Terrorism Insurance for the Construction Industry
Probably no fewer than ten times per year, a client will ask me, "Should I buy TRIA?" Before answering that question, we probably need to take a step back and quickly recap what TRIA actually is. TRIA, the Terrorism Risk Insurance Act, is legislation passed by the federal government in response to the terrorist attacks of September 11, 2001. The total property damage as a result of the attacks is estimated to be between $40-50 billion dollars. In the months that followed, rates for Terrorism insurance skyrocketed and insurance carrier appetites for the coverage evaporated, making the coverage difficult and costly to obtain.
TRIA legislation required all insurance companies to offer terrorism coverage. It helped to keep rates for insurance buyers down by using federal funds to serve as a backstop in the event of a catastrophic loss and put a hard stop on the aggregate loss dollars that the insurance industry has to pay in claims. There have been plenty of quality articles detailing how the insurance industry and federal government split the bill on terrorism claims and what qualifies as a claim that the TRIA program will help cover. I won't presume to be able to add anything new to the technical part of the discussion there. Frankly, how insurance companies and the federal government split the bill doesn't really affect policy holders. However, one thing I will note is that TRIA has a hard stop at $100 billion dollars in damages that the insurance industry and federal government combined will pay as a result of a terrorism claim. Any damages that exceed that would go uninsured.
Based on the above, policy holders don’t "buy TRIA," so much as you either choose to buy Terrorism insurance or not to buy it, while TRIA itself is a government program that helps to keep terrorism insurance affordable. So now that we know a little background on TRIA, should you be purchasing it?
For construction companies, that largely depends on the space you're in and the customers you have. Contractors working on high profile jobs in major metro areas such as a federal building, stadium or town hall in Chicago, should strongly consider buying Terrorism insurance for their general liability and umbrella policies. For environmental and infrastructure contractors working on energy, bridge or tunnel projects, it's strongly recommended that you buy terrorism for your general liability, environmental and umbrella policies. These types of projects make for the kind of high profile targets that are most desirable for would-be attackers.
The logic behind purchasing terrorism on a liability is that you don't have to have conspired to commit a terrorist attack in order to be found liable for the damages. Unfortunately, I’ve seen business owners sued by illegal trespassers who injured themselves in the act of committing a burglary because enough wasn’t done to keep the trespasser out. Along these same lines, it’s certainly possible to be found liable for damages from a terrorist attack for failing to secure a jobsite from external threats.
For a contractor of any kind working in a major metro area near potential high profile targets, it’s strongly recommended to buy terrorism coverage for your property and inland marine policies in the event your property or equipment is damaged in a terrorist attack. If your property winds up as collateral damage as a result of a terrorist attack, there will be no coverage unless you opt for terrorism coverage.
And finally the last policy where terrorism coverage warrants some discussion is on workers' compensation. For nearly all businesses nationwide, workers' compensation is a mandatory policy. Also mandatory is that workers' compensation policies include coverage for terrorism and acts of war; they can’t be excluded even by the policy holder. Workers' compensation policies typically charge for terrorism coverage as a percentage of your overall payroll instead of as a function of your overall premium. This has the habit of making terrorism coverage a disproportionately small amount of premium for construction companies and a disproportionately high percentage of premium for white collar firms like architects, engineers and attorneys, based on the huge disparity between the rates applied to the various classification codes found on workers’ compensation policies.
So should you be buying terrorism coverage? There's no one size fits all approach and any decision you make should involve some consultation with your broker. But a good place to start is by asking yourself what exposures you may have. If you're working in a major metro area, you should strongly consider buying terrorism for at least your property policy. If you work on projects that could make potential targets for terrorist attacks, you should strongly consider buying terrorism for your liability policies.
For answers to questions or additional clarification, the ‘A’ Team is here to help. Contact us today.
- Renewed: Terrorism Risk Insurance Act (TRIA)
- Liability E-Book
- Construction Insights – Risks of Vacant Property
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