What the form is
The IL 09 95, Conditional Exclusion Of Terrorism (Relating To Disposition Of Federal Terrorism Risk Insurance Act), is an endorsement used with various commercial property and casualty insurance policies. Its primary function is to address coverage for losses stemming from acts of terrorism, contingent upon the status of the federal Terrorism Risk Insurance Act (TRIA) or its subsequent reauthorizations or replacement programs. If TRIA (or a similar superseding federal program) expires, is terminated, or is altered in specific ways that reduce insurer obligations to cover terrorism, this endorsement activates to exclude coverage for acts of terrorism. Conversely, if TRIA is in effect and requires insurers to offer terrorism coverage, the exclusionary aspect of this endorsement may not apply, or its application might be modified by other endorsements or policy provisions.
Classes of business it applies to
This endorsement can apply to a wide range of commercial insurance policies across various industries, as the Terrorism Risk Insurance Act has broad applicability. Examples include, but are not limited to:
- Commercial Property policies
- Commercial Inland Marine coverages
- Artisan Programs
- Policies covering residential associations (condominium or homeowners associations)
- Excess Property Coverage
Essentially, any business or organization that carries commercial insurance where terrorism risk is a concern could see this endorsement attached to their policy, particularly when the future of the federal terrorism insurance backstop is uncertain.
Special considerations
The critical consideration for this form is the status of the federal Terrorism Risk Insurance Program. Policyholders, agents, and underwriters must be aware of TRIA's current status (active, expired, or details of its reauthorization) to understand whether the exclusion in IL 09 95 is operative.
Another key aspect is the 'fire exception'. Many terrorism-related endorsements, potentially including versions or applications of IL 09 95, may contain an exception that provides coverage for direct loss by fire resulting from an act of terrorism, even if other terrorism losses are excluded. This fire exception is often state-specific and typically applies in states that adhere to a Standard Fire Policy (SFP) which may not permit the exclusion of fire damage from terrorism. It's crucial to check the specific wording of the endorsement and any accompanying schedules to determine if and where the fire exception applies.
The definition of 'terrorism' itself can also be a factor, as it may be defined by the policy or by TRIA. For the exclusion to apply (or for coverage to be triggered under TRIA), an event usually needs to meet specific criteria, such as being a 'certified act of terrorism' by the Secretary of the Treasury.
Key information for agents and underwriters
For Agents:
- Client Communication: Clearly explain to clients how this endorsement works, especially its conditional nature tied to TRIA. Discuss the potential coverage gap if TRIA lapses and the exclusion becomes active.
- TRIA Status: Stay informed about the current status and any pending changes to TRIA. This is vital for advising clients accurately.
- Fire Exception: Verify if the fire exception applies in the client's state(s) of operation and explain its limitations (e.g., often only covers direct fire damage, not indirect losses like business income).
- Offer of Coverage: Ensure compliance with TRIA requirements regarding the offer of terrorism coverage. This endorsement is often part of the mechanism to manage terrorism risk if TRIA is not in place.
For Underwriters:
- Risk Assessment: The presence or absence of TRIA significantly impacts terrorism risk exposure. This endorsement helps manage that exposure if the federal backstop is removed.
- Pricing: Premiums for terrorism coverage are influenced by TRIA. If IL 09 95 becomes operative due to TRIA's termination, it would mean no coverage (and thus no premium for that specific excluded peril). If TRIA is active, separate endorsements often disclose the premium charged for terrorism coverage.
- State Variations: Be meticulous about state-specific rules, particularly concerning Standard Fire Policy states and the applicability of the fire damage exception.
- Interaction with other endorsements: Understand how IL 09 95 interacts with other terrorism-related endorsements on the policy, such as those that might provide a limited buy-back of coverage or define 'certified acts of terrorism'.