A spokesperson for the U.S. Treasury Department recently reaffirmed that the “[t]he Secretary has not determined that there has been an ‘act of terrorism’ under the Terrorism Risk Insurance Act” with respect to the April 15, 2013, Boston Marathon bombings. Notwithstanding the characterization of the Marathon bombings as an act of terrorism by President Obama, other government officials, and the media, this position is consistent with the stance that the Treasury Department has maintained since the bombings occurred, nearly one and a half years ago.
Congress established the Terrorism Risk Insurance Act of 2002 (TRIA) following the events of September 11, 2001. Under TRIA and its subsequent extensions and modifications, insurers are required to provide commercial policyholders with the option to purchase terrorism coverage. Typically, policies that include terrorism coverage provide such coverage to the extent that TRIA is triggered. To qualify as an “act of terrorism” under TRIA, an event must be certified as such by the Secretary of the Treasury in concurrence with the Secretary of State and the Attorney General of the United States. Certification of an event as an “act of terrorism” under TRIA also requires that the event produce property-casualty insurance losses in excess of $5 million. According to a report by the Massachusetts Insurance Commissioner, Marathon bombing property-casualty claims amounted to $1.9 million as of April 2014.
The effect that the Treasury Department’s stance concerning the Marathon bombings will have on commercial policyholders will depend on the language in each insured’s policy. To the extent that such policyholders purchased terrorism coverage that is coextensive with TRIA, incurred losses are unlikely to be covered. Under circumstances where a policyholder declined terrorism coverage and the policy at issue contains a terrorism exclusion, the exclusion may or may not operate to bar coverage. If application of the exclusion requires certification of the event from which losses arise as an “act of terrorism” under TRIA, the Secretary’s reluctance to certify the bombings as such may result in coverage for bombing-related losses. In the alternative, if application of a terrorism exclusion in the policy at issue does not depend on whether TRIA has been triggered, the terrorism exclusion may preclude coverage notwithstanding the non-certification of the bombings as an “act of terrorism” by the Secretaries of Treasury and State and the U.S. Attorney General.
For a more detailed discussion of the potential insurance claims and coverages implicated by the Marathon bombings, see “Issue Spotting the Marathon Bombings,” Claims Management Magazine, May 2013, Issue 5, Vol. 2, available here.