1. Forms
2. CU
3. CU-21-36

What the Form Is

The CU 21 36, titled "Exclusion of Punitive Damages Related to a Certified Act of Terrorism," is an endorsement used with Commercial Liability Umbrella policies. Its primary function is to eliminate coverage for punitive damages that may be awarded in connection with bodily injury, property damage, or personal and advertising injury arising from an event that the U.S. government officially declares a "certified act of terrorism" under the Terrorism Risk Insurance Act (TRIA) or its subsequent reauthorizations. This means that while the policy might still cover compensatory damages (subject to its terms and other terrorism-related endorsements), any portion of a judgment or settlement identified as punitive damages related to that certified act would not be paid under the umbrella policy if this endorsement is attached.

Classes of Business It Applies To

This endorsement can apply to a wide range of commercial insureds who purchase Commercial Liability Umbrella coverage, particularly those who opt for or are provided with terrorism coverage that is subject to TRIA. It's not specific to one industry but is relevant for any business where the potential for claims following a terrorist act exists. Examples include:

• Businesses in high-profile urban areas or near critical infrastructure.
• Companies involved in industries that could be targets, such as transportation, energy, large retail or entertainment venues, and financial institutions.
• Organizations with a significant concentration of employees or public visitors.

For instance, a large hotel chain with properties in major cities might have this endorsement on its umbrella policy to manage its exposure to punitive damages in the event one of its properties is affected by a certified act of terrorism.

Special Considerations

Key considerations for the CU 21 36 include:

• TRIA Dependency: The endorsement's trigger is a "certified act of terrorism." If an event, however destructive, is not certified as such by the Secretary of the Treasury, this specific exclusion for punitive damages may not apply (though other policy exclusions might).
• Interaction with Other Terrorism Endorsements: It is often used in conjunction with other ISO terrorism endorsements that define the scope of terrorism coverage, such as those that provide coverage subject to TRIA caps (e.g., CU 21 30 - Caps on Losses From Certified Acts of Terrorism) or other terrorism-related exclusions. The presence of CU 21 36 clarifies that even if terrorism losses are covered up to a certain cap, punitive damages are not.
• State Laws on Punitive Damages: The insurability of punitive damages varies by state. This endorsement provides a specific contractual exclusion irrespective of general state law, focused solely on certified acts of terrorism.
• Clarity for Insureds: It's crucial that insureds understand that this endorsement carves out a specific type of damage (punitive) related to a specific type of event (certified acts of terrorism).

For example, if a manufacturing plant has TRIA-related terrorism coverage under its umbrella policy and this endorsement is attached, and a certified act of terrorism causes significant damage and injury leading to lawsuits, the policy would not cover any punitive damages awarded to claimants, even if compensatory damages are covered up to the policy limits and TRIA program cap.

Key Information for Agents and Underwriters

• Risk Management: For underwriters, this endorsement is a tool to manage catastrophic loss exposure by specifically removing the unpredictable and potentially very large element of punitive damages from terrorism claims.
• Pricing and Coverage Structuring: While TRIA itself mandates the offering of terrorism coverage, endorsements like CU 21 36 allow insurers to refine the terms of that coverage. The decision to include this endorsement can be part of the overall risk assessment and pricing of the umbrella policy, especially in relation to the terrorism exposure.
• Agent's Role: Agents must clearly communicate the impact of this exclusion to the insured. It's important to explain that while the umbrella policy may provide significant limits, this endorsement specifically removes coverage for punitive damages in the context of certified terrorist acts. This ensures the insured has a clear understanding of their coverage scope.
• Underlying Policies: Underwriters should consider the terms of underlying insurance. While this is an umbrella endorsement, consistency in how punitive damages for terrorism are treated across the insured's liability program can be a factor. Result mentions that a similar endorsement, CG 21 36, might be on the underlying policy, suggesting a coordinated approach to this exclusion.