before he

reentered and committed suicide. A police investigation found

“no indication that the shooter knew the victims or targeted them

in any way.”

The incident meets law enforcement’s definition of an “active

shooter” event, part of the growing threat of workplace violence

for retailers and restaurant owners. In a short span and with little

or no warning — and often with no connection to the business —

an active shooter can cause significant harm to employees and

customers and to organizations’ operations and reputations.

Retailers and restaurant owners cannot fully remove such threats,

but they can take action before and after an attack to reduce their

risk, hasten recovery, and mitigate potential damage.

2 ADDRESSING THE RISK OF AN ACTIVE SHOOTER IN RETAIL AND RESTAURANT SETTINGSmarsh.com

Mass shootings in schools, private businesses, and public settings have long made headlines in national media. Many of these shootings are characterized as active shooter events. According to the Department of Homeland Security (DHS): “An Active Shooter is an individual actively engaged in killing or attempting to kill people in a confined and populated area; in most cases, active shooters use firearms(s) and there is no pattern or method to their selection of victims.”

Between 2000 and 2012, 110 active shooter events occurred in the United States, according to the Advanced Law Enforcement Rapid Response Training (ALERRT) Center at Texas State University. Business locations were the most frequent settings for these attacks, followed by schools (see FIGURE 1).

The median number of people shot in these active shooter events was five. In almost half of the attacks (45%), the shooter did not have an apparent connection with the location of the attack — for example, an employee attacking his current or former workplace.

The frequency of active shooter events appears to be increasing (see FIGURE 2). From 2000 to 2008, there were 47 active shooter events, or an average of 5.2 per year; from 2009 to 2012, there were 63 such events, or 15.8 per year. An incident can occur quickly — often in less than 15 minutes — during which time assailants can cause significant harm. In the 15 events in 2012 identified by ALERRT, more than 160 people were shot and 80 were killed.

WHAT IS AN ACTIVE SHOOTER?

BUSINESS

SCHOOL OTHER

OUTDOOR

ACTIVE SHOOTER EVENTS IN THE UNITED STATES, BY LOCATION, 2000 TO 2012

Source: Advanced Law Enforcement Rapid Response Training Center

FIGURE

1

40%

29%

12%

19%

MARSH RISK MANAGEMENT RESEARCH

Fatal shootings of all types — including robberies and targeted attacks by coworkers, relatives, and other personal acquaintances — are a significant risk for employers of all types. But shootings — and, more broadly, workplace violence — are especially concentrated in the retail and restaurant industries.

In 2012, 475 workers were killed in workplace homicides, including 381 in workplace shootings (see FIGURE 3), according to the US Bureau of Labor Statistics. Retailers led all industries, followed by leisure and hospitality companies, in both categories.

This data only includes employees; others can also be injured or killed in attacks. In active shooting incidents, assailants generally seek to do as much damage as possible — shooting at anyone in sight, including customers, employees, security personnel, and law enforcement.

Injuries or deaths can lead to workers’ compensation, general liability, and other casualty insurance claims, in addition to litigation. Retailers and restaurants that are affected by active shooters may also suffer physical property damage, business interruption expenses, and reputational harm.

VIOLENCE IN RETAIL AND RESTAURANT WORKPLACES

FIGURE

2ACTIVE SHOOTER EVENTS IN THE UNITED STATES BY YEAR

Source: Advanced Law Enforcement Rapid Response Training Center

2000 20062002 20082004 20102001 20072003 20092005 2011 2012

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4 ADDRESSING THE RISK OF AN ACTIVE SHOOTER IN RETAIL AND RESTAURANT SETTINGSmarsh.com

Retail executives selected reputational risk as their top risk concern for 2014 in the Excellence in Risk Management survey, published earlier this year by Marsh and RIMS (see FIGURE 4). In a marketplace in which consumers have many choices, a shooting could lead some to worry about their security in a store or restaurant and take their business elsewhere. This may be true even if an attacker has no apparent connection to the location of the shooting.

For chain stores or restaurants, fear could spread across multiple locations or even across the entire enterprise; a shooting or other act of violence at one location could result in a drop in traffic across all locations. Similarly, an entire mall or shopping center could be affected by an attack at an individual store, restaurant, or other tenant. These and other disruptive effects of a potential shooting underscore the need for effective business continuity and crisis management planning, which was also identified by retail executives as a top 10 risk issue for 2014.

