AAIS To File Endorsements Excluding Non-Certified Terrorism Losses

The American Association of Insurance Services (AAIS) is initiating state-by-state filings of commercial lines terrorism endorsements excluding losses arising from “non-certified” acts of terrorism.

Non-certified terrorist acts are essentially all acts of terrorism carried out by groups based in the United States, plus all terrorist acts, from whatever source, that cause less than $5 million in total insured losses.

AAIS will be filing four types of optional endorsements, most of them with an effective date of April 1, 2003. Information on the status of state terrorism filings can be found by going to www.AAISonline.com, clicking on the icon for “Terrorism: The New Rules,” and following the links.

There are basically four types of endorsements addressing non-certified terrorism losses:

*An exclusion for all types of losses from a non-certified terrorist event;
*A similar exclusion with an exception preserving coverage for direct fire losses;
*An endorsement excluding losses from non-certified events involving a biological or chemical attacks. (Liability arising from nuclear events is excluded as well, while property exclusions for nuclear perils are already embedded in standard forms);
*A similar exclusion addressing biological, chemical, and (for liability) nuclear attacks with an exception preserving coverage for direct fire losses.

Under each of the endorsements, coverage for NBC losses is excluded entirely, except for the “fire following” coverage required in some states. Exclusions for other types of non-certified terrorism losses do not apply to events with $25 million or less in insured damages.

These endorsements update terrorist exclusions developed before enactment of the new federal terrorism reinsurance program, but incorporate the term “non-certified.” In most states, companies will be able to use existing terrorism exclusions to address non-certified losses until the new endorsements become effective.

The distinction between “certified” and “non-certified” acts of terrorism arises from the federal Terrorism Risk Insurance Act of 2002. Under the act, the U.S Secretary of the Treasury, in concurrence with the Secretary of State and Attorney General, is charged with certifying that an event is an act of terrorism eligible for coverage under the new federal Terrorism Insurance Program.

To be certified, an event must cause more than $5 million in commercial losses and be directed or carried out by foreigners. “Non-certified” terrorist acts are, therefore, all events that cause $5 million or less in commercial losses, or are carried out by domestic groups or individuals.