Many insurance policies are unclear over what terrorism-related losses are insured – potentially leaving companies out of pocket or facing lengthy law suits.
Terrorism attacks using vehicles have raised questions over who is responsible for compensating innocent victims.
Many insurance policies neither explicitly cover nor exclude many of the losses arising from such terrorism events.
Some companies presume that if a type of loss is not excluded by their insurance policy – it's insured.
Some companies presume that if a certain type of loss is not explicitly excluded by their insurance policy, it is included. However, this is not necessarily the case – until a precedent is set in court, such losses will likely be a source of contention.
Varying responses from insurers and other agencies have, in many cases, only added to the confusion.
The car rental firm whose vehicle was used during the Westminster Bridge terrorism attack is facing legal claims from some victims of the attack. The car rental firm’s insurer has not denied the claim, but its response has raised questions as to how insurance may respond to events that liability insurers simply do not understand or believe would trigger the policy.
A senior figure from another large insurer recently spoke of the ‘changing face of terrorism’, stating that “it was never the intention of the insurance industry to pick up the costs associated with these crimes”, and that “as things stand there is no legal or policy obligation for insurers to pay out”.
This uncertainty over what losses should be compensated, and by whom, is not just limited to insurers.
Uncertainty over what losses should be compensated is not just limited to insurers.
For example, it is unclear to what extent the Motor Insurance Bureau (MIB) – set up for uninsured and untraced motorists – should respond to terrorism-related motor losses.
The MIB believes that insurers should pay any claims resulting from terrorism by virtue of the MIB articles (principally article 75 – which requires insurers to pay from their own funds some uninsured cases in particular circumstances). However, some insurers have argued that they pay a levy on the MIB to pay this sort of unforeseen/uninsured claim.
Separately, victims of terror attacks can claim through the Criminal Injuries Compensation Authority (CICA) but this scheme is capped, so many victims will push for higher pay-outs and additional compensation not covered under the CICA. Moreover, strict UK residency rules apply to CICA compensation claims.
The increase in terrorism-related incidents and uncertainty around what is covered by many insurance policies have fuelled the need for affirmative terrorism liability insurance.
Lockton has been working alongside Lloyd’s market syndicates to provide a more encompassing solution to this ever-changing exposure.
Among other benefits, Lockton’s terrorism liability insurance product provides companies with certainty of cover and faster claims settlement – and avoids insurance policy ‘silence’ and the issues this silence can bring.
It can also act as the primary responder or sit as excess to any other methods of compensation as a contingent protection. It provides cover for bodily injury, death and property damage, and covers defence costs without the requirement to ultimately be held liable.
For more information, please contact Adam Watson, Head of North American Property & Terrorism Team, or Kim Plant, Assistant Vice President, on:
+44 (0)20 7933 2022
+44 (0)20 7933 2599