Jeffrey E. Thomas on Emerging Issues for Terrorism Insurance

Jeffrey E. Thomas on Emerging Issues for Terrorism Insurance

The federal Terrorism Risk Insurance Program Reauthorization Act of 2007 became law on December 26, 2007. It extended the Terrorism Risk Insurance Act (“TRIA”) through the end of 2014 and made other changes to the Act. In this commentary, Associate Dean Jeffrey E. Thomas of the University of Missouri-Kansas City School of Law sets forth the basic principles and provisions of TRIA and the changes that were enacted in the 2005 and 2007 extensions of the Act.
The commentary further delves into the issues that were not resolved by the extension legislation and that loom large, including:

· Whether the governmental program created by TRIA should be made permanent

· Whether the program should be expanded to include nuclear, chemical, biological, and radiological risks

· Whether the program adequately protects against insurer insolvency

· How losses should be allocated if the cap for federal reimbursement is exceeded

· Precisely, what is the scope of the terrorism coverage supported by the program

As to the scope of coverage under the program, Dean Thomas observes, “If … coverage [under an insurance policy] is determined to be broader than that provided by the program, this would put the insurer at risk of having to pay claims on its own without reimbursement under the program.” 
On the other hand, Dean Thomas notes that the 2007 amendments to TRIA expanded the definition of terrorist acts covered by the reimbursement program and that insurance policies in effect at the time of a terrorist act might not have been modified to comply with the expanded coverage. He states that it is not clear how this conflict would be resolved and writes that a court “might use public policy or a doctrine like reasonable expectations to construe the policy as covering [terrorist acts not done on behalf of a foreign person or foreign interest] even though by its terms it only applies to foreign terrorism. Should a court take this approach, it would raise the question of whether the federal government would be required to reimburse the insurer in light of the fact that the policy did not comply with the mandatory offering requirements.”
Dean Thomas similarly provides thought-provoking analyses with regard to several other issues that have arisen in the emerging area of terrorism insurance.