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 discriminatory.

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.