Earlier this month, President Barack Obama signed important legislation extending the Terrorism Risk Insurance Act of 2002 (“TRIA”), which lapsed December 31, 2014, through December 31, 2020. During the lapse, policyholders across the country could have lost the benefit of insurance coverage for acts of terror that depended on the federal backing provided by the TRIA.

What is the TRIA? Following the September 11, 2001, attacks on the World Trade Center, Congress passed and President George W. Bush “signed into law a Federal program that, in effect, requires property and casualty insurers doing business in the United States to offer coverage for incidents of international terrorism; and reinsures a large percentage of that insured risk.” [1] The TRIA was, and continues to be, necessary to protect policyholders by allowing “businesses and individuals to obtain property and casualty insurance at reasonable and predictable prices;” and by bolstering “the ability of the insurance industry to cover the unprecedented financial risks presented by potential acts of terrorism… a major factor in the recovery from terrorist attacks….” [2]

In the wake of 9/11 and the catastrophic losses stemming therefrom, insurance companies sought to pass the risk of losses for future acts of terror on to policyholders by including absolute terrorism exclusions in most, if not all, insurance policies. Such exclusions eliminated coverage previously available for loss and property damage under the terms and conditions of many property and liability insurance policies. The TRIA restored that coverage for future terrorist attacks by providing a federal reinsurance backstop covering a large percentage of such losses.

In order to qualify for coverage under the TRIA, the Secretary of the Treasury must (i) certify an act to be an “act of terrorism;” the act must (ii) be violent or dangerous to human life, property, or infrastructure; (iii) result in damage within the United States (or outside the United States in certain narrow circumstances); (iv) be committed by an individual or individuals acting on behalf of any foreign person or foreign interest as part of an effort to coerce the civilian population of the United States or to influence the policy or affect the conduct of the United States government by coercion; and (v) result in property and casualty losses in excess of $5 million. [3]

Originally signed into law on November 26, 2002, the United States subsequently extended the Act three times: in December 2005, December 2007, and on January 12 through 2020. Congress easily passed the bill by a vote of 416-4 on January 7, 2015, in the House of Representatives and by a vote of 93-4 in the Senate a day later. Policyholders can breathe a sigh of relief for the time being, but should monitor Congress’s future efforts to extend the bill, and encourage their representatives to see to it that Congress continues to extend the TRIA in perpetuity.

Notes:
[1] The Terrorism Risk Insurance Act of 2002, by Jeff Woodward (IRMI), December 2002 (http://www.irmi.com/expert/articles/2002/woodward12.aspx).

[2] See TRIA, Pub.L. No. 107-297, 116 Stat. 2322 (Nov. 26, 2002), codified at 28 U.S.C. § 1610 note, at § 101(a)(1) & (3).

[3] TRIA at § 102.