Form IL 09 60: Cap On Losses From Certified Acts Of Terrorism (Relating To Deductible)
1. What the form is
Form IL 09 60, titled "Cap On Losses From Certified Acts Of Terrorism (Relating To Deductible)," is an Interline Form designed to address how the federally mandated cap on insured losses from certified acts of terrorism interacts with the policy deductible. Its primary purpose is to ensure compliance with the Terrorism Risk Insurance Act (TRIA) and its subsequent reauthorizations. This endorsement clarifies that if aggregate insured losses from a certified act of terrorism exceed the $100 billion annual cap established by TRIA, the insurer's liability for such losses, including amounts that would typically fall under the policy deductible, may be limited or reduced on a pro-rata basis. It is important to note that this form does not provide terrorism coverage itself but rather explains the limitations on that coverage as mandated by federal law.
2. Classes of business it applies to
This form is an "Interline" or "Common Policy Form," meaning it can be attached to various commercial lines of insurance that are subject to TRIA. TRIA applies broadly to most commercial property and casualty insurance lines, with some specific exceptions. Therefore, IL 09 60 would be relevant for a wide array of businesses that purchase terrorism coverage, including but not limited to:
- Real estate (commercial buildings, shopping centers)
- Manufacturing facilities
- Hospitality (hotels, resorts)
- Retail businesses
- Educational institutions
- Healthcare facilities
- Energy and utility companies
- Construction projects
Essentially, any commercial policyholder whose policy includes coverage for certified acts of terrorism could see this endorsement attached to their policy. For example, a large commercial property owner in a major metropolitan area with significant exposure to potential terrorism risks would likely have this form as part of their insurance policy if they have opted for terrorism coverage.
3. Special considerations
Several special considerations are crucial when dealing with form IL 09 60:
- TRIA Compliance: The form is a direct result of TRIA and its provisions. Understanding the mechanics of TRIA, including the definition of a "certified act of terrorism," the program trigger, insurer deductibles, and the overall $100 billion program cap, is essential.
- Mandatory Offering of Coverage: TRIA requires insurers to offer terrorism coverage on commercial policies; however, the insured is not required to purchase it. This form applies when terrorism coverage is provided.
- Interaction with Deductibles: The key function of this form is to explain how the $100 billion cap affects the policy deductible. If the cap is breached, the insured might not receive the full benefit of their coverage, even for amounts that would normally be absorbed by the insurer after the deductible is met. The distribution of any payments once the cap is reached would likely be handled by the Department of Treasury on a pro-rata basis.
- Federal Backstop: It's important to remember that TRIA provides a federal backstop for insurance losses due to certified acts of terrorism. The government shares in the losses above an insurer's deductible, up to the $100 billion annual aggregate limit. This form underscores that neither the insurer nor the government is liable for losses exceeding this cap.
- Related Forms:
- IL 09 52 "Cap On Losses From Certified Acts Of Terrorism": This form also addresses the $100 billion cap. IL 09 60 likely provides more specific language regarding the deductible's involvement in relation to this cap.
- IL 02 75 "Texas Changes - Cancellation and Nonrenewal Provisions for Casualty Lines and Commercial Package Policies": While listed as related, its direct interaction with IL 09 60 is primarily due to both being common policy forms that might appear in the same policy jacket, particularly for Texas-based risks. IL 02 75 modifies cancellation and non-renewal conditions as required by Texas law and is not directly about terrorism coverage limitations. However, any policy changes must still comply with TRIA disclosures if terrorism coverage is included.
Real-world example: Imagine a certified act of terrorism causes $150 billion in total insured losses nationwide. Because this exceeds the $100 billion TRIA cap, claim payments would be prorated. An insured business with a $1 million terrorism loss and a $50,000 deductible might expect to recover $950,000. However, due to the cap being exceeded, the actual recovery, even after the deductible, would be a percentage of their otherwise covered loss, as determined by the Treasury Department. Form IL 09 60 clarifies this potential reduction in relation to their deductible.
4. Key information for agents and underwriters
- Clarity in Communication: Agents must clearly explain to clients that while terrorism coverage is available, it is subject to the TRIA cap, and this cap can impact how much is paid, even in relation to their deductible. This form helps satisfy disclosure requirements.
- No Impact on Premium for this Specific Limitation: The premium charged for terrorism coverage itself accounts for the risk. This form, IL 09 60, explains a limitation imposed by federal law and doesn't typically carry its own separate premium. The premium for terrorism coverage is for the coverage up to the point the TRIA cap might be implicated.
- Risk Assessment: For underwriters, the presence of this form is a standard part of TRIA compliance when terrorism coverage is provided. The primary underwriting concern remains the overall terrorism exposure of the risk (location, industry, security measures) and pricing the terrorism coverage adequately, knowing that the $100 billion cap exists as an ultimate limit on all industry losses for a certified event.
- Coverage Gaps: The most significant "gap" highlighted by this form is the potential for uninsured losses if the $100 billion TRIA cap is exceeded. Agents should ensure clients understand this limitation, especially those with very high-value exposures or those located in high-risk areas.
- Distinction from Other Terrorism Endorsements: It's crucial to differentiate this form from those that exclude terrorism or define what constitutes a "certified act of terrorism." IL 09 60 specifically addresses the application of the loss cap when coverage is in place.
- Program Changes: TRIA has been reauthorized multiple times, and aspects like insurer deductibles and co-payments have evolved. While the $100 billion cap has been a consistent feature, underwriters and agents should stay informed of any changes to TRIA that might indirectly affect the context in which this form operates.