Yesterday was my son's 12th birthday but he didn't spend it unwrapping presents or gorging on ice cream and cake. Most of our evening was spent solemnly observing unspeakable horror and devastation as the events of Sept. 11, 2001, unfolded."
That was the opening paragraph in an insurance coverage article I wrote for the Big "I" Virtual University (VU) on Sept. 12, 2001. My son recently celebrated his 34th birthday and, as of last month we once again we find ourselves confronting not just unspeakable, but unimaginable, horror from terrorist acts.
On the morning of Sept. 11, 2001, I was working at my desk in my home office when a friend called me. He said simply, "Turn on the TV." When I asked what channel, he responded, "any channel." As I turned on the television, I witnessed the second plane striking the World Trade Center.
Perhaps sadly, one of the first things that crossed my mind was whether insurance would cover what I was witnessing. So, literally working overnight and consulting with several VU volunteer faculty members throughout the night, the next day I published probably the first coverage article on 9/11 called, "Insurance Implications of Terrorist Attacks." The focus was on common policy exclusions such as War And Military Action, Governmental Action, and Orders Of Civil Authority, citing existing case law that might be relevant.
Not long thereafter, I published a Part 2 article that expanded the coverage issues to include exclusions that might apply to attacks involving biological, chemical or nuclear weapons. That was followed by an article examining whether the September 11 attacks might involve one or multiple occurrences.
TRIA and Beyond
In 2002, Congress passed the Terrorism Risk Insurance Act (TRIA) and I established a "TRIA Resource Page" on the VU that discussed the legislation and newly introduced terrorism exclusion endorsements filed by ISO and other advisory organizations and insurers. This resource was updated for revised legislation and coverage forms in 2005, 2007 and beyond.
I believe the resource page was not updated after 2015 (I retired from the Big "I" at the end of 2016), largely because of a lack of inquiry by agents. Terrorism has moved to the back burner of coverage issues.
Initially, given the unknown, largely unpredictable, and potentially catastrophic nature of terrorism acts of this scope and magnitude, the insurance industry introduced broad commercial lines terrorism exclusion endorsements. Personal lines coverage was not impacted, largely due to state insurance regulators refusing to permit the introduction of terrorism exclusions in personal lines. So, for a number of years, terrorism occurrences were excluded, but as required by TRIA, coverage had to be offered for many commercial lines of insurance and insureds could elect to purchase it.
Over the years, where the perception of the risk of terrorist attacks on a large scale was believed to be on a decline (or perhaps due to our collectively short memories), along with the financial backstop provided by the federal government, most insurers began to reinstate terrorism coverage with an option for insureds to accept a terrorism exclusion for a premium credit.
This could be changing, given recent events, perhaps coupled with an unprecedented influx of unvetted immigrants into the country. The purpose of this article is not to address any political, social or moral issues, but rather to focus on the fact that the perceived risk of terrorist acts in the U.S. has likely changed.
In recent years, the country and the world have become more aware of cyber risks, though perhaps not as appreciative of the potential severity of such acts from a terrorism standpoint. In an increasingly interconnected society, it has become increasingly possible for small groups of people to reach very large groups of people in destructive ways. So, what are the insurance and risk management implications of this?
In 2001, the very first coverage inquiry I received related to 9/11 was from an agent whose hotel accounts had contacted him about their overwhelming number of cancellations when aircraft were grounded. Coverage was sought under the civil authority coverage of their business income forms. Unfortunately, such coverage was triggered when the loss is "caused by action of civil authority that prohibits access to the described premises" because of a nearby covered loss. However, no civil authority had expressly prohibited access to these hotels.
This is just one example of the myriad claims that can arise from widespread disasters. Others include the obvious direct damage caused by terrorist acts, possibly followed by damage resulting from retaliatory governmental action ("destruction of property by order of governmental authority") that could be excluded. If damage can be attributed to sovereign nations, consideration may also be given to war and military action ("Warlike action by a military force ... or other authority using military personnel") exclusions, though that was largely not the case following 9/11.
In addition, consequential or indirect damage claims arising from direct damage are likely. These include increased debris removal expenses, business income and extra expense losses, increased costs due to ordinances or laws governing demolition or reconstruction, valuable records and data processing losses, and the list goes on.
There is great potential for liability claims involving both property damage and loss of life based on allegations that the terrorism risk was not properly managed, potentially triggering claims under general liability and professional liability (e.g., D&O) policies.
To summarize, immediately following 9/11, terrorism exclusion endorsements were introduced in the U.S. and the federal TRIA act mandated that insurers, with a federal financial backstop, must provide the coverage if requested by the insured. Now, 22 years later, it's my understanding that carriers more often don't specifically exclude terrorism but can for a premium discount.
Terrorism has not been on anyone's front burner here for a long time, at least since 2015. With a real or perceived risk of terrorist attacks, especially in the hard market where we currently find ourselves, the insurance marketplace could be changing in the coming months. Be prepared and vigilant.
WRITTEN BY Bill Wilson Wilson, CPCU, ARM, AIM is the founder and CEO of InsuranceCommentary.com and the author of the book "When Words Collide: Resolving Insurance Coverage and Claims Disputes." His column, "Is It Covered?", is published in Insurance Journal Magazine.