The expiration of TRIA on January 1, 2015 sent the insurance industry into a state of panic and left policyholders with the difficult task of assessing their individual terrorism risks and independently tailoring their insurance policies to suit that risk. Even if the insurance industry prevails at convincing Congress to reenact TRIA in the New Year, TRIA may not function as initially intended more than a decade ago. Policy exclusions, changes in insurance coverage law, and changes to terrorism threats post 9/11 may limit the effectiveness of TRIA, even if renewed. TRIA or no TRIA, though, 2015 is a good time for policyholders to reevaluate their terrorism coverage to make sure that they are adequately protected.
In the aftermath of the terrorist attacks of 9/11/2001, Congress enacted the Terrorism Risk Insurance Act of 2002 (“TRIA”). TRIA was renewed in various forms until very recently, when Congress left for Christmas break without reaching agreement on an extension of the law. Without further action from Congress, TRIA will expire on January 1, 2015.
When Congress failed to renew TRIA, the insurance industry reacted with shock dismay and disappointment. The National Association of Professional Insurance Agents stated that, “politics took precedence over protecting the American people,” and concluded that the lapse will be “devastating to the American economy . . . and put our national security at risk.” The National Association of Professional Insurance Agents found it “particularly galling” that the Senate would leave more than a week before Christmas, without renewing the legislation. The American Insurance Association said in a statement that, “[b]y letting TRIA lapse, Congress has failed to protect taxpayers and the economy.” The National Association of Mutual Insurance Companies stated that, “[t]he country deserved better,” and suggested that “the president should call them back to town to finish their job.” ACE Group reportedly told Advisen, an insurance news agency, that our elected officials were “simply irresponsible”.
There was even talk about canceling the 2015 Super Bowl Game if congress did not act appropriately. The message from the insurance industry was, without TRIA, America as we know it, would not be the same. Ironically, several days later, it was reported that terrorism insurance would be available after TRIA expires. Perhaps this was known all along, but the expiration of TRIA made it clear that the insurance industry has the capacity to insurer terrorism risks and that they no longer need the government subsidy that TRIA provided.
Nonetheless, TRIA was generally considered a good law for policyholders, and the added aggravation policyholders face as a result of the expiration of TRIA will not be appreciated by most. TRIA and its progeny required insurance carriers to offer terrorism insurance to all policyholders. In return, the federal government agreed to pay, or reinsure, much of the risk undertaken by the insurers. If a policyholder wanted terrorism coverage, they checked the TRIA box on the application, and paid an incremental premium for terrorism coverage. Although TRIA coverage had holes, it was universal, and many policyholders accepted it, believing that their odds with the federal government were far better than if they had to deal exclusively with their insurance carriers to obtain coverage.
History has proven this rationale to be accurate. Immediately following 9/11, no one had any idea how hard the insurance industry would fight to limit coverage after 9/11. The terrorist attacks of 9/11 spurred a decade or more of insurance litigation where insurers fought fiercely to limit their losses at the expense of the payment of claims. If history is any lesson, the post-9/11 battles teach us that there is no better defense to an improper denial of coverage than appropriate insurance policy language.
The complexities of the law that developed after 9/11, however, make it more difficult than ever for policyholders and brokers to evaluate options and negotiate effective policy language. TRIA has a body of legislative history and law addressing the scope of coverage afforded. There is also a considerable volume of post-9/11 case law addressing how common insurance policy language applies to terrorism-related risks. Moreover, policy language and case law addressing the treatment of nuclear, biological and environmental policy exclusions has changed since 9/11, and each of these exclusions needs to be considered with respect to terrorism coverage, even if TRIA is renewed. Likewise, the terrorism threat has changed as well. Business income loss due to cyber-terrorism is an important risk that must be individually evaluated based on ever-changing insurance coverage case law in that area. The risk of dirty bombs and biological terrorism are also significant risks that should be individually considered, with or without TRIA.
Despite these challenges, 2015 is a great year for an independent insurance policy review. Although the expiration of TRIA creates uncertainty for policyholders, it also creates the opportunity for policyholders to step back and appropriately structure their insurance policies based on current case law and current terrorism risks. This is true, even if TRIA is renewed early in 2015.
UPDATE: On January 12, 2015, President Barrack Obama signed the new terrorism insurance bill into law. That new bill raised the trigger for Federal reinsurance coverage from $100 million to $200 million, and increased insurer co-pays from 15 to 20 percent. The bill did not address policyholder concerns about the scope of coverage afforded under TRIA or the gaps that insurance carriers have contended exist within TRIA coverage for terrorist-related events. Policy review remains important despite TRIA’s renewal.
Miller Friel, PLLC is a specialized insurance coverage law firm whose sole purpose is to help corporate clients maximize their insurance coverage. Our Focus of exclusively representing policyholders, combined with our extensive Experience in the area of insurance law, leads to greater efficiency, lower costs and better Results. Further discussion and analysis of insurance coverage issues impacting policyholders can be found in our Miller Friel Insurance Coverage Blog and our 7 Tips for Maximizing Coverage series. For additional information about this post, please email or call Mark Miller (MillerM@MillerFriel.com, 202-760-3161).