Terror exemption sought by insurers Bill would change Maine coverage

AUGUSTA – If World Trade Center terrorists Abdulaziz Alomari and Mohamed Atta had decided to seize the plane they were on after it took off from Portland Sept. 11, 2001, and had crashed it into the city, businesses and homeowners would have been covered for their losses by their insurance policies. The insurance industry wants to change that.

“The bottom line is that acts of war are excluded from fire coverage in standard fire policy language, they simply cannot be insured against,” Rep. Christopher O’Neil, D-Saco said last week in testimony before the Legislature’s Insurance and Financial Services Committee. “In today’s world, terrorism applies and should be excluded, just like any other act of war.”

O’Neil said his legislation would use the federal definition of terrorism, which excludes domestic terrorist activity, such as the Oklahoma City bombing.

He acknowledged that if his legislation had been in effect in New York in 2001, insurers would not have had to pay anything to policyholders for the fire losses they incurred from the collapse of the towers. The legislation does not apply to all forms of insurance.

Bruce Gerrity, a lobbyist for the American Insurance Association and the Property and Casuality Insurance Association, said insurers have a long record of being able to weigh and assess risk based on historic data for fires or even hurricanes. But, he said, no one can predict terrorist acts.

“What no company can plan for, what no company can anticipate, is an act of terrorism,” he said, “just like they cannot plan for an act of war.”

Gerrity said the law needs to be updated to reflect that the definition of war has changed. He said if Al-Qaeda had shelled New York from a warship offshore, that would have constituted an act of war. He said the use of hijacked airplanes as weapons is as much an act of war as cannon fire.

“We don’t see a difference,” he said, “and there really is not a difference.”

Maine Insurance Superintendent Al Iuppa opposed the legislation as too broad because it includes homeowner insurance.

“This bill would enable an insurance company to exclude all losses resulting from fire or other perils if caused directly, or indirectly, by terrorism,” Iuppa said. “If it just had commercial, we would be fine with it.”

Iuppa has used his authority as superintendent to allow some insurers to exclude terrorism coverage on commercial policies. He has that authority as he reviews the specific policies on a yearly basis. Not all insurers have sought the exclusion.

The fact the exclusion would affect small businesses concerned Sen. Lloyd LaFountain, D-Biddeford, co-chairman of the panel, and some others on the committee.

“You’re not talking about Xerox or IBM,” LaFountain said. “In Maine, you are talking about mom and pop businesses and why would you exclude them?”

Iuppa responded that there has long been a timeworn distinction in law between commercial and homeowner policies. He said some homeowner policies do cover small businesses or the self-employed doing business from the home.

J. Robert Hunter, Insurance Director for the Consumer Federation of America, called the legislation outrageous.

“In Maine? You’ve got to be kidding,” he said Friday. “I can see them trying this in New York or California, but they would not succeed there either.”

Hunter said many states have refused to allow exclusions for terror in any form of insurance. He said the insurance industry had “conned” Congress into passing a law that will shift most costs from a terrorist attack to taxpayers.

“They don’t want to pay anything,” he said.

Hunter said Congress established a three-year program ending Dec. 31, 2004, that bails out the insurance industry.

Under the measure, taxpayers will cover 90 percent of all terrorism-related losses (above $5 million and up to $100 billion a year) after individual insurance companies pay an initial deductible.

In the first two years after the Sept. 11 attacks, insurers found it nearly impossible to buy reinsurance in order to spread the risk. Reinsurance essentially is insurance that insurers buy from companies such as Lloyd’s of London to protect themselves from extraordinary losses.

Hunter said that has changed and the insurance industry is making huge profits. In the first six months of 2003, insurers saw their net income after taxes jump from $4.4 billion a year ago to $14.5 billion.

“They don’t need a terrorism exclusion in Maine, or anywhere else,” he said.

The committee will consider the measure in work session and the full Legislature should consider the issue next month.