One of the coverage decisions condo associations face, but often don’t completely understand, is terrorism insurance. TRIA (Terrorism Risk Insurance Act) coverage is often purchased without hesitation due to the low cost or lack of a broker explaining it’s purpose. Brokers may also simply add the cost into the price of the package insurance premium instead of providing it as a separate option. Another hurdle is that a TRIA rejection letter must be signed in order to decline the coverage – which many associations simply don’t want to do. According to a 2012 congressional report approximately 60% of commercial insurance buyers purchase it.
Most associations assume not buying the coverage will allow an insurance company to deny any claim that could be labeled “terrorism” – but that is not the case. Terrorism is broadly defined as an event dangerous to human life, property, or infrastructure that was committed as part of an effort to coerce U.S. civilians or to influence the policy or conduct of the U.S. Government. However, just labeling something an act or terror does not mean that it is terrorism in the eyes of the insurance policy.
The coverage (or exclusion) is only triggered when the Secretary of Treasury deems an event an act of terrorism. The Secretary of State and Attorney General must then agree with the decision. The Boston Marathon bombing, which the President defined as terrorism, was not deemed as such for insurance purposes and therefore not subject to the terrorism insurance program* – meaning a condominium building in the area who did not purchase terrorism coverage would still likely have their claim paid – despite the newspapers and the president labeling it terrorism.
The insurance-terrorism issue started in 2002 when President Bushed signed the act into law. Prior to 9/11, “war” was a standard exclusion on insurance policies, but terrorism was not. In the year that followed many companies began excluding coverage for any act of terrorism. The TRIA program provides a federal backstop for insurance companies who may be squeamish about the terrorism risk by taking a share of the risk. The law has been extended several times since then and a ten year extension is being debated. Currently for the government backstop to kick in the insurance industry must experience $100 million of losses. At that point the government and the insurance company would begin to split the payments to those injured. The government has capped their total reimbursements at $100 billion.
How much a company charges for the coverage can vary greatly. A few throw it in for free, many charge a nominal sum and several tack on a hefty surcharge to provide the coverage. As an insurance buyer, one should think through the cost when examining the coverage. It may also help to consider where one’s condo building is located. If it is in rural United States, the occurrence of a $100 million loss from terrorism is unlikely. On the other hand, for a high rise in a major metropolitan area may find that threshold much easier to cross.
Before buying any insurance, it is important to understand what the coverage is and when it might be used. Contact AssociationProtection.com to discuss your association’s insurance plans and if there are areas you can save money.
*For the Secretary of Treasury to consider an act terrorism it must have caused at least $5M in damages, which the Boston bombings did not likely cause.