Nukes, Bio-Terror May Get Exclusion: Treasury

By Steven Brostoff, Washington Editor

NU Online News Service, Dec. 4, 11:25 a.m. EST?Depending on state law, insurance companies are not required to make terrorism insurance available for all types of risk, including nuclear, biological or chemical events, according to the interim guidance released yesterday by the Treasury Department.

Treasury said that if a state permits exclusions for these types of losses, insurance companies are not required to make such coverage available.

Treasury issued its interim guidance just one week after President Bush signed the Terrorism Risk Insurance Act into law. The legislation creates a federal backstop for losses caused by acts of terrorism.

The law requires insurance companies to "make available" terrorism insurance coverage to policyholders in a manner that does not differ materially from the terms, amounts and other coverage limitations offered for losses from events other than terrorism.

Treasury said this means that insurers must offer coverage for acts of terrorism at deductibles and limits that do not differ materially from the coverage provided for other perils.

But this does not mean that insurance companies must make coverage available for all types of risks, Treasury said.

An insurer that does not cover all types of risks, either because it is outside of direct state regulatory oversight or because the state permits exclusions, is not required to make terrorism coverage available.

At this writing, National Underwriter was seeking commentary from interested parties on whether this means that losses from chemical events, located in a state that permits chemical event exclusions, might not be covered by terrorism insurance.

For more information, see the upcoming article in the Dec. 9 print edition of National Underwriter.

Turning to the disclosure notices, Treasury said that the model disclosure forms recently issued by the Kansas City, Mo.-based National Association of Insurance Commissioners can be relied on by insurance companies as meeting the disclosure requirement.

The law requires insurance companies to disclose the premium charged for insured losses covered by the federal reinsurance program and the federal government's share of compensation.

However, Treasury said, while the NAIC forms represent a "safe harbor" for insurers, they are not the exclusive means to satisfy the disclosure requirement.

Treasury did not provide any information on other means to satisfy the disclosure requirement, saying only that the NAIC forms can be relied upon until regulations or further guidance are issued.

Treasury added that insurance companies may comply with the disclosure requirement through an agent or broker, but the responsibility for ensuring the disclosure is provided to the policyholder remains with the insurance company.

Treasury said that during the course of the program, it will be monitoring the pricing and availability of terrorism insurance coverage, as mandated by the legislation, and compiling information on the premium rates of insurers.

Peter R. Fisher, Treasury under-secretary for domestic finance, said that the next step for Treasury is to draft regulations based on the interim guidance.

In addition, he said at a press briefing, Treasury will provide guidance or regulations on other aspects of the program, including how it applies to the law of captive insurers and other self-insurance arrangements.

Treasury is also immediately initiating the mandated study assessing the effectiveness of the program and the likely capacity of property-casualty insurers to offer insurance for terrorism risk after the program is terminated.

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Nukes, Bio-Terror May Get Exclusion: Treasury

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