Avengers Assemble… An Insurance Bailout

Newspapers report destruction in NY

Newspapers report death and destruction in NYC. Photo from Daredevil.

We on the internet have talked ad nauseum about the destruction caused by superheroes in movies, see, e.g., [1][2][3][4][5][6]. Let’s do that again. But let’s look at the financial implications of that destruction beyond the simple dollar values of loss of property. Specifically focusing on the Marvel Cinematic Universe [MCU]. Before continuing, one important point about the MCU is that it takes place within a world functioning economically much like our world.

The Destruction

For point of reference, the Chitauri Invasion of Manhattan in The Avengers would cause an approximately $160 Billion in damage. This includes property damage, cleanup costs, and loss of life. It does not include the long term health effects of those in Midtown Manhattan, à la the health effects arising from the September 11 attacks.

In the MCU timeline, from 2010 through the time of this writing, there have been: 3 battles in New York City (The Incredible Hulk, Iron Man 2, and The Avengers), a battle in London (Thor: The Dark World), a battle in Johannesburg (Avengers: Age of Ultron), a battle in Seoul (Avengers: Age of Ultron), the destruction of Sokovia (Avengers: Age of Ultron), the destruction of three major economic centers — 2 corporate headquarters and 1 oil rig (Iron Man, Iron Man 3, and Ant-Man), and countless destruction of military resources (Iron Man [an F22 fighter jet], The Incredible Hulk [multiple pieces of equipment], The Avengers [heavily damaged helicarrier], Iron Man 3 [Air Force One], Captain America: The Winter Soldier [lots!]), amongst other human and infrastructure costs. This does not even include the various television shows within the MCU (Agents of S.H.I.E.L.D., Daredevil, Jessica Jones).

Paying for Damages

With damages over a 5 year period valuing well into the hundreds of billions on top of the usual claims, it is unlikely that the major insurance companies could survive. In 2008, the US government bailed out the insurance giant AIG to the tune of $180 Billion. Thus once losses reached into the hundreds of billions, which was greatly surpassed by the time of the events of Ant-Man, all insurance companies would need to be bailed out!

However, the insurance companies would fight to minimize their exposure. Surrounding 9/11, insurance companies went to court over the question of if the terrorist attack wereone or two events. Following Hurricane Katrina, insurance companies went to court to avoid paying out for damages. In fact, Hurricane Katrina has led to the tightening of insurance policy wording. In the MCU there would likely be very important court cases where the insurance companies would argue that the damages were caused by an act of war, an act of terrorism, and/or an act of God. Additionally, win or lose, it is quite possible that the superheroes could be sued for liability in the destruction.

Thoughts on the Court Cases

After brief discussion with lawyers, here are some thoughts:

  • An act of war is well defined in case law. War requires the engagement of (quasi-)sovereign nations and insurrection must have an intent to overthrow a lawful government. Under such a criteria the only cases, though expensive, that may qualify are from The Avengers and Captain America: The Winter Soldier.
    • In The Avengers, neither Loki nor the Chitauri ever expressed intentions to overthrow a government while surrounded by someone who could testify in court. Loki, in captivity in Asgard watched by his brother Thor, would also not be available to testify in open court as to his plans. Though Loki states his intentions to rule over Earth to his brother Thor, the closest statements that Loki makes to someone who could testify in open court are claims of wanting to free humanity from freedom and telling a gathering of people that kneeling is easier and their natural state. As the Chitauri invasion occurs in New York City, which is not the center of any government, the purpose of the invasion could be contested in court, and with good lawyers, could be decided either way.
    • In Captain America: The Winter Soldier, it is our heroes — Captain America, Black Widow, Falcon, and Nick Fury — who express interest in taking down the quasi-government entity of S.H.I.E.L.D.. However, since four soldiers generally would not be considered an entire army, and as they express no wish to rule in the place of S.H.I.E.L.D. (instead releasing S.H.I.E.L.D.’s secure documents to the internet), this also may not ultimately count as an act of war.
  • As per the Terrorism Risk Insurance Act, an act of terrorism would need to be stated by the US government (when occurring within United States jurisdiction) as a terrorist act. To qualify, the attack must be part of a scheme to change policy of the United States or otherwise coerce civilians. In my estimation, this would potentially apply to Iron Man 3, Captain America: The Winter Soldier, and Ant-Man.
    • In fact, since much of the destruction in Iron Man 3 is believed to be the work of a terrorist named the Mandarin, this is likely the outcome for insurance claims. This means that a government backed reinsurance contract would be called upon for large financial losses to the insurance companies. Even upon learning of the actual goals, i.e., the goal of Aldrich Killian, the terrorism designation will likely hold — Dr. Killian was attempting to coerce the actions of the United States government.
    • For Captain America: The Winter Soldier, it is a much murkier designation — similar to it being an act of war. Since an act of terrorism would, by definition, require a terrorist — and our heroes are free to continue rescuing the Earth in Avengers: Age of Ultron it seems likely that the US government never designated the events of that film as an act of terrorism.
    • Within the film Ant-Man, the titular hero — Ant-Man — along with fellow conspirators plan to, and succeed in, blowing up the Pym Technologies Headquarters. If this is viewed as an attempt at coercing the United States government in some way, then it would likely be classified as a terrorist attack. However, this is not a clear decision to make.
  • While act of God is a well understood legal statement, never before has an actual god (Thor, Loki) been available in person. In order to avoid liability, insurance companies might make an effort to claim any damage caused by the Asgardians (Norse gods) is in actuality an act of (a) god. In that eventuality the court system would rule on the question: Is Thor a god? Possibly the greatest court case for television ratings!

