Is Terrorism Covered? Maybe, Maybe Not – A Look at Terrorism Insurance
We’ve all witnessed it lately. Either in person or from news reports, we’ve seen the damages to residential and business property that has resulted from terrorism or civil unrest. Just recently, many businesses were damaged in Charlotte, North Carolina as crowds of protesters lost control and began damaging and then looting main street stores and other business establishments.
No big deal, their insurance will cover the repairs to the buildings and replace the lost inventory right? Maybe, maybe not. Depending on the circumstances at the time of the loss (damage, theft) commercial property insurance and homeowner’s insurance may or may not pay. To determine who is going to pay, we must examine the policy in force at the time of the loss.
Since the majority of homeowner’s policies are written on the HO3 form, we need to review the list of covered perils to determine if coverage is applicable. Your dwelling and other structures are covered on an “open peril” basis. This means that unless the peril is specifically excluded in the policy, coverage will apply. Under the homeowner’s policy we need to look at the two perils of interest:
- Terrorism – Damage to a dwelling resulting from an act of terrorism is covered under the standard HO3 Homeowner’s Insurance policy.
- Riot or Civil Commotion – Damage to a dwelling or contents resulting from a Riot or Civil Commotion is covered under the standard HO3 Homeowner’s Insurance policy.
Homeowners should remain aware, however, that claim payments for terrorism or riot and civil commotion are subject to your deductible so there will still be out-of-pocket expenses.
Personal Auto Insurance
Since the Personal Auto Policy does not specifically exclude damages resulting from terrorism or riot and civil commotion, the policy would pay for losses if Comprehensive Coverage has been purchased and the payment would be subject to the selected deductible.
Commercial Property Insurance
Commercial policies are typically written on one of three forms, basic form, broad form, and special form. How coverage will apply depends on the form your policy is written on since each form is unique when it comes to covered perils.
- Basic Form (CP 10 10) – The basic causes of loss form provides coverage for fire, lightning, explosion, smoke, windstorm, hail, riot, civil commotion, aircraft, vehicles, vandalism, sprinkler leakage, sinkhole collapse, and volcanic action. What is conspicuously missing is damages resulting from terrorism
- Broad Form (CP 10 20) – The broad causes of loss form provides coverage for all of the perils in the basic form plus the following additional perils: falling objects; weight of snow, ice, or sleet; water damage (in the form of leakage from appliances); and collapse from specified causes. Again, what is missing is damages resulting from terrorism.
- Special Form (CP 0 30) – The special causes of loss form provides the broadest coverage for a commercial property policy. Considered all risk coverage, the special form provides coverage for all perils unless specifically excluded in the policy. Just as on the basic and broad form, the special form does exclude terrorism insurance coverage.
Overcoming the Terrorism Exclusion
Coverage for damages resulting from terrorism used to be included in most commercial policies until 9/11. Post 9/11 commercial policies typically exclude terrorism insurance coverage, so the agent needs to add it to the policy by endorsement. In fact, the agent must offer the coverage for every commercial client and have a specific form signed if the customer chooses to reject it.
As a result of the Terrorism Risk and Insurance Act of 2002 (TRIA), the federal government offers a type of reinsurance so that commercial insurance carriers can offer this coverage without fear of being bankrupted by claims resulting from terrorism. The coverage is triggered only if the Secretary of State declares a terrorist event to be a “certified act of terrorism.”
In today’s environment where the risk of terrorist act becoming more prevalent than ever before, it is incumbent upon every agent to offer this coverage to every client and have a rejection form on file if rejected. This conversation should take place with every new commercial policy written and with every renewal policy that doesn’t include this coverage.