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Terrorism and Insurance

As the businesses affected by the Boston bombing continue to rebuild, many have given a second thought to the need for terrorism coverage for their business. Many political figures have talked about the effect of the exclusion on Boston businesses, but few seem to understand how the coverage works.

What is an Act of Terrorism?

This seems to be a strange question, but it is at the heart of the exclusion. It depends on your policy language. The majority of policies are going to have the standard wording created by the Insurance Services Office (ISO), the organization that creates most standard policy wording.

For the ISO terrorism exclusion/coverage to apply, it needs to be a "certified act of terror". News outlets and politicians are quick to use the word Terrorism, but even the President of the US calling something a terrorist act does not cause the exclusion to apply. The Secretary of the Treasury, Secretary of State and Attorney General all need to "certify" that the acts meet the definition. This means that there is potential for the parties involved to receive political pressure to certify/not certify the event. Many Boston businesses may be hoping that the government keeps quiet and the exclusion isn't triggered.

What is Terrorism Coverage?

This grants coverage back for an event the three governmental agencies all call a "certified act of terror". Insureds have the ability to reject Terrorism Insurance on some policies, but many companies do not offer that option. The coverage is available for property, liability and workers compensation.

Terrorism coverage is subsidized by the government paying 85% of covered claims, and the current plan expires in 2014. The coverage could be reworked depending on congressional action on the issue.

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