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Terrorism and insurance: pre 9/11 Prior to the events of September 11, 2001, many insurance policies addressed war, terrorism, and similar disruptions in exclusions on coverage forms. Such exclusions included: War or terrorism is not an insurable risk under the traditional role of insurance. By definition, war and terrorist acts are unpredictable in nature, intentionally inflicted upon society as a whole or a segment thereof and have wide-spread impact across all lines of insurance and risk. In terms of risk transfer, covering war or similar events is much more like gambling than a quantifiable spread of risk, particularly in fixed locations. War and terrorist coverage has historically been written in risk areas that have an intrinsic spread of risk, such as ships, aircraft, and their cargo. Prior to 2002, very few American policyholders had terrorism exclusions on their policies. In the past, the U.S. coverage forms such as the standard Commercial Property, Commercial General Liability and most life, health, and disability insurance policies typically contained "war risks" exclusions--not terrorism exclusions. If the policy was written to cover both domestic and foreign exposures, any language in the policy referring to "terrorist" acts was limited to events occurring outside the U.S. Some life insurers also used "terrorism exclusions," but only for individuals traveling to areas where terrorist attacks are common. Bio-terrorism Bio-terrorism presents a unique area of exposure. Does the release of biological agents into the atmosphere of a building interior, via the water supply or ventilation system, qualify as direct physical loss or damage to trigger the policy? Bio-terrorism losses may lead to the application of a specific terrorism exclusion, the use of a "pollution" exclusion, or a mold, fungus, bacteria or microbial matter exclusion. Commercial General Liability Concerning Commercial General Liability, there are several exclusions that need to be reviewed: It should be noted that the insured may face uninsured losses assumed by the CGL contract. Workers Compensation Standard Workers Compensation policy forms are typically used and are provided by industry organizations such as Insurance Services Office, Inc. (ISO) and National Council on Compensation Insurance (NCCI). Many states are NCCI states and even in those that are not (such as California), many carriers still use those forms for their commonality and adherence to state required coverages. The NCCI form does not contain even a war risk exclusion. Specifically concerning terrorism and Workers Compensation, none of the standard forms contain a specific terrorism exclusion. Most state laws will not allow terrorism exclusions to be added to worker's compensation policies. Coverage will simply apply if the employee's injury arises out of and in the course of their employment. It is possible that an employer could be vulnerable to fines, penalties, or expenses incurred in connection with government investigations, such as those conducted by OSHA. The employer would not have coverage for these costs under their worker's compensation policy. OSHA Responsibility Matrix On November 16, 2001, OSHA established a responsibility matrix designed to minimize exposure to certain bio-terrorism acts, specifically related to injury from anthrax. The matrix uses color-coded zones to identify target risks for bio-terrorism. Red zone employers need to take additional precautions, such as disaster planning and proper loss control measures to minimize risk to employees. Reinsurance treaties The reinsurance treaties in effect as of 9/11 typically contained terrorism coverage in the domestic ceding insurers' contracts. However, that all changed on January 1, 2002, when approximately 70% of the U. S. reinsurance treaties renewed. Most of those treaties renewed with terrorism excluded, leaving the primary insurers without protection for terrorism. The majority of the reinsurance treaties that renewed on July 1, 2002, removed this protection, as well. This move by the reinsurers has left the primary carriers in an unenviable position. |
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| Not only are policy forms, clauses, rules and court decisions constantly changing, but forms vary from company to company and state to state. This material is intended as a general guideline and might not apply to a specific situation. The authors, LunchTimeCE, Inc., CEfreedom, and Insurance Skills Center, and any organization for whom this course is administered will have neither liability nor responsibility to any person or entity with respect to any loss or damage alleged to be caused directly or indirectly as a result of information contained in this course. |