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FIGURE

3WORKPLACE HOMICIDES, BY INDUSTRY, 2012

Source: US Bureau of Labor Statistics ALL HOMICIDES SHOOTINGS

FIGURE

4TOP RISK ISSUES FOR 2014 FOR RETAIL EXECUTIVES

Source: Marsh/RIMS Excellence in Risk Management 2014 Survey

1 BRAND/REPUTATION

2 ECONOMIC CONDITIONS

3 SUPPLY CHAIN VULNERABILITY

4 DATA SECURITY/PRIVACY BREACH

5 NATURAL DISASTER

6 COMPETITORS

7 MARKET FORCES

8 LITIGATION OR CLAIMS

9 PRODUCT QUALITY/SERVICE DELIVERY

10 BUSINESS CONTINUITY/CRISIS MANAGEMENT EXECUTION

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SEATTLE

CARSON CITY

RENO

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LOCATIONS OF ACTIVE SHOOTER INCIDENTS IN THE UNITED STATES, 2011 THROUGH MAY 2014

Source: ALERRT, News Reports

RECENT NOTABLE ACTIVE SHOOTER INCIDENTS INVOLVING RETAILERS AND RESTAURANT COMPANIES

ȫ In September 2011, a gunman shot 11 patrons of a restaurant in

Carson City, Nevada, killing four. The shooter then fired shots into

three neighboring businesses without injuring anyone. He later

died from a self-inflicted gunshot wound. Five National Guardsmen,

all eating at the same table at the restaurant, were shot in the

attack; three were killed. However, the police could not identify

any connection between the assailant and either the military or

the restaurant, nor could they determine any apparent motive

for the shooting.

ȫ In May 2012, a gunman shot and killed four restaurant patrons in

a Seattle café and wounded an employee. He later killed another

person in a carjacking before committing suicide as police

approached him. According to news reports, the attacker knew

two of the victims, but had no connection with the others.

ȫ In August 2012, an employee of a supermarket in Middlesex, New

Jersey, returned to the store after his shift had ended and killed two

coworkers. He then committed suicide.

ȫ In December 2012, at a shopping mall in Clackamas, Oregon, a

gunman shot and killed a mall customer and kiosk store owner and

wounded another person before committing suicide. The assailant

had no relationship with any of the victims or known ties to the

shopping mall, according to police, who could not determine a

motive for the attack.

ȫ In January 2014, a gunman shot and killed an employee and

customer at a supermarket in Elkhart, Indiana. The assailant took

his own life after being shot by police arriving on the scene. Police

could not identify any relationship between the shooter and the

supermarket or either victim.

ȫ In January 2014, a gunman shot and killed two clothing store

employees at a mall in Columbia, Maryland. The shooter also

wounded a mall customer before committing suicide. Police could

not identify any connection between the shooter and the victims.

2013

2011

2014

2012

6 ADDRESSING THE RISK OF AN ACTIVE SHOOTER IN RETAIL AND RESTAURANT SETTINGSmarsh.com

Because active shooters frequently choose to attack locations with which they have no connection, no business can consider itself immune to the threat. Retailers and restaurants must be prepared for a potential attack at any time.

Organizations’ emergency plans should include procedures for reporting and reacting to an active shooter event. Such plans should provide clear guidance on what employees should and should not do in an emergency situation. They should be built with input from stakeholders, including risk management and safety officers, human resources, and property or mall management (if applicable). Organizations should also consult with local law enforcement and emergency responders and consider any applicable state and local laws.

Such plans should be specific to the store or restaurant, taking into account unique factors such as the floor plan and footprint of the shopping center or mall. But a significant part of an organization’s response will take place away from the location of a shooting — at headquarters or elsewhere. Chain stores and restaurant companies should have high-level crisis management plans that are integrated with and supportive of location-specific ones.

It is vital that these plans be well-tested ahead of an event, and that all employees understand their specific roles and responsibilities. Unlike some other threats to retailers and restaurants — for example, a hurricane — there will almost certainly be little or no warning before an active shooter event begins; the sound of a gunshot may be the first indication. This means that store or restaurant management and other employees must be ready to act quickly, without reviewing or referring to written instructions or other materials. Periodic tabletop and other exercises — with the involvement of law enforcement and mall personnel, if applicable — can help employees understand their responsibilities and those of others.

Among other topics, emergency plans should address:

PREPARING FOR A POTENTIAL ACTIVE SHOOTER EVENT

Communication: Organizations should have a clear strategy for how employees will communicate with each other, customers, mall security, law enforcement, and corporate headquarters. Phones should be able to dial 911 or have clear emergency dialing instructions so that employees can quickly report events to law enforcement.

