Terrorism Risk Insurance and What You Need To Know
Terrorism has become an unfortunate fact of life. From the Nashville Christmas bombing, the Pittsburgh synagogue shooting to the Sandy Hook Elementary School tragedy to the Las Vegas Strip concert massacre, the news is filled with headlines related to acts of terrorism or thwarted attempts. These types of tragic events are changing how business owners are protecting their interests. You may want to consider a Terrorism Risk Insurance policy to protect your business.
“Commercial Property Insurance policies often contain exclusions for acts of terrorism,” said Carolyn Reiter, Associate Vice President, Global Excess Partners, New York, New York. “If the FBI determines the Nashville incident is an act of terrorism, those impacted may be denied coverage through their current Commercial Property Insurance policies.”
Domestic and Foreign Terrorism
Terrorism differs from other catastrophes because it is not an aspect of weather or nature. However, it shares the same problem of insurability with its natural peers. There are two distinct types of terrorism: domestic and foreign. Domestic terrorism involves terrorist acts (or plans) by citizens of the same country where the act is committed. The reason for the act (or planned act) generally involves some domestic political agenda.
Foreign terrorism involves acts of individuals from one (or more countries) who wish to disrupt the lives of another country’s citizens in order to advance a particular cause.
The Real Risk to Your Business
The perpetrators of terrorist attacks and the methods they use continue to shift and relatively unprotected targets are becoming a greater focal point. Property damage and bodily injury are the primary risks associated with terrorism, yet there are liability factors that you should consider to best safeguard your business, including:
- Business interruption loss
- Fiduciary liability for corporate directors and officers
- Pollution loss and liability
- Privacy and network security liability
At least 45 businesses were damaged in the Christmas Day bombing in Nashville, Tennessee that decimated a block of downtown buildings. Local police and the Federal Bureau of Investigation (FBI) are still investigating why a 63-year-old Nashville area information technology consultant set off the explosion in his RV, killing himself and causing widespread destruction.
The bomb was detonated near an AT&T telecommunications hub, temporarily freezing mobile and internet systems in five states. As affected business owners assess the damage to their properties, they are also questioning whether their insurance policies will cover the repairs. If it is classified as terrorism, property owners without appropriate insurance coverage worry they may have to pay out of pocket for the damage.
Types of Terrorism Risk Insurance Solutions
Domestic terrorism coverage is available in traditional policies and stand-alone terrorism risk insurance. Traditional policies, including commercial general liability and property policies, may provide some coverage for terrorism risk if not expressly excluded.
Workers’ compensation insurance is another traditional policy that may provide some form of terrorism coverage. Unlike property and casualty policies, workers’ compensation policies will not have terrorism (or war) exclusions.
You may also consider purchasing stand-alone terrorism coverage. Stand-alone policies typically exclude:
- Political risks, including loss resulting from strikes, riots, civil commotion, rebellion, revolution, war and insurrection
- Cyber-related loss and liability
- Nuclear, biological, chemical and radiological hazards, like anthrax
Terrorism Insurance coverage is available through a standalone policy or the federally-backed Terrorism Risk Insurance Program (TRIP),1 authorized by the Terrorism Risk Insurance Act of 2002 (TRIA) in the wake of the September 11, 2001 attacks and extended through 2027 by the Terrorism Risk Insurance Program Reauthorization Act of 2019 (TRIPRA). Nevertheless, many business owners have no Terrorism Insurance coverage at all, leaving them vulnerable at a time when terrorism is an escalating concern and businesses are already struggling to survive in a pandemic-induced recession.
Many times people believe that if they aren’t right next to something like an NBA arena or a National Monument that they don’t need it. But in the case of the AT&T building in Turlock, that could have impacted nearly 1/4 – 1/3 of our downtown.
Stand-alone Terrorism Risk Insurance Coverage
Terrorism Insurance can be purchased as a standalone policy—without a minimum loss requirement. Such policies include broader definitions of acts of terrorism that do not require government certification, Reiter said.
If you opt for stand-alone coverage, selecting the policy with the best terms involves more than just ensuring coverage extends beyond “certified acts of terrorism.” Valuation terms in stand-alone terrorism policies should be carefully reviewed to ensure you are appropriately compensated for loss and damage, even when actual repair or replacement isn’t possible or ideal.
It’s also important that specific terms are well defined, such as what constitutes an “occurrence” and how the number of occurrences associated with a given claim will be determined.
Coverage under a standalone Terrorism Insurance policy can also include loss of business income such as could occur during a forced closure due to property damage or to allow a criminal or forensic investigation to take place. Terrorism Liability Insurance is another important consideration, providing coverage for bodily injuries or deaths that may occur on a business’ premises due to terrorism.
A standalone Terrorism Insurance policy could mean a faster recovery for business owners in the aftermath of a terror attack, Reiter said. “There is typically a significant lag time to process claims and issue payments under a government-backed program, especially compared to a general insurance claims transaction,” she explained. “Coverage under a standalone Terrorism Insurance policy could help a business start recovering from an attack much sooner.”
Other Policy Terms to Consider
Traditional policies or stand-alone terrorism risk insurance generally will include these terms:
- Sue and labor. What property is reasonable to protect, recover or save after a general casualty loss may differ from what is appropriate following an act of terrorism. Avoid disputes by tailoring language in “sue and labor” provisions accordingly.
- Expediting expenses. After an event, you want to be able to return to “business as usual” as quickly as possible. However, the costs incurred to sustain operations or expedite repairs in the wake of a terrorism incident may vary considerably from any other casualty loss. It may be appropriate to expand terms beyond “reasonable and necessary” costs to include security or healthcare-related expenses.
- Increased construction cost. A terrorism incident may prompt legislative or other practical requirements that may increase the cost of demolition and compliant repair.
- Pollution exclusion. The “act of terrorism” may prompt the release of hazardous substances — increasing the cost of the claim. Policies should not exclude the cost associated with a release of “pollutants” that is an indirect result of an otherwise covered “act of terrorism.”
For more clarity on how to protect your business from exposure to terrorism risk, reach out to your insurance professional and review the type of insurance coverage and policy terms that are right for your business.
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