Terrorism Coverage Question

[insurerisk]

Question of the day. Under TRIA, eligibility requires that there be an "insured loss" of at least $5 million from a "certified" act of terrorism.

Would this imply that losses under 5 mill are not covered by a carrier's terrorism coverage? Thus, if an insured carries only 5 mill in limits, why should they have terrorism coverage if TRIA isn't triggered until a 5 mill loss?

Thanks

Cindy

[Dawgnacious]

You have noted that one of the limitations of the act is the $5,000,000 limitation. More to the point, the act cannot be a "certified act" unless the losses resulting from the act, in the aggregate, do not exceed $5,000,000. Therefore, a $4,000,000 loss due to an otherwise qualifying act of terrorism would not meet the definition of a "certified act."

This is why many risks that are concerned about potential exposures to terrorism opt to purchase coverage for "certified" as well as "non-certified" acts of terrorism. Note, this is a separate contract, not TRIA. So, you buy the seperate policy and reject the TRIA offer from your property carrier.

[Mary in FL]

For TRIA, the $5 million in "insured losses" is all insured losses from all collective insureds' carriers who have suffered injuries/damages. At the World Trade Center for example, that would have included all the buildings at the site, all tenants and their property, nearby building owners and tenants, etc. The danger in a catastrophic loss like WTC is that there is a $100 billion in "insured losses" aggregate cap.

Be aware that some states, in order to stimulate the purchase of TRIA, have changed coverage where an insured who declines TRIA and then has an ensuing fire as a result of a TRIA loss, would have no coverage.

[taf]

It is my understanding that if an insured purchases coverage for certified acts but "other acts" are excluded - the "other acts" exclusion does not apply to losses that would have been "certified" if not for the act being under $5M. This make coverage still apply on those losses under $5M - the government just will not participate in the claim. The insurance carrier pays it on their own.

[Mary in FL]

I somewhat disagree with taf. You can't have a certified TRIA loss under $5MM because the U.S. Secretary of the Treasury, in concurrence with the Secretary of State and Attorney General, are the persons who will (or won't) declare a certified loss. In order to trigger coverage under TRIA all of the following have to happen:

1. Act on behalf of Foreign Person or Foreign Interest
2. Insured Loss over $5MM
3. Certified by US Secretary of Treasury in concurrence with Secretary of State and Attorney General

For example, using the Oklahoma City bombing by Timothy McVeigh and others, that would not have been a TRIA loss because it was an American citizen acting against the US government and the criteria for #1 above would not be met.

That is not to say that there would not be other coverage that may apply in a given policy. (It would depend on the other policy terms, conditions, and exclusions.) It just would not fall under TRIA or require government $$ participation.