Filed Under:Markets, E&S/Specialty

Insurance implications of war, domestic terrorism and nuclear threats

Coverage is scant.

There is no way to accurately rate and charge premiums for acts of war or nuclear explosions. These historic photos from 1945 illustrate the U.S. Army's first atomic bomb tests in the New Mexico desert. (AP Photo/U.S. Army, File)
There is no way to accurately rate and charge premiums for acts of war or nuclear explosions. These historic photos from 1945 illustrate the U.S. Army's first atomic bomb tests in the New Mexico desert. (AP Photo/U.S. Army, File)

Over the past few weeks, North Korea has been testing Intercontinental Ballistic Missiles (ICBMs), and the United States has been saber rattling in response.

This has alarmed many: The fear of a nuclear strike is rising — especially for those in Guam, Hawaii or even the West Coast. Consider that multiple news reports and social media posts have appeared advising readers what to do and where to go in the event of a nuclear strike.

On top of this, white nationalist demonstrations and counter protests in Charlottesville, Va., earlier this month resulted in three deaths and many injuries, and a declaration by Attorney General Jeff Sessions that this violence was an act of domestic terrorism.

P&C industry professionals know that war, nuclear discharge, and riots are excluded from all insurance policies. But is there coverage anywhere for any related damage?

Related: Protests, riots, and loss of business income

Drilling down the policy language


All policies exclude war, rebellion or revolution, and nuclear discharge.

Nuclear discharge is excluded even if the discharge of the weapon is accidental. So if someone leans on the button and fires a nuclear device unintentionally, that is still excluded. Nuclear weapons are so dangerous there is no room for accidents.

Nuclear radiation, reaction, or radioactive contamination are excluded as well, even if a weapon is not involved.

Claims and suits that result from nuclear reactions are also excluded.

War includes:

        • Declared war,
        • Undeclared war,
        • Civil war,
        • Insurrection,
        • Rebellion or
        • Revolution.

Some policies also list warlike acts by a military force or personnel along with destruction, seizure or use (of private property, for instance) for a military purpose. Other policies mention actions hindering or defending against an actual or expected attack, by any government, sovereign or other authority using military personnel or other agents.

A few policies state that loss caused by the nuclear hazard will not be considered loss caused by fire, smoke, or explosion — even if these are considered named perils elsewhere in the policy. This wording appears in the homeowners HO 00 03, and ensures that if a nuclear blast creates a covered peril, there is still no coverage.

That being said, several other homeowners and commercial policies state that direct loss by fire resulting from the nuclear hazard is covered. This is an ensuing loss clause, and while the blast itself will not be considered a fire, smoke or explosion loss, any resultant fire, smoke or explosion loss will be covered.

For example, suppose a 10 kiloton nuclear missile — the size North Korea tested in 2013 — is fired at Guam and lands near the U.S. Naval Station. The missile explodes and sets fire to a nearby village. The burning of the village that resulted from this action will be covered by the homeowners forms and the standard causes of loss forms for the commercial property policy.

Related: Terrorism and political violence call for review of insurance strategy

Is 'domestic terrorism' an emerging threat?


Over the weekend of Aug. 12-13 in Charlottesville, Va., demonstrations by Neo-Nazis and the Alt-Right led to deaths and injuries, and it has been called an act of "domestic terrorism."

But what is domestic terrorism? This is how Section 2331 of title 18 of the United States Code of Laws defines international terrorism:

"...Activities that involve violent acts or acts dangerous to human life that are a violation of the criminal laws of the United States or of any State, or that would be a criminal violation if committed within the jurisdiction of the United States or of any State..."

The same law says that these activities will:

"...Appear to be intended to intimidate or coerce a civilian population; to influence the policy of a government by intimidation or coercion; or to affect the conduct of a government by mass destruction, assassination, or kidnapping; and occur primarily outside the territorial jurisdiction of the United States, or transcend national boundaries in terms of the means by which they are accomplished, the persons they appear intended to intimidate or coerce, or the locale in which their perpetrators operate or seek asylum..."

Domestic terrorism is therefore any activity that endangers human life and violates criminal laws of the country or the state, and appear to be intended to intimidate or coerce a civilian population, influence government policy by intimidation or coercion, affect the conduct of the government by mass destruction, assignation or kidnapping and occurs primarily within the territory of the United States.

Tensions between the U.S. and North Korea are spurring social media chatter about the potential nuclear threat. Here, South Korean government officials wearing gas masks during an anti-terror drill there in early August 2017. (AP Photo/Ahn Young-joon)

Tensions between the U.S. and North Korea are spurring social media chatter about the potential nuclear threat. Here, South Korean government officials wearing gas masks during an anti-terror drill there in early August 2017. (AP Photo/Ahn Young-joon)

Real world implications


In Charlottesville, one person was killed when a car deliberately crashed into counterprotesters, and many were injured. Groups with differing views converged at the site of a rally. As clashes broke out, officials declared the crowd an "unlawful assembly," and the governor declared a state of emergency.

It appears that property damage resulting from the gathering was minimal. The Attorney General has stated that the incident meets the definition of domestic terrorism as defined in statute and that the case is being investigated as such as well as a civil rights issue. The use of the term opens up broader investigate powers and brings a case under federal, instead of state, jurisdiction.

While this incident has been declared an act of domestic terrorism, since there is no real property damage, TRIA would not be put into play. If there had been property damage, in order for the incident to fall under TRIA, then not only the Attorney General but the Secretary of Treasury and the Secretary of State would also have to designate the incident as an incident of terrorism.

While demonstrations so far have not led to property damage and looting, the risk is present. 

The issue of victim compensation


The Patriot Act includes a section on providing for victims of terrorism. Once a terrorist act has been declared, compensation is available in the way of grants to provide emergency relief. The text of the act is as follows:

"The Director may make supplemental grants as provided in section 1402(d)(5) to States for eligible crime victim compensation and assistance programs, and to victim service organizations, public agencies (including Federal, State, or local governments) and nongovernmental organizations that provide assistance to victims of crime, which shall be used to provide emergency relief, including crisis response efforts, assistance, compensation, training and technical assistance, and ongoing assistance, including during any investigation or prosecution, to victims of terrorist acts or mass violence occurring within the United States."

This part of the Patriot Act provides compensation for victims of terrorism.

The big picture


Some things are just impossible to insure, such as war or a nuclear explosion. There is no way to accurately rate and charge premiums for such exposures, hence the TRIA backup plan and other government provisions are necessary for compensation.

See also:

Business owners pay the price for Ferguson riots

Terrorism risk insurance: Trends, take-up & pricing

Christine G. Barlow, CPCU, (cbarlow@alm.com) is managing editor with FC&S, the premier resource for insurance coverage analysis. She has an extensive background in insurance underwriting. Additional information about FC&S Online is available at www.NationalUnderwriter.com.

Related

Do your clients need terrorism insurance?

The Terrorism Risk Insurance Act (TRIA), ensures that adequate resources are available for businesses to recover and rebuild if they...

Featured Video

Most Recent Videos

Video Library ››

Top Story

Identity theft takes the sparkle off of the holiday shopping season says new study

Cyber risks affect shopping patterns according to Generali Global Assistance.

Top Story

5 things to know about the NAIC's new cybersecurity model law

The NAIC's newly-adopted Insurance Data Security Model Law provides guidance for carriers, agents, brokers and their business partners.

More Resources

Comments

eNewsletter Sign Up

Specialty Markets Insight eNewsletter

Receive updates and analyses on hard to place and challenging coverages. Sign Up Now!

Mobile Phone

Advertisement. Closing in 15 seconds.