This bulletin applies to commercial (non-worker's compensation) insurance coverages provided by commercial policies and endorsements including endorsements for business coverage added to personal lines policies and the business portions of a farmowner's policy.
Background
The Terrorism Risk Insurance Act of 2002 (TRIA) was adopted by Congress to provide a temporary federal shared loss program for incurred losses resulting from certain acts of terrorism to protect American businesses by minimizing market disruptions and ensuring the widespread availability and affordability of property and casualty insurance for terrorism risk. Recently there has been uncertainty in the markets for commercial lines property and casualty insurance coverage because of the pending expiration of TRIA. While TRIA's Dec. 31, 2005, expiration date appears to be in the distant future, insurers will be called upon to make decisions about commercial insurance coverage during 2004.
The commercial insurance business cycle operates in such a way that insurers and their policyholders will be required to make decisions as early as this September that will affect coverage well into 2006. Annual policy renewals with effective dates of Jan. 1, 2005, or later will have to contemplate no federal backstop for any losses in 2006. For this reason, regulators expect that insurers and advisory organizations will file conditional exclusions for terrorism coverage and will attach them to renewal policies on a widespread basis.
This places insurers, businesses and regulators in the same situation we encountered in the aftermath of Sept. 11th and which in large part prompted TRIA's enactment. Once again, insurance regulators find themselves having to consider approval of certain coverage limitations for acts of terrorism or risk possible serious solvency concerns in the insurance industry.
The intent of this bulletin is to inform commercial lines insurers of the decision in Wisconsin to approve certain conditional coverage limitations for acts of terrorism, to put insurers on notice that determination of certain contractual thresholds is subject to disclosure and review by this office and to provide a voluntary procedure for insurers to use to expedite the filing and timely review of these limited exclusions.
Instead of approving the very broad total exclusions of coverage for acts of terrorism, Wisconsin will approve conditional coverage limitations that are substantially similar to those described below and which are within the scope of this bulletin.
Explanation and Instructions for Expedited Review
The coverage limitations that will be approved by this state have some significant limitations, however, they continue to provide coverage for acts of terrorism under certain circumstances.
The following applies to policies providing property insurance coverage:
- Exclusion for acts of terrorism only apply if the acts of terrorism result in industry-wide insured losses that exceed $25,000,000 for related incidents that occur within a 72 hour period;
- Exclusions for acts of terrorism are not subject to limitations above if:
- The act involves the use, release or escape of nuclear materials, or that directly or indirectly results in nuclear reaction or radiation or radioactive contamination;
- The act is carried out by means of the dispersal or application of pathogenic or poisonous biological or chemical materials; or
- Pathogenic or poisonous biological or chemical materials are released, and it appears that one purpose of the terrorism was to release such materials.
- The exclusion does not apply to losses as the result of fire, as limited by the standard fire policy language in section Ins 6.76 (3), Wis. Adm. Code.
The following applies to policies providing liability insurance coverage:
- Exclusion for acts of terrorism only apply if the acts of terrorism result in industry-wide insured losses that exceed $25,000,000 for related incidents that occur within a 72 hour period; or
- Fifty or more persons sustain death or serious physical injury. For purposes of this provision serious physical injury means:
- Physical injury that involves a substantial risk of death;
- Protracted and obvious physical disfigurement; or
- Protracted loss of or impairment of the function of a bodily member or organ.
- Exclusions for acts of terrorism are not subject to limitations above if:
- The act involves the use, release or escape of nuclear materials, or that directly or indirectly results in nuclear reaction or radiation or radioactive contamination;
- The act is carried out by means of the dispersal or application of pathogenic or poisonous biological or chemical materials; or
- Pathogenic or poisonous biological or chemical materials are released, and it appears that one purpose of the terrorism was to release such materials.
This state will accept the following definition of acts of terrorism or definitions that are more liberal to policyholders:
Terrorism means activities against persons, organizations or property of any nature:
- That involve the following or preparation for the following:
- Use or threat of force or violence; or
- Commission or threat of a dangerous act; or
- Commission or threat of an act that interferes with or disrupts an electronic, communication, information, or mechanical system; and
- When one or both of the following applies:
- The effect is to intimidate or coerce a government or the civilian population or any segment thereof, or to disrupt any segment of the economy; or
- It appears that the intent is to intimidate or coerce a government, or to further political, ideological, religious, social or economic objectives or to express (or to express opposition to) a philosophy or ideology.
This state will allow insurers and advisory organizations to submit and receive approval for conditional endorsements. These conditional endorsements would only apply if Congress fails to enact an extension to TRIA or enacts changes to TRIA that substantial change the risk of loss that an insurer or policyholder has assumed.
For an insurer or advisory organization to receive expedited approval of its exclusions for commercial lines insurance coverages, the exclusionary endorsements must comply with the terms and conditions set forth in this bulletin and be submitted in accordance with the instructions specified below. Further, the insurer or advisory organization must certify that it is filing endorsements that provide coverage at least as broad as described in this bulletin.
Insurers should be aware that although policy form or endorsement language will provide that the insurer is to make a determination regarding when any of the thresholds described in this bulletin have been reached for purposes of settling a claim, documentation to substantiate any decision made to deny benefits to a claimant are to be retained in the claim file.
Forms with Instructions
Attached to this bulletin is a uniform filing transmittal form that has been agreed upon by this state and other states.
A filer wishing to receive expedited treatment of its filing for approval must submit the filing using Wisconsin's two electronic filing options, SERFF or SIRCON. The filing submitted through SERFF or SIRCON shall include the EXPEDITED FILING-TERRORIST EXCLUSIONS APPLICATION Form Filing Transmittal as directed. In addition, the filer submitting this filing must certify that it is filing endorsements that provide coverage at least as broad as described in this bulletin. Certification is made by signing the appropriate blank on the transmittal form.
To be complete, a form filing must include the following:
- A completed, certified Form Filing Transmittal Header with each insurer listed,
- One copy of each endorsement,
- A completed Wisconsin Certificate of Compliance, and
- A postage-paid, self-addressed envelope
large enough to accommodate the return.
Note that a comparable filing transmittal form is available in SERFF.
Note that if the filing includes terrorism exclusions or definitions that it must include a statement certifying that the form provides coverage at least as broad as described in this bulletin.
Effective Date
This bulletin shall take effect immediately. The filing process outlined in this bulletin shall expire on December 31, 2005.
Contact Information:
For questions about rate or rule filings contact Jamie Key at Jamie.key@oci.state.wi.us or 608 267-1234.
For questions about form filings contact Phil Kress at philip.kress@oci.state.wi.us at 608 266-0430.
For further information about using SERFF contact:
http://www.serffcentral.com
For information about using SIRCON to submit filings contact
http://www.innovativeit.com
EXPEDITED FILING--COMMERCIAL LINES TERRORIST EXCLUSIONS APPLICATION