Bombing in Nashville spurs insurance coverage worries

At least 45 businesses were da­­maged in the Christmas Day bombing in Nashville, Tenn., that decimated a block of downtown buildings. Local police and the Federal Bureau of Investigation (FBI) are still investigating why a 63-year-old Nashville area information technology consultant set off the explosion in his RV, killing himself and causing widespread destruction.

The bomb was detonated near an AT&T telecommunications hub, temporarily freezing mobile and internet systems in five states. As affected business owners assess the damage to their properties, they are also questioning whether their insurance policies will cover the repairs.

Law enforcement has not yet determined whether the bombing will be designated as an act of terrorism; legal authorities say this label generally requires an ideological motive for the violence. If it is classified as terrorism, property owners without appropriate insurance coverage worry they may have to pay out of pocket for the damage.

Commercial property insurance policies often contain exclusions for acts of terrorism. If the FBI determines the Nashville incident is an act of terrorism, those impacted may be denied coverage through their current commercial property insurance policies.

Terrorism insurance coverage is available through a standalone policy or the federally-backed Terrorism Risk Insurance Program (TRIP), authorized by the Terrorism Risk Insurance Act of 2002 (TRIA) in the wake of the September 11, 2001, attacks and extended through 2027 by the Terrorism Risk Insurance Program Reauthorization Act of 2019 (TRIPRA). Nevertheless, many business owners have no terrorism insurance coverage at all, leaving them vulnerable at a time when terrorism is an escalating concern, and businesses are already struggling to survive in a pandemic-induced recession.

TRIPRA coverage

In the U.S., any quote for commercial property insurance must include an offer of coverage through TRIPRA. Under the terms outlined by TRIPRA, only events certified for insurance purposes as acts of terrorism by the U.S. Treasury Secretary — in conjunction with the Secretary of State and Attorney General — are eligible for coverage. In the initial 2002 statute, such certification required a minimum of $5 million in aggregate property and casualty damages from an event, Reiter said. That minimum loss threshold has since increased dramatically: beginning in 2020, the aggregate losses resulting from an act must exceed $200 million to qualify for certification as an act of terrorism under TRIPRA.

Although it must be offered as part of a commercial property insurance quote, TRIPRA coverage comes with an additional premium and can be declined.

Many property owners reject the TRIPRA option because it is not a very broad coverage. TRIPRA requires an event to be certified by the government as an act of terrorism to qualify for coverage, which is rare. For example, the April 15, 2013, Boston Marathon bombing was never certified as an act of terrorism under the terms outlined by TRIA.

The attack in Boston led to a reported total of $2.1 million in losses, far below the $5 million aggregate loss minimum when the incident occurred.

Business owners who lack adequate commercial property or terrorism insurance coverage could face substantial uncovered losses from an incident that does not meet TRIPRA’s current minimum for aggregate losses. In Nashville, the losses sustained by the affected businesses could very well fall short of TRIPRA’s minimum for certification. Many of them are smaller operations, and even when combined, their losses are unlikely to hit that minimum.

Standalone policies

Terrorism insurance can be purchased as a standalone policy — without a minimum loss requirement. Such policies include broader definitions of acts of terrorism that do not require government certification.

A terrorism insurance policy can be obtained at any time and does not need to be aligned with any other coverages. A business with a $5 million commercial property insurance policy could typically elect to purchase a terrorism insurance policy for the same amount. There is no minimum loss requirement for a terrorism insurance policy — the deductible could, for example, be $10,000 or even $5,000.

Coverage under a standalone terrorism insurance policy can also include loss of business income, such as could occur during a forced closure due to property damage or to allow a criminal or forensic investigation to take place. Terrorism liability insurance is another important consideration, providing coverage for bodily injuries or deaths that may occur on a business’ premises due to terrorism.

Compared with TRIPRA coverage, a standalone terrorism insurance policy could mean a faster recovery for business owners in the aftermath of a terror attack. There is typically a significant lag time to process claims and issue payments under a government-backed program, especially compared to a general insurance claims transaction, Coverage under a standalone terrorism insurance policy could help a business start recovering from an attack much sooner.

In Canada, standalone terrorism insurance is available to cover losses due to terrorism or sabotage, including acts committed for political, religious or ideological purposes. Business interruption coverage can also be included for disruptions related to direct physical loss or damage.

Terrorism and sabotage insurance coverage are available for physical damage to fixed and mobile assets caused by war, malicious damage, strikes, riots and civil commotion. It also offers help with expenses related to claims of liability for bodily injury and property damage caused by an act of terrorism.

Business owners in Canada may obtain terrorism insurance coverages for property and liability individually or those coverages can be combined in one policy.

Attacks on the rise

As of January 5, at least two buildings affected by the Nashville bombing will be demolished due to irreparable structural damage, and 10 were deemed unsafe for use or occupancy. At the Old Spaghetti Factory on 2nd Avenue, losses were expected to reach $1 million or more; a spokesperson pointed out the restaurant contained many antiques and collectibles.

Although terrorism-related deaths are on the decline globally, researchers at the Institute of Economics and Peace reported far-right attacks are rising in many areas, including a 250% increase over the past five years in North America, Western Europe and Oceania.

What can be considered terrorist events have risen dramatically over the last 10 to 15 years, and more are taking place in smaller cities. Yet, so many still believe it will never happen to them.

Additionally, business owners often believe they will not be affected because they operate in “a small town” or other “peaceful” location. Brokers should encourage them to become aware of current trends; terrorism insurance is a valuable asset and can be customized to suit almost any budget.

Standalone terrorism insurance is typically more affordable than standard TRIPRA coverage.  While insurance choices ultimately depend on a business owner’s risk tolerance, terrorism insurance is a wise investment — especially when compared to potential uninsured losses.

Lalita Mohabir (lmohabir@burns-wilcox.ca) is product specialist, personal accident at Burns & Wilcox in Toronto. Carolyn Reiter is an associate vice president at Global Excess Partners in New York City. 

A version of the article was originally published by Burns & Wilcox. 

Related: 

• Pandemic legislation: Lessons from the U.S. terrorism response
• Explosive liability: Takeaways from the Beirut tragedy
• Riots, civil commotion and vandalism generally covered by insurance