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Terror Threatens Insurance Payouts for Boston Businesses

Source: WSJ - Leslie Scism

Posted on 25 Apr 2013 by Neilson

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Boston marathon explosionPresident Barack Obama has called last week's Boston bombings an "act of terror," but businesses near the blast site may have a vested interest in keeping that designation unofficial.

Companies could lose insurance payouts for property, lost income and other damage if the bombings are officially declared an act of terrorism by key U.S. officials, under an 11-year-old law that hasn't yet been tested, according to industry executives and lawyers, as well as city and business leaders in Boston.

The reason: After the Sept. 11, 2001, terrorist attacks, policies sold to business customers typically haven't covered losses stemming from "terrorism" unless the customer pays extra for the coverage. The 2001 attacks resulted in about $40 billion in insured damages, when measured in today's dollars.

If there is no terror finding, damages would be covered in general under regular property-and-casualty policies, said Robert Hartwig, president of the trade group Insurance Information Institute.

"We have been working with the mayor's office, and we've been told the city is exploring all the different possibilities as far as the federal government is concerned as to what is available" in federal aid, and talks also have included the categorizing of the event," said Meg Mainzer-Cohen, president of the Back Bay Association, a local business group.

Large numbers of businesses in the area around the Boston bombings are believed to lack added terrorism protection, though figures aren't yet available, city and state officials said Wednesday. Nationally, about 60% of businesses pay extra for terrorism coverage, with a higher percentage in New York and some other big cities such as Boston, according to industry estimates. But many small businesses forgo high-price terrorism coverage, and Boston's Copley Square is filled with small bars, restaurants and shops.

Rattlesnake Bar & Grill on Boylston Street, which was closed for part of last week, doesn't have terror coverage. Co-owner John Gardner estimates lost business in the tens of thousands of dollars and holds out hope his insurer will cover some losses. He called the possibility that a terror declaration could keep him from getting compensated "the frustration of dealing with insurance companies."

Many business owners were getting their businesses back in shape Wednesday and said they hadn't had the opportunity to review their coverage. "We have not started to grapple with it yet," said Valerie Post, co-owner of Meridian Realty Group. "We're just catching up on everything. We haven't called the insurance company yet." Of the possibility that a federal ruling could eliminate coverage to many owners, she said, "It is what it is."

The terror exclusion has its roots in a federal law passed in 2002-not long after the 2001 attacks-to protect the insurance industry from untold costs in the event of another terror event. The determination of an event as "terrorism" rests with the U.S. Treasury secretary, in concurrence from the secretary of state and U.S. attorney general. "The Treasury has not yet taken this action of certification," a spokeswoman said. There is no deadline for making such a determination.

Among conditions that must be met for a certification: Insured damage must hit at least $5 million and the attacks had to have been "committed by an individual or individuals as part of an effort to coerce the civilian population of the United States or to influence the policy or affect the conduct of the United States Government by coercion."

The bombs caused some property damage, but Boston and industry officials said the biggest cost to the insurers is expected to come from "business-interruption" claims stemming from the nine-day cordoning off of the bombing scene. The area was entirely reopened by Wednesday.

It isn't clear if the $5 million hurdle will be cleared. Still, many businesses are concerned.

Nobody wants "to see small businesses take a hit and be hurt by this incident," said Jeffrey Saunders, president and managing partner of the Lenox Hotel, which on late Tuesday night was welcoming its first guests in over a week. He said his hotel has the specialized terrorism coverage. He noted that small businesses can be harder hit by lost income than bigger ones. Of officials in Washington, he said: "I am hoping they will make the right decision to protect the greater good."



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