Posted on 24 Apr 13 by Annie George
The April 15, 2013, bombing at the Boston Marathon has raised questions about terrorism insurance from many clients, both those directly affected by the event and others. Many of the questions relate to the Terrorism Risk Insurance Program Reauthorization Act of 2007 (TRIPRA), commonly known as TRIA.
It is important to note that as of April 19, 2013, the Boston bombing has not been officially certified under TRIPRA as an act of terrorism. Regardless of the event being certified as an act of terror under TRIPRA or not, coverage for losses arising from the event will depend on clients’ specific insurance contract language.
The following is an excerpt from a soon-to-be released Marsh report, 2013 Terrorism Risk Insurance Report.
The September 11, 2001, terrorist attacks created a severe market shortage for terrorism insurance. As a result, the US Congress passed the Terrorism Risk Insurance Act, which created a federal “backstop” for insurance claims related to terrorism events in the US as defined by TRIA.
The Act became law on November 26, 2002, and has since been extended and modified twice: in December 2005 and again in December 2007, when it was renamed the Terrorism Risk Insurance Program Reauthorization Act of 2007 (TRIPRA). The Act is scheduled to expire on December 31, 2014, if it is not renewed.
Under TRIA, insurers must make terrorism insurance coverage available to their policyholders when offering to underwrite an accompanying line of business. The definition of insurer covers several parts but the segment with the broadest reach is carriers licensed or admitted to engage in the business of providing primary or excess insurance in any state, which includes US-licensed captive insurers.
Although insurers must offer terrorism coverage, it is not mandatory for insureds to purchase the coverage, except for workers’ compensation, which is defined by state statutes and compensates employees in the event of on-the-job injuries regardless of fault. Specific perils, including terrorism, cannot be declined or excluded from individual workers’ compensation policies.
Certified Acts of Terrorism Under TRIA
TRIA and its first extension required that an act be committed by an individual on behalf of any foreign person or foreign interest in order for it to be certified as an “act of terrorism” for purposes of reimbursement. This provision was removed in TRIPRA. The 2007 reauthorization also provided coverage for domestic terrorism, which had previously been excluded.
It is important to note that a distinction remains between acts of terrorism that are certified and those that are noncertified: Only certified acts are eligible for coverage through TRIA. An event can be certified if the Secretary of the Treasury, the Secretary of State, and the Attorney General of the United States determine the act meets all the following criteria:
- It is considered an act of terrorism.
- It is violent or dangerous to human life, property, or infrastructure.
- It results in damage within the United States, (including US air carriers, vessels, and/or US missions, as described in the Act).
- It is committed by an individual or individuals, as part of an effort to coerce the US civilian population or to influence the policy or affect the conduct of the US government by coercion.
An event cannot be certified if it does not cause property and casualty losses exceeding the $5 million threshold in the aggregate or if the act is committed as part of the course of a war declared by Congress. (Note: This shall not apply with respect to any coverage for workers’ compensation).
The distinction between a certified and noncertified act of terrorism remains an important consideration for insureds and insurers alike. Although the make-available provision requires insurers to offer TRIA coverage for certified acts of terrorism, some exclude coverage for noncertified acts. Therefore, businesses may consider purchasing noncertified terrorism insurance, which can provide protection for events that do not qualify as certified per the criteria listed above.