In the wake of the 9/11 terrorist attacks in New York City, nearly all commercial reinsurance contracts that renewed by the summer of 2002 included exclusions in coverage for acts of terrorism. Domestic insurers then in turn passed these exclusions onto their insureds, leaving a giant gap in coverage for many real estate owners, developers, sports teams, and entertainment venues. While under pressure from a variety of sources, namely the banking industry, Congress enacted the Terrorism Risk Insurance Act (TRIA) to serve as a “backstop” against losses arising from acts of terrorism.
TRIA essentially dissolved all legal ambiguity regarding the distribution of public and private compensation for insured losses due to acts of terrorism. The act, signed into law in 2002 by President George W. Bush, was extended twice in 2005 and 2007 and was set to expire once again on December 31st 2014. With TRIA in place, the markets were calmed and the terrorism based exclusions from insurance coverage were effectively eliminated.
Recently, the House of Representatives amended and passed the bill S. 2244 (Schumer, D-NY) which would have extended the effects of the TRIA for another seven years. There were multiple stipulations attached to the bill however which included:
Incrementally increased the program trigger from $100 million to $200 million
Incrementally increased the insurer copay from 15% to 20%
Increased the recuperation of government expenditures from $27.5 million to $37.5 million
Established the National Association of Registered Agents and Brokers, commonly known as NARAB II. This is a nonprofit board that would allow insurance agents and brokers to obtain certification to operate on a multistate basis.
The bill S. 2244 was then passed along to the Senate, which had to pass the bill in order for the TRIA not to expire. While there were some objections to agent provisions amended to the bill in the House, S. 2244 successfully passed in a 93-4 vote.
Many industries, namely banking, insurance, and construction, have praised the TRIA noting that it provides important stability and provides insurers with coverage that they would normally not be able to receive from private insurers otherwise. Jimi Grande, Senior Vice President of federal affairs for the National Associated of Mutual Insurance Companies, celebrated the TRIA decision noting “Before TRIA, the risk of terrorism and the lack of available coverage ground commercial development almost to a halt, costing billions of dollars and thousands of lost jobs.” Today, more than 60 percent of companies in the United States have terrorism coverage in place, allowing major construction and development projects to continue to occur nationwide.
TRIA is and continues to be an important factor in maintaining a stable United States economic climate. It will now be firmly intact through the year 2020, which should ease the fears of key markets. The obvious importance of a bill such as S. 2244 emphasizes the amount of influence that changes trends in the insurance industry have on the overall health and productivity of the United State economy.
Hold harmless language (a/k/a indemnity language) is found in most contracts and agreements, with the purpose of transferring the obligations of one party to another to defend and make whole the other party for legal liability, typically related to the services, work or nature of the contract.