Form IL 02 75: Exclusion Of Certified Acts Of Terrorism
1. What the form is:
Form IL 02 75, titled "Exclusion Of Certified Acts Of Terrorism," is an Interline Form used in commercial insurance policies. Its primary purpose is to explicitly exclude coverage for losses or damages directly or indirectly caused by "certified acts of terrorism." This exclusion applies regardless of any other cause or event that contributes concurrently or in any sequence to the loss.
A "certified act of terrorism" is defined by the Terrorism Risk Insurance Act (TRIA) and involves a certification by the Secretary of the Treasury, in concurrence with the Secretary of State and the Attorney General. Key criteria for an act to be certified include that it must be a violent act or an act dangerous to human life, property, or infrastructure; it must result in damage within the United States (or on U.S. missions, air carriers, or vessels under specific conditions); it must be committed as part of an effort to coerce the civilian population of the U.S. or to influence U.S. government policy or conduct through coercion; and it must result in insured losses exceeding $5 million in the aggregate. Acts committed during a declared war are generally not certifiable, except for workers' compensation.
This endorsement clarifies that if an insured has declined to purchase terrorism coverage, or if such coverage is not otherwise provided by the policy, losses from certified acts of terrorism are not covered. The form also notes that if aggregate insured losses from a certified act of terrorism exceed $100 billion in a calendar year, and the insurer has met its deductible under TRIA, the insurer will not be liable for losses exceeding that $100 billion cap. In such cases, insured losses up to that amount may be subject to pro rata allocation.
2. Classes of business it applies to:
Form IL 02 75 is an interline form, meaning it can be attached to various commercial lines of insurance. It is broadly applicable across numerous industries and business types that carry commercial property and casualty insurance. Examples include, but are not limited to:
- Real estate (commercial buildings, shopping centers, habitational properties)
- Manufacturing and industrial operations
- Retail businesses of all sizes
- Hospitality (hotels, restaurants)
- Educational institutions
- Healthcare facilities
- Transportation and logistics companies
- Energy sector (oil and gas, utilities)
- Construction projects
- Public entities and municipalities
Essentially, any commercial enterprise that could suffer property damage or liability losses due to a large-scale terrorist event could see this exclusion applied if they have rejected TRIA-mandated terrorism coverage. For instance, a large downtown office building or a manufacturing plant located in a high-profile area might be particularly exposed to such risks.
3. Special considerations:
- TRIA Mandate: The Terrorism Risk Insurance Act (TRIA) requires insurers to make terrorism coverage available to commercial policyholders. This form is used when the insured rejects this offered coverage. The decision to reject terrorism coverage should be a conscious one, documented in writing.
- "Certified" vs. "Non-Certified" Acts: This exclusion specifically applies to "certified" acts of terrorism as defined under TRIA. If an event has characteristics of terrorism but is not officially certified by the Secretary of the Treasury (e.g., it doesn't meet the $5 million loss threshold or is considered domestic terrorism without foreign interest involvement), then the terms of this specific exclusion (IL 02 75) would not apply. Coverage for non-certified acts would depend on other policy language, which might include different terrorism exclusions or grant coverage.
- Fire Following Exception: Some states have laws requiring coverage for fire damage even if it results from a terrorist act that is otherwise excluded. Form IL 02 75 may include a schedule to indicate if such an exception for fire losses applies, and this would typically only cover direct fire damage to property, not related time element losses like Business Income or Extra Expense.
- Interaction with other exclusions: The form clarifies that its terms (or the absence of a terrorism exclusion) do not create coverage for losses otherwise excluded by the policy, such as those from nuclear hazards or war.
- Related Forms IL 09 52 and IL 09 60:
- IL 09 52 (Cap On Losses From Certified Acts Of Terrorism): This endorsement is typically used when terrorism coverage is provided. It outlines the $100 billion annual cap on insured losses from certified acts of terrorism under TRIA.
- IL 09 60 (Exclusion Of Other Acts Of Terrorism Committed Outside The United States; Or Exclusion Of Other Acts Of Terrorism Committed Inside The United States Involving Biological, Chemical, Radiological Or Nuclear Materials Or Devices): This form addresses terrorism risks beyond those certified under TRIA, potentially excluding non-certified foreign terrorism or domestic terrorism involving specified hazardous materials. The applicability of IL 02 75 focuses solely on TRIA-certified events.
4. Key information for agents and underwriters:
- Risk Assessment: Underwriters must assess the terrorism exposure of a risk, considering factors like location (proximity to high-profile targets, urban areas), industry type, and the potential magnitude of loss. This assessment informs the premium for terrorism coverage if accepted, or the potential impact if declined and IL 02 75 is applied.
- Pricing: If the insured rejects terrorism coverage and IL 02 75 is attached, there is generally no premium charged for certified acts of terrorism coverage (though a small premium might still apply in some states for the "fire following" coverage if applicable). If terrorism coverage is purchased, the premium will reflect the insurer's assessment of the risk.
- Coverage Gaps: Agents must clearly explain the implications of rejecting TRIA coverage and the function of IL 02 75. Policyholders need to understand that by rejecting coverage, they are self-insuring for losses from certified acts of terrorism. This can represent a significant uninsured exposure, especially for businesses in high-risk areas or industries.
- Documentation: It is crucial for insurers to obtain a written rejection from the insured if they decline terrorism coverage. This documentation is vital in the event of a claim involving a certified act of terrorism to uphold the exclusion.
- Regulatory Environment: While TRIA is a federal program, state insurance regulations can also play a role, particularly concerning issues like "fire following" terrorism. Underwriters and agents should be aware of any state-specific requirements or interpretations.
- Clarity of "Certified": Emphasize to clients that this exclusion is tied to the official certification process under TRIA. An event that seems like terrorism but isn't certified will be treated differently under the policy.