Sheltering in place or evacuation: Organizations should determine in advance the strategies for sheltering in place and/or evacuating all employees and customers to another location. For sheltering in place, organizations should identify safe areas within the store or restaurant — for example, a storage room with a locked door. Organizations should also identify at least two evacuation routes, an evacuation meeting location, and a method for accounting for employees after an evacuation. Employees should be trained to encourage customers to follow them to evacuation areas. Law enforcement will then advise when it is safe to leave those areas.

Working with law enforcement: It is important for employees to understand what to expect from law enforcement or other first responders in an emergency situation. The first priority for police is to eliminate the threat presented by the shooter, so they should not be expected to provide medical aid or address any questions until the threat has been addressed. Employees and customers can help law enforcement by remaining quiet and calm — for example, avoiding sudden movements, pointing, or yelling — and following all instructions from first responders. As the area will be a crime scene, employees and customers should be prepared to remain on site for some time following the shooting.

Identifying threats: Employees should be mindful of their surroundings and the potential for active shooter threats. Although assailants often choose an apparently random venue for their attacks, they may target a location with which they have a connection, such as a current or former workplace or the workplace of a spouse or other acquaintance. Organizations should have processes in place through which employees can confidentially report suspicious or potentially violent behavior or domestic concerns to human resources and security departments.

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Like any crisis, an active shooter event can be a defining moment for an organization. How a retailer or restaurant responds to a shooting can threaten or enhance its operations, financial performance, brand, and confidence among investors, customers, employees, and local communities.

As a shooting event or other act of violence is somewhat rare, many organizations may not be prepared to handle the aftermath. And the psychological effects to management, local employees, and others can be devastating. In such a situation, outside advisors — including crisis management experts — can provide specific and objective advice to help an organization return to normal operations. Umbrella and excess liability and other forms of insurance may provide coverage for such services (see “Insurance Considerations” on page 9).

Following a shooting, organizations should focus on assisting employees, customers, and the families of any victims. An organization’s response plan should consider whether and how to provide:

ȫ Counseling to injured and affected employees, customers, and their families.

ȫ Funeral expenses for employees or customers killed.

ȫ Additional support to employees at the workplace, hospitals, and their homes.

ȫ Counseling and other services to employees at nearby locations, or potentially all locations across the organization.

POST-EVENT MANAGEMENT

Effective community and media relations can help organizations manage their reputations, particularly chain stores and restaurants, for which an event at a single location can ripple across the enterprise. An organization may consider proactively sharing information about the shooting and its response with the public, but should do so carefully and in consultation with legal advisors. Organizations should be mindful of law enforcement’s concerns, particularly while an investigation is ongoing, and of the potential for litigation. Ahead of an event, organizations should identify employees who will be authorized to speak with reporters on behalf of the company, and ensure that these employees receive proper media training.

Although it may be unpleasant, it is critical that organizations affected by shootings thoroughly analyze the event and debrief all employees who were present. Detailed discussions or reviews of a shooting could yield valuable lessons. Organizations should make grief counselors available to employees participating in such discussions.

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Organizations’ emergency plans should be built with input from stakeholders, including risk management and safety officers, human resources, property or mall management, and local law enforcement and emergency responders.

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INSURANCE CONSIDERATIONS

If employees, customers, or others are injured or killed in an active shooter event, an organization could face sizable property and casualty insurance claims. It is important for retailers and restaurants to understand what coverage may apply and to take appropriate action to prepare for claims following a shooting. As they take these steps, organizations should include insurance advisors and legal counsel in all discussions, and document all injuries and property damage, including taking photographs to share with their claims teams and with underwriters.

WORKERS’ COMPENSATION AND EMPLOYERS’ LIABILITY

In most cases, workers’ compensation insurance coverage responds in the event of an injury to an employee. Following a shooting, employers should ensure that injured employees receive prompt medical attention, and then notify insurers as soon as possible.

In most states, workers’ compensation statutes include “exclusive remedy” provisions that prevent injured employees from making tort liability claims against their employers, meaning that workers’ compensation benefits are the sole remedy available to these employees. However, there are exceptions to this rule that may apply in active shooter events in some jurisdictions. For example:

ȫ A targeted, personal attack on an employee with a clear motive that is unrelated to the workplace — for example, an attack by a spouse — would generally negate workers’ compensation for that employee because it falls outside of the “scope of employment.” Other employees injured during such an attack, however, would typically be able to file claims.

ȫ Negligence, reckless behavior, and intentional acts by employers could expose them to additional civil litigation under employers’ liability laws. Examples of such behavior include lax security procedures and failure to respond to specific threat warnings ahead of an incident.

