1. Forms
2. IL
3. IL-09-86

What the form is

The IL 09 86 endorsement is designed to address coverage for acts of terrorism as defined and certified under the Terrorism Risk Insurance Act (TRIA). Its primary function is to exclude coverage for losses arising from certified acts of terrorism that involve nuclear, biological, chemical, or radiological (NBCR) substances. Importantly, the endorsement clarifies that certified acts of terrorism not involving NBCR materials remain covered, but it also introduces a cap on the insurer's liability for these covered certified acts. This form is used when an insured wishes to have some terrorism coverage but with specific exclusions for high-hazard NBCR events and an overall limit on terrorism-related losses.

Classes of business it applies to

This endorsement can be attached to a wide range of commercial insurance policies. It is commonly used with:

• Boiler and Machinery Coverage Part
• Commercial Inland Marine Coverage Part
• Commercial Property Coverage Part
• Crime and Fidelity Coverage Part
• Equipment Breakdown Coverage Part
• Farm Coverage Part
• Standard Property Policy

Real-world example: A commercial property owner with a portfolio of office buildings might opt for this endorsement. They would retain coverage for conventional certified acts of terrorism (e.g., an explosion not involving NBCR agents) up to the specified cap, but would have no coverage if a terrorist event involved the dispersal of chemical agents.

Special considerations

Several important considerations apply to the IL 09 86:

• TRIA Compliance: The form's language and application are closely tied to the provisions of the Terrorism Risk Insurance Act, including the definition of a "certified act of terrorism" by the Secretary of the Treasury.
• Cap on Losses: The endorsement imposes a cap on the amount the insurer will pay for losses resulting from covered certified acts of terrorism. This cap is often related to the overall $100 billion industry aggregate limit established by TRIA.
• NBCR Exclusion: The exclusion of NBCR-related terrorism is significant. Businesses with perceived higher exposure to such events (e.g., those near iconic landmarks or critical infrastructure) need to carefully consider this limitation.
• State Variations for Fire Coverage: Some states have specific statutes regarding fire following a terrorist act. The endorsement includes a schedule where states with such fire exceptions can be listed, meaning that in those states, fire damage might still be covered even if the terrorism event involved NBCR agents, depending on the specific state law and policy wording.
• Interaction with other Terrorism Endorsements: This endorsement is one of several terrorism-related endorsements. It's crucial to understand how it interacts with other forms like IL 09 53 (full exclusion of certified acts) or IL 09 87 (limitation of coverage for certified acts with a sub-limit). The choice of endorsement depends on the insured's desired level of terrorism coverage.

Real-world example: If a policy includes IL 09 86 and a certified act of terrorism occurs using conventional explosives causing $10 million in damage, the policy would respond up to its applicable limits or the TRIA cap. However, if the same act involved the release of a biological agent, coverage for those losses would be excluded by this endorsement (unless a specific state fire exception applies to ensuing fire damage).

Key information for agents and underwriters

• Risk Assessment: Underwriters need to assess the insured's potential exposure to terrorism, including NBCR events, when determining the appropriateness of this endorsement and pricing the policy. Factors include location, industry, and security measures.
• Explaining Coverage Clearly: Agents must clearly explain to insureds what is covered and what is excluded by this endorsement, particularly the NBCR exclusion and the cap on losses. Misunderstanding these provisions can lead to significant coverage gaps.
• Pricing: The premium charged for terrorism coverage will reflect the scope of coverage provided. This endorsement, by excluding high-hazard NBCR events, might be priced differently than broader terrorism coverage options.
• Documentation: Proper documentation of the insured's choice regarding terrorism coverage, including the selection or rejection of various TRIA-related endorsements, is critical.
• Regulatory Awareness: Stay updated on TRIA reauthorizations and any changes in regulatory guidance related to terrorism coverage, as these can impact the application and interpretation of this form.