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Stand-alone terrorism coverage can fill gap in property policies

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U.S. policyholders that have had terrorism written out of their all-risk property policies should write it back in using stand-alone coverage but must be careful about the definitions used,  according to one leading insurance industry executive.

“You have to be very, very clear about what you are buying,” Zoe Towndrow, London-based practice lead, political violence, for Berry Palmer & Lyle Ltd., known as BPL Global, said during a Wednesday session at Riskworld, the Risk & Insurance Management Society Inc.’s annual meeting in Atlanta. “Definitions of terrorism tend to be very wide when used for exclusions and very narrow when used in coverage.”

After the Sept. 11, 2001, attacks, terrorism coverage changed for U.S. policyholders. “Prior to 9/11, it was put into property policies with absolutely no problem. Underwriters didn’t have an issue with it,” Ms. Towndrow said. After 9/11, terrorism was treated like a war risk and excluded from all risk property policies, she said.

A stand-alone terrorism policy will write back into property coverage the exposure of acts with political, religious or ideological basis but will not cover certain types of strike, riot and civil commotion excluded by the war exclusion, potentially leaving a gap in an insured’s coverage, Ms. Towndrow said. This makes a stand-alone terrorism policy “not a complete answer” to writing back into coverage everything excluded by the property terrorism exclusion, she said.

Ms. Towndrow cautioned against seeing the Terrorism Risk Insurance Act, which was signed into law in 2002 and extended or reauthorized in 2005, 2007, 2015 and 2019 as a solution to any coverage gaps as the law requires that an incident be certified as terrorism by three government officials, something that has yet to happen.