Life Insurance And Terrorism: What Coverage Looks Like

Terrorism is a constant presence in the news cycle, and with it comes the question of insurance coverage for individuals and businesses. The impact of terrorism on insurance policies has been significant, with the cost of coverage and the availability of policies changing in the aftermath of major attacks. The 9/11 attacks, for example, resulted in a $47 billion loss for the insurance industry and led to the creation of the Terrorism Risk Insurance Act (TRIA) in 2002. So, what does this mean for individuals with life insurance policies? Do life insurance policies cover acts of terrorism?

Life insurance policies do not contain terrorism exclusions

However, it is important to note that the specific wording and scope of coverage related to acts of terrorism may vary between insurance policies and jurisdictions. In some cases, policies may include an "acts of terrorism exclusion" clause, which limits or excludes coverage for death resulting from acts of terrorism. This exclusion is intended to mitigate the financial risk for insurance companies in the event of large-scale terrorist attacks.

Challenging the acts of terrorism exclusion can be a complex legal process, and it depends on the specific circumstances and applicable laws. For example, policyholders or their beneficiaries may argue that the exclusion is ambiguous, overly broad, or does not clearly apply to the circumstances of the incident in question. Consulting with an attorney who specializes in insurance law can be helpful in these cases.

Additionally, it is worth mentioning that while life insurance policies do not contain terrorism exclusions, other types of insurance, such as homeowners insurance, renters insurance, and commercial insurance, may have different coverage specifications. These policies often have war exclusion clauses that exclude coverage for damages related to war or similar activities, including terrorism.

Furthermore, the availability and cost of terrorism coverage have been significantly impacted by major terrorist attacks, such as the 9/11 attacks on the World Trade Center and the Pentagon. In response to these events, the U.S. Congress passed the Terrorism Risk Insurance Act (TRIA) in 2002, which provides a federal backstop for future terrorist attacks and makes it easier for insurers to calculate their maximum losses.

Commercial insurance policies routinely exclude terrorism coverage

Now, if a business wants coverage for terrorism, it needs to elect to purchase terrorism coverage separately. This is offered by some insurers as stand-alone terrorism insurance coverage. The price of this coverage more adequately reflects the current risk. The federal government also reinsures or "backstops" insurance losses attributable to terrorist acts under commercial policies, pursuant to the Terrorism Risk and Insurance Act (TRIA).

Under TRIA, owners of commercial property must be offered the opportunity to purchase terrorism coverage. For the terrorism coverage to be triggered under TRIA for commercial policies, a terrorist attack has to be declared a "certified act" by the Secretary of the Treasury. This declaration is not needed to trigger coverage under home and auto policies because there are no exclusions for terrorism.

Commercial policies also typically contain an exclusion for bodily injury or property damage caused by a nuclear event, meaning a nuclear terrorism attack will likely not be covered, even if an insured has terrorism insurance.

The specific exclusions regarding terrorism coverage in commercial insurance policies vary. Here are some examples of nonstandard terrorism insurance exclusions:

• "This policy does not insure against any loss, damage, cost, or expense caused by or resulting from any of the following, regardless of any cause or event contributing concurrently or in any other sequence thereto… any act or threatened act, by any person or persons, arising from or related to any attempt to overthrow, coerce, intimidate or establish any government or sovereign power (de jure or de facto) or to intimidate or coerce a civilian population or any segment thereof, or to inflict economic loss, property damage or personal injury, in furtherance of any political, religious, financial or ideological objectives."
• "This insurance does not cover any loss or damage occasioned by or through or in consequence, directly or indirectly, of any of the following occurrences, namely… Act of terrorism committed by a person or persons acting on behalf of or in connection with any organization… For the purpose of this condition, "terrorism" means the use of violence for political ends and includes any use of violence for the purpose of putting the public or any section of the public in fear."
• "This policy does not cover… any act, including but not limited to the use of force or violence and/or the threat thereof, of any person or group(s) of persons, whether acting alone or on behalf of or in connection with any organization(s) or government(s), committed for political, religious, ideological or similar purposes, including the intention to influence any government and/or to put the public, or any section of the public, in fear."

