Commercial Insurance and Terrorism Coverage

On a day in September with a clear blue sky over New York City where most people were going about their day dropping kids off at school, getting to work, and tackling the tasks on their to do lists, our lives were forever changed.  American Flight 11 and United’s Flight 175 crash into the twin towers roughly 14 minutes apart.  37 minutes later, American Flight 77 crashes into the western side of the Pentagon followed 26 minutes later by United Flight 93 crashing into the Pennsylvania countryside after a fight broke out between passengers and hijackers.  Over the next 25 minutes, both towers collapsed.  2,996 people were killed and 6,294 people were injured in these attacks.

On a cool day in April last year, Americans were faced with another attack on our soil when two pressure cooker bombs were exploded near the finish line of the Boston Marathon.  3 people were killed and 264 others were injured by the two bombs which were exploded 13 seconds and 210 yards apart.

Both of these incidents were horrific and will live in the minds of most people for the rest of their lives.  The attacks of 9/11 were clearly, and easily, declared to be a terrorist attack, however, there was much debate as to whether the Boston Marathon bombings would fit the criteria classifying them as a terrorist attack.  In order for an act to be classified as a terrorist attack, it must meet two key criteria:

  • It must be jointly certified as a terrorist attack by the secretaries of State and Treasury as well as by the US Attorney General.
  • In addition, losses from the attack must exceed $5 million.

The distinction is important from an insurance perspective for two key reasons:

  • Terrorism coverage is not included with any commercial policy.  It’s an optional coverage that must be purchased separately.
  • The classification determines if federal funds will be used to cover insurance company losses arising from terrorism coverage claims.

Terrorism Coverage:  No commercial policy includes coverage for an act of terrorism.  If a business did not purchase the coverage then any losses from an officially certified act of terrorism will not be covered by their commercial insurance policy.  All cost to business property or subsequent liability claims will be paid strictly out of pocket by the business.

Terrorism coverage is offered at the onset and renewal of all commercial insurance policies.  The cost for this coverage can range from a few dollars a year to much more depending on the company’ size, what they do, etc.  Either the business chooses to have this coverage or they reject it.  I review terrorism coverage with every client and prospective client whenever we present a commercial insurance proposal or are discussing their renewal.

Terrorism Classification:  If an act is not determined to be an official act of terrorism because the secretaries of State and Treasury and US Attorney General could not agree jointly or the damage did not exceed the $5 million threshold, then any damage sustained would be covered under the commercial insurance policy.  If the act met both criteria then those with terrorism coverage would be able to legitimately file claims with their insurance carrier and expect to be paid.  Should insurance company losses exceed $100 million then insurance companies could expect the federal government terrorism protection to cover their losses.

In the post 9/11 age we live in, many business owners may wonder whether they need to carry terrorism coverage or not.  There’s no clear cut answer, however, I do believe there are a couple of questions that should be answered.

  • How large is your company or organization?
  • Where are you offices located?
  • What would make an inviting target and what is your proximity to it?

How many people do you employ or have in one location?  The larger the target, the bigger the headlines and greater the media attention if you’re attacked.  The airlines whose plane were hijacked the morning of 9/11 were purposely chosen because of their names (variations on the United States of America).

Is your company located in the suburbs or downtown?  If your office is in a large building in the downtown business district you may need to have this.  If you’re located in a strip center in one of the suburbs you may not.  If you’re in a small office or retail space adjacent to an inviting target such as a school, university, defense contractor, government facility, etc., you may need to have terrorism coverage.

The bottom line is only you can determine whether or not you should carry this optional coverage.  Do you need it or not?  Share your comments, questions, and observations with me in the comments section of our blog or on our Google + and Facebook pages.  I’d love to hear from you!

Evie Wise
Evie Wise


Evie Wise
Evie Wise

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