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Terrorism Insurance For Aircraft
By Pat Costello, Costello Insurance Assoc.
TRIA, pronounced "tree-a".  No, it doesn't mean to be treed.  It stands for the Terrorism Risk Insurance Act which the federal government enacted effective November 26, 2002.  It was set to expire December 31, 2005.  This is an update to an article first written on TRIA in 2003.  The update is needed as the federal government has extended TRIA but with a great many changes.

Shortly after the terrorist attacks of September 11, 2001 those insurance carriers providing any sort of Terrorism insurance within their policies cancelled that coverage.  Obviously they didn't want to be on the hook for the cost of future attacks.  It wasn't until the government stepped in indicating they would be a backstop for losses exceeding $5,000,000 and the passage of TRIA that the carriers began offering coverage again.  However, the $5,000,000 minimum loss size has recently been increased.

Each insurance carrier differs in their approach to explaining TRIA, how some terrorist coverage can be bought back, and at what price.  Does one have to be an attorney to understand it?  No, but this article should be of assistance.  Here's how we explain it to our aviation clients.

Shortly after the 9-11 terrorist attacks those insurance carriers having any sort of Terrorism insurance in their policy cancelled that coverage and only that coverage.  The rest of the policy remained in force.  With a real risk of more terrorist attacks on the horizon, banks made it difficult for contractors and other businesses to borrow money unless they could provide evidence of some sort of Terrorist insurance coverage.  The insurance companies were not about to provide it unless the government backstopped them by picking up the loss after a certain amount was paid.  On 11-26-02 the government passed the Terrorism Risk Insurance Act of 2002 or TRIA requiring insurance carriers to offer the coverage on a limited basis.  But will TRIA coverage apply to the losses typically sustained by the light aircraft owner?  Let's look at a few examples.

You own a Cessna 172.  It's your weekend pride and joy.  You've even polished the door jams.  You also have a neighbor who has a beef with the IRS.  They've just attached his home and bank accounts for back taxes.  He leaves a note indicating he's going to steal a plane and fly it into a federal building as an act of terrorism.  Yes, he even used the words "terrorist attack" in his letter.  Then he steals your plane and crashes it into the building as planned.
The press learns of his letter and calls it an act of terrorism.  The mayor and finally the governor also call it a terrorist act.  You recently accepted the offer to buy the Terrorism coverage provided by your insurer and contact them to report the loss.  The carrier denies the claim.  What???!!!!  Why???!!!

The adjustor points out two requirements for coverage were not met.

     1) The act of terrorism had to be certified as such by the Secretary of State and the
         Attorney General of the United States.  That didn't happen.  But if it had, 
     2) The perpetrator must have been acting on behalf of any foreign person or foreign
          interest as well.  This was your next door neighbor acting on his own behalf.
         No coverage.

What if he didn't make it to the building? What if he just crashed on takeoff?  Wouldn't that be theft?  Hull insurance should cover theft, right?

Hull coverage does include loss by theft unless an exclusion within the contract would apply.  As to whether, under the circumstances described, this would be considered by the carrier as loss due to an act of terrorism gone wrong and not covered would probably be a matter for the courts to decide.  Each carrier could react differently.  We just don't know and neither do the carriers.  This is still new ground for everyone.

What if an act of terrorism was a bombing at the airport and your aircraft was damaged or destroyed??

The answer is the same.  No coverage if the policy extension was not purchased.  Further, the same criteria of it being a declared act of terrorism by the Secretary of State, Attorney General and the act being caused by a foreign interest would still apply to trigger any coverage.

Below is a short overview of the TRIA act of 2002 and some of the changes that took place when extended effective December 31, 2005.

TRIA defines Acts of Terrorism as any act that is certified by the Secretary of the Treasury, in concurrence with the Secretary of State and the Attorney General of the United States:

           1)      To be an act of terrorism;
           2)      To be a violent act or an act that is dangerous to human life, property, or
                     infrastructure;
           3)      To have resulted in damage within the United States or outside the United
                    States in the case of an air carrier (as defined by section 40102(A) of title
                    49 of the United States Code as "a citizen of the United States undertaking
                    by any means, directly or indirectly, to provide air transportation") or a U.S.
                    registered or U.S. flag vessel or the premises of a United States mission;
                    and
           4)      To have been committed by an individual or individuals acting on behalf of 
                    any foreign person or foreign interest, as part of an effort to coerce the
                    civilian population of the United States or to influence the policy or affect
                    the conduct of the United States Government by coercion.

Changes as a result of the extension from December 31, 2005 through December 31, 2007 are:

          1)      The size of an event needed to trigger the TRIA act is raised from
                   $5,000,000 to $50,000,000 in 2006 and to $100,000,000 in 2007.
          2)      Commercial auto, professional liability, surety, burglary & theft, and
                   farm owners multi-peril lines are excluded from coverage.
          3)      The individual insurer retention level - the amount of terrorism losses 
                   that an individual insurance company must pay before federal assistance 
                   becomes available - rises from the 2005 level of 15% of premiums 
                   collected in TRIA covered lines to 17.5% of such premiums in 2006 and
                   20% of such premiums in 2007.
          4)      Insurance carriers must pay a share of losses above their individual
                   retentions, known as co-pays.  In 2006, co-pays would stay the same
                   as the past law (90% federal/10% insurance carrier) and in 2007 co-pays
                   would change to 85% federal/15% insurance carrier.  As the co-pay to the
                   insurance carriers increase it is likely the insurance premiums to the
                   customers will rise as well.

Insurance brokers will not tell you whether or not to buy this coverage.  It must be a personal decision.  But you can ask yourself some questions that could help you arrive at a decision.
  1. Do I have the type of aircraft that is likely to be used in a terrorist act?
  2. What is the likelihood of my plane being damaged or destroyed due to an act of terrorism that is certified as such by both the Secretary of State and Attorney General of the United States?
  3. And even if so certified, what is the likelihood the act was committed on behalf of a foreign person or foreign interest?
  4. If so certified, what is the likelihood of the total destruction of the event exceeding $50,000,000?
  5. Is it worth the additional premium to have this coverage?
Be sure to consult your insurance representative with any questions pertaining to TRIA.  And here's hoping you are never impacted by any terrorist act.

Pat Costello


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