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Norm's Desk

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Insurance Against Terror?

The Boston Marathon bombing was specifically intended by its perpetrator(s) to inflict maximum suffering and carnage on the innocent people caught in the explosion.  Watching the video of the explosion, it is incredible that the death toll was not much, much higher, though the non-fatal injuries the blast inflicted were grave.  Clearly less important is the physical damage sustained by the surrounding businesses and buildings next to the blast zone.  

It does not appear that there was any significant structural damage to the buildings, but there will be non-trivial damages resulting from the blast and, perhaps even greater, business interruption damages from the forced closure of those locations due to the ongoing investigation of the bombing.  This leads us to a relevant question in our wheelhouse: Will these businesses have insurance coverage for these damages?

Property Damage

All things being equal, the broken glass, blast damage, and other physical damage caused by an unintended explosion would be covered by a standard ISO (Insurance Services Office) property policy.  Of course, all things are not equal when it comes to terrorism.  Terrorism exclusions have become frequent in property policies as well as GL policies.  Here is an example of one such terrorism exclusion:

loss or damage caused directly or indirectly by terrorism, including action in hindering or defending against an actual or expected incident of terrorism. Such loss or damage is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the loss (from IRMI).

Of course, this requires us to define what we mean by terrorism.  Get ready:

"Terrorism" means activities against persons, organizations or property of any nature:
1. That involve the following or preparation for the following:
  • Use or threat of force or violence;
  • Commission or threat of a dangerous act; or
  • Commission or threat of an act that interferes with or disrupts an electronic, communication, information, or mechanical system; and
2. When one or both of the following applies:
  • The effect is to intimidate or coerce a government, or to cause chaos among the civilian population or any segment thereof, or to disrupt any segment of the economy; or
  • It is reasonable to believe the intent is to intimidate or coerce a government, or to seek revenge or retaliate, or to further political, ideological, religious, social or economic objectives or to express (or express opposition to) a philosophy or ideology.
Let me stress here that these are examples.  Your property policy may read quite differently.  But, note that such a broad definition could encompass vandalism as well as what we would all agree was an act of terror.  Carriers have also established damage thresholds requiring an amount in total damages (caused by the whole incident), e.g., $25 million, before it can meet the definition of terrorism.  Again, your property policy determines how these definitions will apply in your individual case.

Business Interruptions

The businesses in Boston have more to contend with than broken glass.  Their storefronts are closed for the duration of the investigation and cleanup of the bombing.  To be sure, this is a significant business interruption that could end up being more costly than the physical damage caused by the bomb.  Is there coverage for this?  First, you have to have business interruption coverage.  Second, that coverage should include coverage in the event the action of a civil authority prohibits access to your business.  ISO forms offer this as an extension with a 72 hour waiting period and 4 weeks of coverage.  However, this will not be available if it is excluded by operation of the terrorism exclusion.   Where can a business go to get coverage?

The Terrorism Risk Insurance Act

In the wake of 9/11 and carriers' rush to exclude terrorism as a covered loss, Congress enacted the Terrorism Risk Insurance Act that provides $100 billion in coverage for acts of terror.  However, you must buy the coverage.  It pays 85% of insured losses exceeding the deductible.  Moreover, the act in question must be certified as an act of terrorism by the Secretary of the Treasury and generally must exceed $5 million in aggregate losses to qualify.  
So, there could be coverage available for the businesses impacted by the bombing depending on their own property policies and the coverage they have previously purchased.  This event should be a wake up call to business owners about the scenarios that present them with a terrorism exposure.  Given the severity of the potential loss and the relatively low cost of the terrorism coverage, we recommend purchasing the terrorism coverage.

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