Reference Bulletins: 01-0617, 01-0660, 01-0663, and 02-0021

To aid its affiliates in addressing exposure to loss caused by terrorism, AAIS has developed advisory war and terrorism exclusion endorsements that are suitable for use with its Homeowners and Mobile-Homeowners forms. (See below for an explanation of the advisory nature of these endorsements.) Upon request, AAIS will also provide advisory war and terrorism exclusion endorsements suitable for use with the other personal lines of insurance identified above. 

As described in Bulletin 02-0028, war and terrorism exclusion endorsements have been developed and filed for the farm lines of insurance. The status of those filings will be provided in a separate bulletin and on our public web site at www.AAISonline.com.

BACKGROUND

The United States Congress adjourned in late December without passing legislation for the creation of a federal backstop for insurance losses resulting from acts of terrorism. Shortly thereafter, members of the National Association of Insurance Commissioners (NAIC) came to an agreement regarding acceptable wording of exclusions for acts of terrorism, but only with respect to commercial property and commercial liability insurance. 

On January 14, 2002, the NAIC conducted a conference call with interested parties, including AAIS, to discuss the appropriateness of terrorism exclusions for personal lines policies. Two days later, AAIS provided the NAIC with information, gathered from AAIS affiliates, regarding the prevalence of reinsurer exclusions and limitations for losses caused by terrorism with respect to personal lines risks. (Over 80% of the 37 personal lines carriers that responded to our e-mail survey indicated that their current or upcoming reinsurance contracts exclude or in some way limit coverage for loss caused by terrorism.) However, on January 30, 2002, NAIC president and Iowa insurance commissioner Terri Vaughan announced that it was the consensus of the NAIC that terrorism exclusions are generally not necessary in personal lines in order to maintain a competitive market.


In her January 30th statement, Commissioner Vaughan acknowledged that state laws vary in their authority and discretion, and she indicated that there may be unique company circumstances that warrant consideration of a terrorism exclusion on an individual case basis. It is for this reason that AAIS has developed the advisory endorsements attached to this bulletin. 

ADVISORY NATURE OF ENDORSEMENTS

The endorsements attached to this bulletin are being provided on an advisory basis, meaning that AAIS has not filed the endorsements with regulators on behalf of its affiliates. Companies that wish to use one or more of these endorsements are required to take appropriate filing action in all jurisdictions in which the endorsements will be used.

Should the NAIC change its position and allow the filing of terrorism exclusions for other than unique company circumstances, AAIS will immediately file pertinent exclusions for the current editions of its personal lines forms on behalf of its affiliates. In the event that such filings are submitted, information regarding the filing action will be provided by bulletin. 

ENDORSEMENTS

The endorsements attached to this bulletin can be grouped into two general categories; those that include a 'complete' terrorism exclusion and those that include a more limited nuclear, biological, and chemical terrorism exclusion. Separate sub-sections of this bulletin provide information regarding the endorsements in each of these categories. 

Of the eight advisory endorsements attached to this bulletin, four are suitable for use with the 2.0 and 
07 99 edition Homeowners and Mobile-Homeowners forms and four are suitable for use with the 1978, 1984, and 1988 edition Homeowners and Mobile-Homeowners forms. The charts shown in each sub-section indicate the form editions for which they are suitable.

For the most part, the endorsements reflect the terms recommended by the NAIC for commercial lines of insurance. However, unlike the war exclusions in the commercial lines endorsements, the war exclusions in these endorsements specify that discharge of a nuclear weapon is deemed an act of war, even if it is accidental. Statements to this effect are typical in standard homeowners forms and can be found in the property and liability war exclusions in the 1978, 1984, 1988, 2.0, and 07 99 edition forms. 

Certain jurisdictions require conformance with the terms of the Standard Fire Policy. A listing of those jurisdictions is shown in a separate section of this bulletin. For those jurisdictions, AAIS has developed endorsements in which the terrorism exclusion applicable to property coverages includes an exception for direct loss or damage by fire to covered property. The exception does not apply to coverages such as Additional Living Costs and Loss of Rent Coverage and, for policies that include Home-Based Business Coverage Part ML-450, optional Loss of Income Coverage. The charts shown in each sub-section indicate which of the endorsements include this exception for direct loss by fire. 

Companies that intend to use endorsements that contain an exception for direct loss by fire with policies to which Home-Based Business Coverage Part ML-450 is attached may wish to amend the exception to include reference to Loss of Income Coverage. Such an exception might read as follows:

But if "terrorism" results in fire, "we" will pay for the loss or damage caused by that fire. However, this exception for fire applies only to direct loss or damage by fire to covered property. Therefore, for example, the exception does not apply to any Additional Living Costs and Loss of Rent Coverage or, if coverage part ML-450 is attached, Loss of Income Coverage which may be provided by this policy.

Complete Terrorism Exclusion Endorsements

The endorsements that include a 'complete' terrorism exclusion are identified in the chart shown below. 

The terrorism exclusions in these endorsements apply when one or more criteria are met. Those criteria are summarized below; refer to the attached endorsements for the actual policy language. 

