1. Forms
2. IL
3. IL-00-32

What the form is

The IL 00 32 - Limitation Of Coverage For Terrorism - Sub-Limit On Annual Aggregate Basis endorsement is an insurance policy provision used in commercial lines. Its primary purpose is to limit the insurer's total liability for losses stemming from acts of "terrorism" (as defined in the policy or endorsement) to a specific, predetermined aggregate amount for the policy year. This sub-limit is entered in the schedule that is part of the endorsement. This endorsement is attached to policies when terrorism coverage is being provided but the insurer wishes to cap its exposure on an annual aggregate basis for such events.

Classes of business it applies to

This endorsement can be applied to a wide range of commercial insurance policies where terrorism coverage is offered. This includes, but is not limited to:

• Commercial Property policies
• Commercial General Liability policies (though terrorism endorsements vary by line of business)
• Commercial Package Policies

Real-world example: A commercial property owner in a major metropolitan area might have terrorism coverage included in their policy. The insurer may attach the IL 00 32 to limit their total payout for all terrorism-related property damage claims during that policy year to a specific figure, say $1 million, regardless of the total property value insured.

Special considerations

• Definition of Terrorism: It's crucial to understand how "terrorism" is defined in the policy and this endorsement, as it may differ from the definition of a "certified act of terrorism" under the Terrorism Risk Insurance Act (TRIA). This endorsement typically applies to acts of terrorism as defined within the form itself, which may not require certification by the Secretary of the Treasury.
• TRIA Interaction: While this endorsement provides a sub-limit, policies covering terrorism are often subject to the provisions of TRIA, which has its own mechanisms for how losses from certified acts of terrorism are handled, including a federal backstop and a $100 billion annual cap on aggregate industry losses for certified acts. This endorsement works in conjunction with, or as part of the insurer's approach to managing terrorism risk under TRIA.
• Scheduled Sub-Limit: The effectiveness of this endorsement hinges on the sub-limit amount clearly stated in the schedule. This amount represents the maximum the insurer will pay for all terrorism losses combined within the annual policy period.
• Aggregate Limit: Unlike per-occurrence limits, this is an aggregate limit. Once the total of all terrorism-related loss payments in a policy year reaches this sub-limit, no further coverage for terrorism is available under the policy for that year.

Key information for agents and underwriters

• Risk Assessment: Underwriters use this endorsement to manage their overall exposure to terrorism risks, especially for properties or businesses perceived to be at higher risk. The sub-limit chosen will reflect the insurer's appetite for this type of risk.
• Pricing: The premium charged for terrorism coverage may be influenced by the presence and amount of this sub-limit. A lower sub-limit might correspond to a lower premium for the terrorism portion of the coverage, all else being equal.
• Coverage Gaps: Agents should clearly explain to insureds how this sub-limit works and its potential impact on their recovery in the event of multiple terrorism incidents or a single very large incident. It's important for the insured to understand that this limit is an annual aggregate.
• Clarity in Communication: Ensure the insured understands the difference between the policy's general aggregate limits and this specific aggregate sub-limit for terrorism. The schedule must be accurately completed and communicated.
• Underlying Policy Provisions: This endorsement is subject to other policy provisions, including applicable exclusions (e.g., nuclear hazard, war and military action), unless modified by the endorsement itself.