ȫ In New York, paralysis and other grave injuries may allow employees to pursue civil litigation in addition to recovering workers’ compensation benefits.

Following a shooting or other act of violence, employees who were not physically injured but witnessed the event may be eligible for workers’ compensation benefits for post-traumatic stress disorder (PTSD) and other psychological effects. Benefits can vary by state. Recent proposals following high-profile shootings in Connecticut and Colorado, for example, have focused on first responders, such as police officers, and other municipal employees, while laws in other states allow private sector workers to file such claims. Restaurants and retailers should work with their advisors to review applicable state workers’ compensation laws and understand how provisions on PTSD and other psychological effects may apply to their employees.

GENERAL LIABILITY

If a customer or other third party is injured or killed in a shooting on the premises of a store or restaurant, a commercial general liability (CGL) policy may respond, providing coverage for medical care, bodily injury, property damage, and defense of lawsuits alleging negligence. This will depend on whether the insured is deemed legally liable for the event.

It is important for retail and restaurant companies to understand potential exceptions where coverage will not apply. As is the case with workers’ compensation, personal attacks against customers or other third parties are often not covered by CGL policies. For example, a store or restaurant likely would not be held liable for an attack against a customer on its premises if the motive for the attack is personal. The business owner could, however, be held liable for injuries to other individuals stemming from such an attack.

10 ADDRESSING THE RISK OF AN ACTIVE SHOOTER IN RETAIL AND RESTAURANT SETTINGSmarsh.com

UMBRELLA AND EXCESS

Depending on the size of a loss, umbrella and excess coverage may be triggered, and could provide support to affected organizations and victims’ families. Many excess insurance policies contain crisis response endorsements that provide funding for reasonable and necessary expenses incurred as a result of a crisis event, such as a shooting. (Other commercial insurance policies, such as directors and officers liability, may contain similar endorsements.) Among other items, these could include expenses for crisis management and public relations assistance, funerals, grief counseling, and travel.

An important consideration for businesses is whether an active shooter event could be deemed an act of terrorism. Under the Terrorism Risk Insurance Act of 2002 and the Terrorism Risk Insurance Program Reauthorization Act of 2007 (TRIPRA), an event must meet certain specific criteria — including causing property and casualty losses of more than $5 million and being part of “an effort to coerce the civilian population of the United States or to influence the policy” of the government — in order to be certified as an act of terrorism. Coverage purchased under TRIPRA will respond only in the event of a certified act.

For insureds that reject TRIPRA coverage, some umbrella and excess insurers have added exclusions for both certified and non-certified acts of terrorism. The definition for non-certified acts can be broad; at least one insurer defines it as any dangerous use of force or violence “undertaken by any group or person, whether or not acting on behalf of or in any connection with any organization, government, power, authority or military force, when the effect is to intimidate, coerce or harm” the government or “the civilian population of a country, state or community.”

An insurer could argue that an active shooter event meets this definition and is thus excluded from coverage under an excess policy. Congress is at this time debating TRIPRA’s future as it is set to expire on December 31, 2014. Depending on what Congress decides, this could become a more prominent issue for insureds affected by such attacks. Policyholders that have rejected TRIPRA coverage should consult with their insurance advisors and counsel to determine whether their excess insurance policies have broad terrorism exclusions, and whether insurers would consider an active shooter event to meet the definition of a non-certified act of terrorism.

PROPERTY AND BUSINESS INTERRUPTION

Following a shooting event, stores and restaurants should record any physical property damage — for example, broken windows and doors or bullet holes in walls or floors — that is typically covered under property insurance policies. Business interruption (BI) insurance coverage may also apply if a store or restaurant is forced to close and its bottom line is affected as a result. The size of such a loss is generally measured by insurers through forensic accounting analyses of an organization’s historic profit and loss for the applicable period of time.

It is important to note that from an insurer’s perspective, the issue is the period of indemnity: How much time does it take after a shooting to regain access to the location, repair physical damage, and complete necessary cleanup? For example, ingress/egress provisions in a BI policy typically provide coverage if police or other civil authorities prevent access; this is normal following a shooting, as the location will be considered a crime scene. Closures forced by others — for example, a mall’s property management team — may be covered, depending on the BI policy’s specific language.

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KEY TAKEAWAYS

This paper has examined a range of risk issues related

to the potential occurrence of an active shooter incident

in a retail or restaurant setting. Among the many

considerations for organizations in addressing such an

event are:

ȫ Planning ahead at all locations, including corporate

headquarters, and ensuring corporate and location

plans are integrated.

