Understanding Terrorism Insurance Limits and Provisions

insurance-terrorismBusinesses and individuals can purchase terrorism insurance to cover possible losses resulting from terrorist attacks. It is important for consumers and business owners to understand their options and coverage inclusions.

Individuals
A standard homeowners policy includes coverage for property damage and damage to personal possessions as a result of terrorist attacks. However, terrorism is not specifically referenced. This type of policy offers protection for homeowners due to fires and explosions, which are common methods of terrorist attacks. Owners of co-ops or condominiums can also have protection for personal possessions in the event of a terrorist attack. Damage to common areas are only covered if the board has purchased terrorism coverage, so people who live in large complexes should be aware of this. The same is true for people who rent apartments. While personal possessions are covered, damages to any common areas are the responsibility of the landlord.

If a car is destroyed or damaged due to a terrorist attack, an auto insurer will only cover the destruction if the owner purchased comprehensive coverage. People who have vehicles that are still on loan or lease terms must carry this coverage. Those who have only liability insurance will not be covered. Life insurance policies do not include exclusions for terrorism. If a policyholder dies in a terrorist attack, the beneficiaries will still receive their money.

Businesses
Before 9/11, commercial insurers provided terrorism coverage without extra costs. However, this type of insurance is now offered separately with its own price that is reflective of current risk levels. Insured losses are covered by private insurers that are reinsured by the government according to the Terrorism Risk and Insurance Act, which was originally formed in 2002. The TRIA includes commercial property owners. Some examples of such properties include shopping malls, factories and offices that are required to carry this coverage. While an attack must be certified by the Secretary of the Treasury to be triggered by the government for these policies, no declaration is needed for auto or home coverage. This is because there are no terrorism exclusions.

What Is Not Covered
Restrictions apply to biological, nuclear, radiological and chemical events for both commercial and personal policies. Risk exclusions that are war related reflect the reality that damages stemming from war acts are not insurable. For the war risk exclusion to apply, no formal declaration is needed from Congress. If some exclusion are allowed by a state, the Terrorism Risk Insurance Act says that insurers do not have to make the excluded coverage available.

Business Interruption Coverage
Commercial buildings sustaining damages from terrorist attacks may include claims for business interruption. Insurance for this type of incident covers financial losses stemming from firms suspending business due to direct damages or access restrictions placed by civil authorities. Although coverage depends on individual policies, it usually starts after a waiting period of at least two days. It lasts anywhere from two weeks to several months.

Losses due to business interruption that are associated with civil authority closures may be triggered by physical damages or losses nearby. The losses do not have to happen on the insured’s premises to apply. Civil closures and loss of income due to closures would not be covered by business interruption policies.

Workers’ Compensation
This is a compulsory coverage for business owners. It covers workers who are killed or injured on the job, so it automatically includes acts of terrorism. This is the only type of coverage that does not exclude war act provisions. In every state, exclusion of coverage for terrorist attacks is not allowed.

Health, disability and life insurance policies may offer coverage for death, sickness or injuries related to the attack. To learn more about this type of coverage and its inclusions or exclusions for businesses, discuss concerns with an agent.

About Brian Hendricks

Brian Hendricks is the President of Fidelity Insurance Group. Brian started Fidelity in 2003 with 0 clients. Today Fidelity Insurance Group is a Premier Independent Insurance Agency in Florida with over 3,000 families and businesses insured. Brian currently serves on advisory boards for 2 of the largest property insurance companies in Florida. Knowlege, Integrity, and Committment are his and his agency's guiding principles.
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