1. Forms
2. CU
3. CU-21-31

What the form is

The CU 21 31, titled "Exclusion Of Other Acts Of Terrorism Committed Outside The United States; Cap On Losses From Certified Acts Of Terrorism," is an endorsement to a Commercial Umbrella insurance policy. Its primary function is to address coverage for losses resulting from acts of terrorism. Specifically, it excludes coverage for acts of terrorism that occur outside the United States (and are not certified under the Terrorism Risk Insurance Act - TRIA). Additionally, for "certified acts of terrorism" (those officially recognized by the U.S. government under TRIA), this endorsement imposes a cap on the amount of loss the insurer will cover, aligning the policy with the provisions of TRIA, which includes an industry-wide $100 billion annual aggregate limit.

Classes of business it applies to

This endorsement is used with Commercial Umbrella policies, which provide excess liability coverage over underlying primary policies (like Commercial General Liability, Commercial Auto, etc.). Therefore, it can apply to a very broad range of commercial insureds across various industries that purchase umbrella coverage. Its use became prevalent following the passage of TRIA and its subsequent reauthorizations, as insurers sought to manage their exposure to potentially catastrophic terrorism losses. For example, a large real estate holding company with properties in multiple countries or a multinational corporation would likely see this endorsement on their Commercial Umbrella policy.

Special considerations

There are several important considerations regarding the CU 21 31:

• TRIA Compliance: The form is integral to how insurers provide terrorism coverage in compliance with the Terrorism Risk Insurance Act. TRIA requires insurers to make terrorism coverage available but also provides a federal backstop for certified acts of terrorism, subject to certain deductibles and caps.
• Distinction between "Certified" and "Other" Acts: The endorsement distinguishes between "certified acts of terrorism" (as defined by TRIA, typically foreign-sponsored and occurring within the U.S. or against U.S. interests) and "other acts of terrorism" (those not meeting TRIA certification criteria or occurring outside the U.S.). Coverage for non-certified acts outside the U.S. is generally excluded by this form.
• Geographical Limitation: The exclusion for "other acts of terrorism" specifically applies to those committed outside the United States (including its territories and possessions, and Puerto Rico).
• Cap on Losses: For "certified acts of terrorism," the endorsement reinforces that losses are subject to the TRIA cap, which currently stands at $100 billion in aggregate for all insured losses from a certified event. If total insured losses exceed this cap, payments may be made on a pro-rata basis.

For instance, if a U.S.-based company has an overseas office that is damaged by a terrorist act not certified under TRIA, this endorsement would likely preclude coverage under the umbrella policy for that loss. However, if a domestic property is damaged by a TRIA-certified act, coverage would be subject to the policy terms and the TRIA-mandated cap.

Key information for agents and underwriters

For Agents:

• It is crucial to explain to insureds how this endorsement affects their terrorism coverage, particularly the exclusion for non-certified acts outside the U.S. and the cap on certified acts.
• Ensure clients understand the definition of "certified acts of terrorism" and the process of certification by the Secretary of the Treasury.
• Discuss whether the client has foreign exposures and how this endorsement would apply.

For Underwriters:

• This form helps manage the insurer's aggregation of terrorism risk.
• When assessing risk, underwriters should consider the insured's geographic spread of operations, especially any foreign exposures, in light of this exclusion.
• It's important to ensure that the use of this and related terrorism endorsements is consistent with the insurer's obligations under TRIA and the coverage provided in underlying policies.
• Pricing for terrorism coverage should reflect the scope of coverage provided after application of this and other relevant endorsements.