Act Quickly to Avoid Reinstatement of Terrorism Insurance Exclusion

In the January 2003 issue of CLLI, we told you about a new law, the Terrorism Risk Insurance Act, which will help ensure that you have access to adequate levels of terrorism insurance with reasonable terms. One of the key protections in this new law is that it voids any existing terrorism exclusion found in commercial property, general liability, workers' compensation, and other types of insurance coverage as of Nov. 26, 2002.

But if you want this coverage, you'll need to act fast, according to an interim guidance released by the Department of the Treasury on Dec. 3, 2002. Otherwise, your insurer may be able to reinstate the exclusion. We'll tell you a little about what the guidance says. And we'll tell you how to avoid having the terrorism exclusion reinstated in your policies. To get a copy of the guidance, go to www.treasury.gov.

Disclosure Requirements and Deadlines for Insurers

The new law says that insurers can charge an additional premium for coverage for acts of terrorism, which they're now required to offer. Your insurer—either directly or through your insurance agent or broker—may have already sent you a disclosure spelling out the additional premium it will charge you if you want this coverage. If not, you should get it soon. That's because the guidance says that an insurer must inform its insureds of the additional premium for this coverage in a “clear and conspicuous disclosure” and must make the disclosure by the following deadlines:

• For insurance policies issued before or in existence on Nov. 26, 2002 (the date the law was enacted): within 90 days of Nov. 26, 2002—or by Feb. 24, 2003;

• For policies issued within 90 days of Nov. 26, 2002 (or between Nov. 27, 2002, and Feb. 24, 2003): at the time of the offer, purchase, and renewal of the policy; and

• For policies issued more than 90 days after Nov. 26, 2002: at the time of the offer, purchase, and renewal of the policy. And the disclosure must be in a “separate line item in the policy.”

How Terrorism Exclusion Can Be Reinstated

If you want coverage for acts of terrorism, act quickly when you get the insurer's disclosure—or you could lose out. The guidance explains that any terrorism exclusion in your policies that was voided as of Nov. 26, 2002, can be reinstated in one of two ways:

• Through a written statement from you, authorizing the reinstatement of the terrorism exclusion; and

• By your failure to pay any premium charged by the insurer for providing such terrorism coverage. But for that to happen, the insurer must have sent you disclosure of the premium and your rights, with respect to the terrorism coverage, by the appropriate deadline. Also, the insurer must have given you at least 30 days in which to pay this premium—and have warned you that if you don't pay by a certain date, the exclusion will automatically be reinstated. So if you drag your feet and let the date by which you must pay the premium pass, you'll be stuck with a terrorism exclusion in your policy.