Acts of terrorism exclusion: Overview, definition, and example
What is an acts of terrorism exclusion?
An acts of terrorism exclusion is a clause commonly found in insurance policies that excludes coverage for damages or losses directly resulting from acts of terrorism. This exclusion means that the insurer will not provide compensation for claims arising from incidents or events identified as acts of terrorism, such as bombings, mass violence, or other coordinated attacks intended to cause widespread harm or fear. This exclusion is often included due to the unpredictable and catastrophic nature of terrorist acts, which can lead to significant losses beyond the scope of typical insurance coverage.
For example, if a business suffers property damage or loss as a result of a terrorist attack, the acts of terrorism exclusion would prevent the business from receiving compensation under their general property insurance policy.
Why is an acts of terrorism exclusion important?
The acts of terrorism exclusion is important for insurance companies because terrorism presents a unique and high-level risk, which is difficult to predict and may lead to claims far beyond the financial capacity of standard insurance policies. By excluding terrorism-related losses, insurers are able to limit their exposure to the substantial costs that could arise from widespread attacks.
For policyholders, it’s important to understand this exclusion because, without specific terrorism coverage, they could be left financially vulnerable in the event of a terrorist attack. In some cases, businesses and individuals may opt to purchase additional coverage that specifically addresses terrorism risks.
Understanding acts of terrorism exclusion through an example
Imagine a company that holds a commercial property insurance policy. A terrorist attack occurs near the company's headquarters, causing extensive property damage and forcing the company to cease operations temporarily. Due to the acts of terrorism exclusion in the insurance policy, the company is unable to file a claim for the damages caused by the attack. In this case, the company would need to look for other forms of coverage or government programs that address losses from terrorism.
In another example, an individual purchasing homeowners insurance discovers that the policy does not cover damage from a terrorist attack under its acts of terrorism exclusion clause. If a terrorist attack results in damage to their home, the homeowner would not be reimbursed by the standard insurance policy.
An example of an acts of terrorism exclusion clause
Here’s how an acts of terrorism exclusion clause might appear in an insurance policy:
“This policy does not cover any losses, damages, or claims resulting from acts of terrorism, as defined under applicable law. The Insured agrees that any loss arising from acts of terrorism is excluded from coverage under this Agreement.”
Conclusion
An acts of terrorism exclusion is a crucial clause in many insurance policies, protecting insurers from the high and unpredictable risks associated with terrorism. While it limits coverage for losses stemming from terrorist activities, policyholders can often obtain separate terrorism coverage to address these risks. Understanding this exclusion is important for individuals and businesses to ensure they have the appropriate coverage for their needs, particularly in high-risk environments.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.