Terrorism coverage is now offered separately at a higher price

The availability and cost of terrorism coverage have been significantly impacted by the 9/11 attacks. Terrorism coverage is no longer included in general insurance policies without an additional cost to the insured. Instead, it is offered separately and often at exorbitant premiums, making it unaffordable for many. This change in the insurance industry is due to the realisation that acts of terrorism are not accidental insurable risks but intentional acts designed to maximise damage.

The war exclusion clause in insurance policies also typically includes acts of terrorism. This is because insurance companies cannot accurately compute the premiums to charge for damages sustained in acts of war or terrorism. Moreover, the cost of claims could be extremely high, potentially bankrupting the insurance company.

In response to the increased cost and unavailability of terrorism coverage, the U.S. Congress passed the Terrorism Risk Insurance Act (TRIA) in 2002. This Act provides a federal backstop for future terrorist acts, allowing the federal government to share monetary losses with insurers. The Act has been renewed multiple times and is currently slated to expire on December 31, 2027. While TRIA requires insurers to make terrorism coverage available to commercial policyholders, it does not require insured individuals to purchase it.

The Terrorism Risk Insurance Act (TRIA) provides a federal backstop for future terrorist acts

The Terrorism Risk Insurance Act (TRIA) was signed into law by President George W. Bush on November 26, 2002, in response to the September 11 attacks. The act created a federal "backstop" for insurance claims related to acts of terrorism, providing a transparent system of shared public and private compensation for insured losses resulting from acts of terrorism.

Prior to 9/11, terrorism coverage was typically included in general insurance policies without an additional cost to the insured. However, after the attacks, coverage became extremely expensive, if offered at all. The scope of the 9/11 attacks and the resulting $40 billion in insured losses changed perceptions dramatically. The financial burden of the attacks fell largely on reinsurers, who then withdrew from the market for terrorism coverage. This, in turn, impacted primary insurers, who were compelled to exclude terrorism coverage from their policies.

The situation left many businesses unable to purchase insurance protection against future terrorist attacks, which threatened industries where lenders and investors required such coverage. This included the real estate, transportation, construction, energy, and utility sectors, creating broader threats to the national economy. In response, Congress enacted TRIA to provide a government reinsurance backstop in the event of large-scale terrorist attacks. The act requires that business insurers offer terrorism coverage for the types of insurance included in the act, although it does not mandate that insureds purchase it.

TRIA was initially created as a temporary three-year federal program, but it has since been renewed five times: in 2005, 2007, 2015, 2019, and 2020. The current reauthorization is set to expire on December 31, 2027. The act is overseen by the Secretary of the Treasury, with the assistance of the Federal Insurance Office, who established regulations and procedures for its implementation.

To qualify as an "act of terrorism" under TRIA, an act must be certified by the Secretary of the Treasury, in agreement with the Attorney General and the Secretary of Homeland Security. It must be an act that is dangerous to human life, property, or infrastructure and must have resulted in insured damage in excess of an escalating figure, currently set at $140 million. This definition includes both foreign and domestic terrorists, and the decision to certify an act as terrorism is not subject to judicial review.

War exclusion clauses were expanded to include terrorism after 9/11

The terrorist attacks on September 11, 2001, had a profound impact on insurance policies and national security. Before the attacks, most war exclusion clauses in insurance contracts only applied when there was contractually assumed liability, as private persons and organisations were not thought to be liable in connection with war. However, the events of 9/11 blurred the line between war and terrorism, and insurance companies soon began to include terrorism in their war exclusion clauses.

The attacks brought about a realisation that insurance companies would be unable to remain solvent if they had to pay out on the millions of claims that would arise from an act of war or large-scale terrorist attack. As a result, insurance companies expanded their war exclusion clauses to include terrorism. This was done to limit their financial risk in the event of future attacks.

The expanded war exclusion clauses were quickly added to liability policies, and they are now considered standard, regardless of whether terrorism is insured or excluded in the policy. This means that auto, homeowners, renters, commercial property, and life insurance policies often have war exclusion clauses. However, it is important to note that life insurance policies do not contain terrorism exclusions, and proceeds will be paid to the beneficiary as designated on the policy.

The inclusion of terrorism in war exclusion clauses highlights the insurance industry's response to the increasing complexity of global security threats. By expanding these clauses, insurance companies sought to protect themselves from potential financial ruin while also recognising the evolving nature of warfare and terrorism.

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