ȫ Reviewing insurance coverage and working with

advisors to ensure it is adequate.

ȫ Conducting periodic tabletop and other exercises.

ȫ Ensuring that employees understand their roles and

those of law enforcement.

ȫ Ensuring communication between locations and

key stakeholders, including property management,

law enforcement, corporate headquarters, and the

community.

ȫ Including humanitarian assistance in corporate plans.

ȫ Responding promptly to manage impacts and

consequences effectively.

CONCLUSION

An active shooter represents a terrifying prospect for retailers, restaurant owners, and their employees and customers. Although the threat cannot be eliminated, effective risk management — including crisis management planning and the purchase of insurance — can position organizations to better protect employees and customers during an event, help recover physically and emotionally after an event, and return to normal operations more quickly.

But closures for any other reason generally will be viewed by an insurer as falling outside of the scope of a BI policy. For example, BI coverage generally would not apply if a restaurant chooses to remain closed for a longer period of time to lessen the burden on employees, remodel the location, or install new security features.

Following a loss, property owners should work with their insurance advisors, including their forensic accounting specialists, to measure their financial loss and prepare for claims discussions with insurers. Insureds should provide detailed information in support of their claims. Although the type of documentation will vary by incident, organizations should be prepared to share:

ȫ Detailed monthly profit and loss (operating) statements.

ȫ Sales statistics and forecasts.

ȫ Purchase orders, invoices, proof of payment for any damaged items, and extra/expediting expenses.

ȫ Analysis of the cost of goods and services sold.

12 ADDRESSING THE RISK OF AN ACTIVE SHOOTER IN RETAIL AND RESTAURANT SETTINGSmarsh.com

For more information, contact:

MAC NADELRetail, Wholesale, Food, and Beverage Industry Practice LeaderMarsh+1 203 229 6674mac.d.nadel@marsh.com

TRACY KNIPPENBURG GILLISReputational Risk & Crisis Management, Resiliency, and Response LeaderMarsh Risk Consulting+1 212 345 3886tracy.knippenburggillis@marsh.com

CARL PATCHKERetail, Wholesale, Food, and Beverage Casualty Claims LeaderMarsh+1 212 345 5383carl.patchke@marsh.com

ADDITIONAL RESOURCES

ȫ Excellence in Risk Management XI — Risk Management and Organizational Alignment: A Strategic Focus

ȫ Reputation Risk: A Rising C-Suite Imperative (Oliver Wyman)

ȫ United States Insurance Market Report 2014

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ABOUT MARSH

Marsh is a global leader in insurance broking and risk management. We help clients succeed by defining, designing, and delivering innovative industry-specific solutions that help them effectively manage risk. We have approximately 27,000 colleagues working together to serve clients in more than 100 countries. Marsh is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global team of professional services companies offering clients advice and solutions in the areas of risk, strategy, and human capital. With more than 54,000 employees worldwide and approximately $12 billion in annual revenue, Marsh & McLennan Companies is also the parent company of Guy Carpenter, a global leader in providing risk and reinsurance intermediary services; Mercer, a global leader in talent, health, retirement, and investment consulting; and Oliver Wyman, a global leader in management consulting. Follow Marsh on Twitter@MarshGlobal.

ABOUT THIS REPORT

This report was prepared by Marsh’s Retail, Wholesale, Food, and Beverage Practice, in conjunction with Marsh Risk Consulting, Marsh’s Casualty Practice, and Marsh’s Property Practice, with support from the National Retail Federation and AIG.

ABOUT MARSH’S RETAIL, WHOLESALE, FOOD, AND BEVERAGE PRACTICE

Marsh’s Retail, Wholesale, Food, and Beverage (RWFB) Practice provides world-class risk transfer and mitigation services to help our clients reduce their total cost of risk. Backed by our knowledge of the industry and its key risks, we take a disciplined, consultative approach to build complete risk management solutions that align with each of our clients’ unique risk management needs and risk appetites. Our network of more than 550 colleagues works with companies of all sizes, from midsize organizations to Fortune 100 businesses. Marsh serves:

ȫ Approximately 60% of the top US retailers, including 9 of the top 10 and 17 of the top 20.

ȫ More than 20 of the top 50 convenience stores.

ȫ More than 30 of the top 75 supermarkets in North America.

ȫ Approximately half of the top 100 food and beverage companies in North America.

MARSH IS ONE OF THE MARSH & McLENNAN COMPANIES, TOGETHER WITH GUY CARPENTER, MERCER, AND OLIVER WYMAN.

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