Managing Mayhem

TO COMPENSATE AMERICAN businesses for financial devastation following a terrorist attack, President George W. Bush, in November, enacted the Terrorism Risk Insurance Act of 2002. This allowed the federal government to provide financial backing for losses deemed “acts of terrorism” by the Treasury Secretary.

Currently, the insurance industry is reviewing the new law and its effects on the insurance industry and policyholders. Although insurance companies still are finalizing their individual plans to comply with the law, waste companies can expect potential changes to their insurance policies. Insurers now must make decisions regarding terrorism coverage on any entity conducting business in the United States, including waste companies.

According to the Washington, D.C.-based American Insurance Association, the legislation's main provisions:

  • Apply to “insured losses” suffered by any commercial property and casualty insurance company conducting business in the United States.

  • Partially and temporarily suspends terrorism exclusions from all applicable insurance policies. All insurance companies conducting business in the United States should make coverage available for terrorism acts. The coverage should equal a policy's full limit and is subject to comparable terms and other coverage limitations.

  • Requires the terrorist act to have caused at least $5 million in damages.

  • Requires the damages be certified by the Treasury Secretary as an “act of terrorism.” To qualify, the act must be violent and dangerous to human life, property or infrastructure. The terrorist act must have been committed on behalf of any foreign individual or group attempting to coerce the U.S. population, or to influence U.S. policy. Damages that are caused by domestic terrorism, such as the Oklahoma City bombing, are not eligible for reimbursement under the new legislation.

  • Provides coverage for lines of insurance, with specific exclusions such as flood insurance, life and health, mortgage guarantee, and medical malpractice.

  • Covers business interruption, surety, excess lines and workers' compensation.

  • Pays 90 percent of each insurer's primary property and casualty' losses, with a maximum of $100 billion more than an insurer's annual program deductible.

  • Requires that insurance companies covered by the new law disclose terrorism coverage premiums and the existence of the federal backstop. If a policy was issued prior to the law, insurance companies have 90 days from the law's enactment to inform policyholders of the additional terrorism premiums. If the policy was issued after the law's enactment, terrorism disclosures should appear as a separate item in a policy.

  • Allows insurance companies to choose whether to include terrorism coverage in their policies, after they have been informed of their additional costs. If a company does not want to pay the additional premium, or if the company requests it, the policy must include an exclusion.

  • Defines “act of terrorism,” pre-empting state laws and all state-approved exclusions for international acts of terrorism that were in effect prior to the law. States still have authority to disapprove of insurance rates that are excessive, inadequate or unfair. States also will authorize policy forms, ensuring that they meet legal requirements.

  • Insurance brokers and associations, such has the Jersey City, N.J.-based Insurance Services Office [] and the American Insurance Association [] have drafted overviews of the new act. It is important for businesses to understand the legislation, their choices and how it will affect premiums.