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Terrorism Insurance

Since the attack on the United States on September 11, 2001, we have all had concerns about the fiscal, as well as the emotional, impact of an act of terrorism on our lives and businesses. Insurance underwriters have perceived that the financial impact of a terrorist act, like Acts of War resulting in financial loss, could result in losses well beyond the capabilities of the private insurance industry to bear, even if all the available reinsurance capacity was involved. The severity of this financial risk to primary insurers has been sharply increased by the actions of reinsurers, throughout the world, of excluding damages resulting from terrorists acts from the coverage of the reinsurance treaties executed with primary insurers. As a result, the Congress passed legislation t
hat created a governmentally supported reinsurance pool, so that insurance companies could offer some level of protection to their insureds against financial loss generated by an act of terrorism. The act creating this pool was reenacted in 2005, and the termination date of the coverage originally extended to December 31, 2007. This legislation has now been rewritten, and the new termination date for the pool is December 31, 2017.

There are important points about this legislation you should be aware of:

· It does not apply to all lines of insurance. Commercial Auto Insurance, Burglary and Theft Insurance, Surety, Professional Liability Insurance, and Farm Owners Multi-peril Policies are not eligible to participate in the pool; hence, insurance companies will not be offering terrorism coverage for those portions of their policies providing coverage for these lines of insurance.

· All insurance companies are required to participate in the Terrorism Insurance Program (Program) and make coverage available for insured losses in all their covered commercial lines policies. Protection is primarily intended for businesses suffering loss from an insured loss, not individuals who are covered by personal lines insurance policies (homeowners, renters, or personal automobile insurance, for example).

· The term "insured loss" is defined to mean any loss resulting from an act of terrorism (including an act of war, in the case of workers' compensation insurance) that is covered by a primary or excess property or casualty insurance, including workers' compensation insurance, and directors and officers liability insurance. Note that group life or health insurance is not included in this definition.

· A distinction is made between certified acts of terrorism and non-certified acts of terrorism. A loss resulting from a certified act of terrorism (certified loss) will generally, subject to filed and approved policy language, be covered. A loss resulting from a non-certified act of terrorism (non-certified loss) may have coverage limitations or restrictions applied to it which do not apply to certified losses. The full definition of these terms is very complicated, and you should review them with your Attorney if you have reason to believe that they will impact your business operations.

· When an insurance company issues an insurance policy providing coverage (other than workers' compensation insurance) for a line of insurance included in the Program, it must notify you that you have the right to either accept or reject terrorism coverage. If you accept terrorism coverage, the company must also notify you of the additional premium due for that coverage. In turn, regardless of your decision as to whether or not you accept the coverage, you must sign, date and return to the company or your agent, the notice form provided you by the company.

This is a complicated area of insurance, and this brief commentary is not by any means all inclusive. If you have concerns in this area, it is important that you review your options with a competent Attorney, and be guided in your final decision by his advice and recommendations.

Revised 2007-10-13