These court cases can go either way. The next question is: can those who have been damaged (individuals, property owners, insurance companies, etc…) sue the Avengers? Overall if it went to court our heroes would attempt to use Good Samaritan laws to their advantage. But more specifically:

  • Iron Man would potentially be personally liable for a large amount of destruction. Having unmasked himself in Iron Man and with a net worth of $12.4 Billion, Tony Stark would prove an obvious target for lawsuits. Additionally, while he works with S.H.I.E.L.D. and the US government on occasions, he is a private individual. Finally, he is a well-known alcoholic, which could color his attempts at a defense, even when attempting to invoke Good Samaritan laws (which will depend on the jurisdiction). On the other hand, his sometimes partner James “Rhodey” Rhodes (War Machine), as a member of the United States Armed Forces, would be protected from personal liability (though only to the extent he was acting in an officially sanctioned governmental capacity).
  • Thor would likely be protected from lawsuits by either being ruled a god (see above) or, since he is a prince of Asgard, through diplomatic immunity.
  • Hulk, who causes wanton destruction, is the alter ego of Bruce Banner. For the damage caused, Dr. Banner might claim insanity. In this instance it is unclear how successful an insanity defense would be in this type of civil litigation.
  • Captain America and his partner Falcon (Sam Wilson) may be able to use their positions within S.H.I.E.L.D. and the United States Armed Forces for liability protections (see War Machine above for limitations).
  • Black Widow and Hawkeye would likely attempt to use the liability protections likely offered by being members of S.H.I.E.L.D. (see War Machine above for limitations).
  • Ant-Man (Scott Lang) and Hank Pym, wealthy founder of Pym Technologies, may be personally liable for their destruction of the Pym Technologies Headquarters.
  • Scarlet Witch may be found liable for her actions, though as she joined S.H.I.E.L.D. at the end of Avengers: Age of Ultron, she may attain retroactive immunity for her actions in Johannesburg, Seoul, and Sokovia.
  • Finally S.H.I.E.L.D. and worldwide governments may face liability as well for their actions in the MCU.

The Financial Aftermath

In the aftermath of all this economic destruction there are two main possibilities:

  • The first is that the insurance companies are victorious in their court cases, in which case they avoid paying out damages. In this situation, having insurance may be worthless in the MCU. If you live in a major metropolitan area (especially New York) you can be rest assured that your insurance will no longer be worth the paper it is written on because of superheroes and intergalactic conflict, potentially involving gods.
  • The second is that the insurance companies are unsuccessful in court. In such a situation, the entire insurance industry would likely be on the brink of failure and would require government intervention to stay afloat. This intervention can consist of bailouts (as was done with AIG in 2008), government backed reinsurance (as with the Terrorism Risk Insurance Act in 2002), or full-on nationalization of the insurance industry (as with flood insurance).

In either case there would be extreme impacts to the US and global economies. First, with insurance either worthless or bailed out/nationalized, living in a major city would become impractical. The risks of death and destruction would be extremely high, and insurance premiums would have to reflect that. But with cities being the main driver of global economic growth, this mass migration to rural society would slow economic growth and potentially cause the end of globalization — causing economic stagnation not seen since the fall of the Roman Empire. On top of this, cities are often more energy efficient, thus by provoking a mass exodus from cities, the MCU may see worse impacts from global climate change — which, by causing more severe weather, would further impact insurance companies and the rates individuals and corporations must pay. This is ignoring the direct economic impacts of the destruction, but as points of comparison: the Dow Jones Industrial Average fell 14.2% and the S&P500 fell 11.6% in the week following 9/11 and a false report about a terrorist attack on the White House in 2013 caused a nearly 1% drop before the information was corrected 4 minutes later. Thus the entire financial sector would be severely impacted from the events within the MCU without government intervention!

The secondary effects are around the financial situation of our heroes. Most notable is the economic well-being of Tony Stark, who may end up defeated and bankrupt due to his own personal liability. And without his financial resources, he would not be able to afford to construct and maintain his Iron Man suits. Additionally, if he attempted to use the resources of Stark Industries, a publicly traded company listed on the New York Stock Exchange, for this purpose, he may be guilty of several felonies. Hank Pym would likewise be impacted, but his ability to influence superheroics with his wealth remain limited at this juncture. It could be that some form of “Superhero/Vigilante insurance” is created for such individuals, though the premiums would likely be set to such high levels to not be economically realistic — a death spiral would exist.

Who Wins?

So the attacks within the MCU are debilitating to the US and global economies. Is any corporation going to be able to take advantage? Yes! Damage Control, a company which handles the cleanup of exactly these events, is poised to become a global economic powerhouse. They may also become an overly dominant force in the construction industry, though due to the aforementioned exodus from major cities may focus solely on (so called) bridges to nowhere.