• The terrorism exclusion will apply whenever an act of terrorism involves the use, release, or escape of nuclear materials; results in nuclear reaction, nuclear radiation, or radioactive contamination; or involves the dispersal or application of or results in the release of biological or chemical materials that are pathogens, toxins, or poisons. 

• When an act of terrorism does not involve events of a nuclear, biological, or chemical nature, the terrorism exclusion will apply only to acts of terrorism in which the total insured property damage exceeds $25,000,000. The magnitude of the property damage will be measured to include the amount of insured damage to property of all persons and entities affected by the act of terrorism and the business interruption losses sustained by owners or occupants of the damaged property. Multiple acts of terrorism that occur within a 72-hour period will be considered a single act of terrorism if collaboration is apparent or if it appears that the acts shared a related purpose, goal, or common leadership.

• The terrorism exclusion pertaining to liability coverages can also be triggered when fifty or more persons sustain death or serious physical injury.

Nuclear, Biological, and Chemical Terrorism Exclusion Endorsements

The endorsements that include a terrorism exclusion limited to nuclear, biological, and chemical incidents are identified in the chart shown below. 

The terrorism exclusions in these endorsements apply only when an act of terrorism involves the use, release, or escape of nuclear materials; results in nuclear reaction, nuclear radiation, or radioactive contamination; or involves the dispersal or application of or results in the release of biological or chemical materials that are pathogens, toxins, or poisons; refer to the attached endorsements for the actual policy language. 

The nuclear, biological, and chemical terrorism exclusions were developed because a number of companies told us that, with respect to terrorism, their current or upcoming reinsurance contracts exclude only such incidents. 

STANDARD FIRE POLICY JURISDICTIONS

The following jurisdictions require conformance with the terms of the Standard Fire Policy. Terrorism exclusion endorsements filed in these states should include an exception for direct loss or damage by fire to covered property.

RATING INFORMATION

Current loss costs do not reflect the exposure presented by acts of terrorism or war. Companies that wish to effect rate level changes for policies that do not exclude loss resulting from terrorism are required to take independent filing action. 

SUPPLIES

For subscribers to our Internet service, AAISdirect, the advisory endorsements attached to this bulletin are available online at AAISdirect.com. 

In addition, the endorsements have been released to Uniform Information Services, Inc. (UIS), the print vendor of AAIS forms and endorsements. Call UIS at 800/382-2424 to order AAIS forms and endorsements in paper printed format. Call UIS at 800/782-9481 to order the text of AAIS forms and endorsements in a variety of electronic formats.

AAIS also offers the text of forms and endorsements in limited electronic formats. Call Veronica Clarke at 800/564-AAIS for more information.

ATTACHMENTS

-- ML 4904 03 02, War, Military Action, and Terrorism Exclusions
-- ML 4905 03 02, War, Military Action, and Terrorism Exclusions (With Limited Exception)
-- ML 4906 03 02, War, Military Action, and Terrorism Exclusions (Nuclear, Biological, and Chemical Terrorism Incidents)
-- ML 4907 03 02, War, Military Action, and Terrorism Exclusions (Nuclear, Biological, and Chemical Terrorism Incidents -- With Limited Exception)
-- ML 4908 03 02, War, Military Action, and Terrorism Exclusions
-- ML 4909 03 02, War, Military Action, and Terrorism Exclusions (With Limited Exception)
-- ML 4910 03 02, War, Military Action, and Terrorism Exclusions (Nuclear, Biological, and Chemical Terrorism Incidents)
-- ML 4911 03 02, War, Military Action, and Terrorism Exclusions (Nuclear, Biological, and Chemical Terrorism Incidents -- With Limited Exception)

Direct Questions to:

Susan Luecke
Director of Personal Lines
suel@AAISonline.com


AAISDIRECT AND AAIS PRODUCT ADVISORY

All AAIS bulletins, forms, manuals, and other resource information for all lines of insurance are now available online. For a two-week trial of our Internet service, AAISdirect, or a cost quote, contact Bob Schnoll. E-mail BobS@AAISonline.com or call 800/564-AAIS. 

The AAIS e-mail publication, AAIS Product Advisory, provides bulletin summaries and other timely information related to products to anyone at your company at no charge. Unlike AAISdirect, you can subscribe to AAIS Product Advisory whether your company is affiliated or not. 

While valuable as a stand-alone service, the AAIS Product Advisory is an ideal complement to AAISdirect. The communication gives you an overview of new information posted weekly on AAISdirect and is directly linked to the site so that you can quickly access complete copies of bulletins.

For more information and to sign up, go to www.AAISonline.com or contact Nancy Bengford at NancyB@AAISonline.com. 


2002 AAIS Annual Conference, April 14-16, Naples, Florida
Register now for the 2002 AAIS Annual Conference, April 14-16 in Naples, Florida. You'll hear expert speakers address current trends in reinsurance, investment income, e-commerce coverage, and other important topics. You'll also enjoy the elegance and luxury of The Registry Resort. Don't forget your golf clubs. For information and to register go to www.AAISonline.com or call Debra Petges at 800/564-AAIS.

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