12.23.2014

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Updates

The U.S. Congress failed to reauthorize the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) prior to adjourning on December 16, 2014.  The new 114th Congress will not convene until January 6, 2015 and may not immediately begin the consideration of TRIPRA for several days thereafter.

TRIPRA would have extended the Terrorism Risk Insurance Program (TRIP), which is scheduled to expire on December 31, 2014.  Since 2002, the TRIP has provided an important federal insurance backstop for policyholders seeking terrorism insurance coverage.  Its expiration raises specific concerns for property, primary and excess liability, workers’ compensation and captive insurance programs.  Policyholders who purchase terrorism coverage as part of their insurance programs, and not as a standalone program, may be affected by the expiration of the TRIP. 

The expiration of the TRIP will activate the terms of the Insurance Services Office, Inc.’s (ISO) conditional terrorism endorsements to insurance policies to which they are attached and will apply to terrorism losses that occur on or after January 1, 2015.  The insurance industry through ISO, the insurance industry’s trade group, first introduced these conditional endorsements in 2004.  Although termed “endorsements,” these provisions exclude or limit coverage for losses from terrorism.  They have been approved for use by insurance regulators in all states (except New York and Florida) and are available for insurers to use on policies that extend beyond the TRIP’s scheduled expiration date, as well as on policies that incept on or after January 1, 2015.  These conditional endorsements apply to a variety of situations, but policyholders may wish to focus on the following notable limitations of coverage that insurers may seek to put on policies that previously provided coverage for terrorism through the TRIP:

    • An exclusion for losses from acts expressly defined as “terrorism”;
    • An exclusion for losses from acts involving nuclear, biological or chemical terrorism; and
    • A means to cover terrorism losses not otherwise excluded only up to a sublimit.

Policyholders concerned about losing terrorism coverage may pursue a number of options, which include the following:

    1. Contact your insurers to ask if they will provide stop-gap coverage until the 114th Congress considers and extends TRIPRA, or its equivalent, or until the current policy period lapses.  Policyholders approaching current insurers should also ask the insurers not to invoke sunset clauses, i.e., a clause in a liability policy indicating that the insurance will only provide coverage for losses noticed at a predetermined date in the future—generally after the expiration of the policy, or conditional terrorism exclusions in the interim.
    2. Explore the global standalone terrorism insurance markets to obtain stop-gap terrorism insurance.  A standalone market has large but limited capacity; it is important to pursue such coverage now to ensure that your request for this insurance can be filled.
    3. Cancel your current policy and seek insurance from new insurers who are better able to offer terrorism limits without sun-setting provisions.  Beware, however, not to cancel any existing policy until you have new insurance firmly in place, or you may find yourself with a gap period without any insurance.  
    4. If based in New York and Florida, ask your insurers how the expiration of the TRIP will affect their terrorism coverage. 

All of these options will most likely require the payment of additional insurance premiums. 

Companies should also review the terms of any contracts, loans or leases that require the purchase of terrorism insurance coverage to ensure that they will remain in compliance with those provisions after December 31st, or, if not, that those terms are revised to take into account the expiration of the TRIP.

Workers’ compensation insurance, which is mandatory in all states and the District of Columbia, may be particularly hard hit by the expiration of the TRIP.  Hotels, institutions of higher education, transportation facilities, hospitals and financial services institutions, which employ large numbers of employees, may find it difficult to obtain coverage.  They should consider how they will cover the terrorism risk or if they need to pursue self-insurance or other risk-transfer mechanisms. 

Businesses need to plan now for the expiration of the TRIP on December 31, 2014.  They should consult their insurance advisors and counsel to confirm that they will be protected from key terrorism exposures when New Year’s Day dawns on January 1, 2015.  

© 2014 Perkins Coie LLP


 

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