What is the Terrorism Risk Insurance Act?
The Terrorism Risk Insurance Act (TRIA) is a U.S. federal law enacted in 2002.
The TRIA was enacted in the wake of the terrorist attacks of September 11, 2001.
It was created to enable commercial insurers to provide reasonable terrorism
coverage to policyholders who are subjected to acts of terrorism. Originally,
TRIA was to expire in December, 2005, but it was extended twice since and now
it is set to expire in 2014. The Terrorism Risk Insurance Program Reauthorization
Act (the Reauthorization Act), enacted in 2007, brought some relevant changes
to the TRIA enacted in 2002.
The TRIA was enacted intending to be a measure to support the insurance industry.
It established a Terrorism Insurance Program (program) and provides for the
treatment of terrorist assets. Under the program, a system of shared public/private
compensation for losses due to acts of terrorism is administered to protect
consumers. It also gives time for private insurance markets to stabilize.
Under this program, the federal government shares the risk of loss from future
foreign terrorist attacks. Participating insurers must pay a deductible before
federal assistance is available when a loss occurs due to a terrorism act. Deductibles
applicable during specific periods are detailed in the TRIA. The program covers
aggregate insured losses up to an annual limit of $100 billion. If it exceeds
that amount, the question as to who will pay and to what extent will be decided
by Congress. The government may recover the amounts paid by imposing of a surcharge
on all policyholders.
The TRIA rendered almost all policy terrorism exclusions that existed at the
time of enactment null and void. It required all property and casualty insurers
to offer policyholders terrorism insurance for two years from the date of enactment,
which could be extended at the discretion of the treasury secretary. TRIA requires
participating insurers to give terrorism coverage that does not differ materially
from the terms, amounts, and other coverage limitations available to losses
arising from events other than terrorism. Those covered under participating
insurers are laid out in the TRIA.
The TRIA provides a federal cause of action as the remedy for claims resulting
from a terrorism act. It shall be governed by the substantive law of a state
where an act of terrorism occurred.
An act of terrorism must be certified as a terrorism act by the treasury department
in concurrence with the secretary of state and the attorney general. In order
to constitute an act of terrorism, it must be an act of terrorism constituting
a violent act or an act that is dangerous to human life, property or infrastructure,
resultant damage must have occurred within the U.S. or if the act occurs outside
the U.S., the act must be in an air carrier or vessel or the premises of a U.S.
mission. Only these acts of terrorism are covered in order to make the act applicable.
Prior to the Reauthorization Act, an act of terrorism should have been committed
by an individual or individuals acting on behalf of any foreign person or foreign
interest. But after the Reauthorization Act, terrorism acts committed by persons
with no foreign affiliation are also treated as acts of terrorism.
The TRIA does not provide any guidelines relating to coverage pricing. Policyholders
may or may not decline terrorism coverage offered by an insurer. An insured
must sign an authorization or decline to pay a premium in order to reinstate
any terrorism exclusions by an insurer. TRIA does not include punitive damages
in insured losses.
The TRIA has applicability on state insurance laws only with regard to the definition
of terrorism and also to make terrorism coverage and the forms and rates for
it effective without prior state approval or waiting period. However, states
can invalidate any rates determined to be excessive, inadequate, or unfairly
The TRIA does not abolish all terrorism exclusions covered in the policy. Exclusions
for losses to property outside the U.S. in the policy shall remain in force.
Also, losses arising from civil commotion, domestic terrorism, vandalism, and
riots are not covered under the TRIA. Terrorism committed during war is also
not covered by the TRIA.
The TRIA does not limit the liability of any government, organization, or person,
who commits or aids an act of terrorism. It also does not modify a policyholder’s
and insurer’s contractual rights, like the right to arbitration.