Barely into the new year, aircraft owners and operators are opening letters from their insurance companies offering additional coverage for acts of terrorism.
These offerings should not be confused with the war-risk and allied perils insurance currently carried by many insured. The new coverage is mandated by the Terrorism Risk Insurance Act (TRIA) of 2002, signed into law by President Bush in November and intended to spur business investment. Under the TRIA, the government will provide a short-term backstop program for the insurance industry with regard to claims resulting from acts of terrorism.
Upon enactment, the terrorism exclusions in existing policies were suspended, to the extent that those policies exclude losses resulting from acts of terrorism as defined by the TRIA.
The law defines an “act of terrorism” as any act certified by the U.S. Secretary of the Treasury, in concurrence with the U.S. Secretary of State and the Attorney General to:
• be an act of terrorism;
• be a violent act or an act that is dangerous to human life, property or infrastructure;
• have resulted in damage within the U.S., or outside the U.S. in the case of an air carrier or a U.S.-registered or U.S. flag vessel or the premises of a U.S. mission; and
• have been committed by an individual or individuals acting on behalf of any foreign person or foreign interest, as part of an effort to coerce the civilian population or to influence the policy or affect the conduct of the U.S. government by coercion.
The Secretary of the Treasury will not certify as an act of terrorism the following:
• any act committed in the course of a war declared by U.S. Congress, except that this clause shall not apply with respect to any coverage for workers compensation; or
• an act that results in property and casualty insurance losses, in the ag gregate, do not exceed $5 million.
According to Stuart Hope, v-p of Columbia, S.C.-based brokerage firm Hope Aviation Insurance, insurers had 90 days from the date the TRIA was signed to notify their customers of the availability of the new coverage. Most, he said, have done so. Upon receipt of the letter, the insured then have 30 days in which to accept or reject the new coverage.
If an operator or owner has already chosen not to buy war-risk and allied perils insurance that included terrorism, what is now being offered by insurers is narrowly focused only on terrorism insurance as defined by the TRIA. If an operator did buy war-risk and allied perils coverage that included an act of terrorism, the TRIA coverage enhances that protection. But, said Hope, if the coverage already includes an act of terrorism, it may not matter how that current policy defines it. “The TRIA takes precedence,” he said.
However, he added, all of the above is a simplification of the TRIA. For example, current terrorism coverage does not include a coverage for hostile detonation of a nuclear weapon. The new coverage under TRIA would appear to cover that act.
Insurers are already establishing rates for the new coverage. USAIG is charging six cents per $100 of insurance hull value for physical damages and up to $240 per $1 million of coverage in liability protection arising from terrorism.
Brokers and insurers appear to agree on one thing with regard to the TRIA-inspired coverage: it is up to the aircraft owner or operator to determine whether it is in his or her best interest, and that of the company, to purchase the coverage. As always, it remains a matter of risk versus cost and whether the current coverage is adequate. War-risk and allied peril coverage, for example, covers a broader range of acts, exposures including damage resulting from confiscation of the aircraft, riots and civil commotion, but may cost more than TRIA coverage.