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Insurance policy exemptions may leave those affected by the World Trade Center catastrophe vulnerable to further financial disaster. Policies protecting against legal liability, loss of property, worker disability, business continuity, and accidental death and dismemberment may all contain clauses that specifically exclude acts of terrorism or war. And while some companies are vowing to pay all claims, others may be poised to wage protracted legal battles that either delay payments or void them altogether, according to industry experts.
"People are going to take losses," says Gerry Goldsholle, the former president and CEO of MetLife Brokerage, who has served as chairman for an insurance committee of the American Bar Association. Goldsholle says President Bush's reference to last week's air strikes as "an act of war" has set the stage for legal wrangling over financial responsibility. "As soon as I heard his statement, I wondered whether all the damage would be covered by an industry that excludes acts of war in certain policies."
Indeed, many insurance policies contain language that seems morbidly prescient in light of last week's attacks. Almost every policy has a war exclusion, according to Bob Hunter, director of insurance for the advocacy group, the Consumer Federation of America. Some contracts also include broader exemptions for "acts of war, whether declared or undeclared," and "warlike action by a military force . . . or by any government, sovereign, or other authority using military personnel or other agents."
Despite the murky language and the president's declaration, mostthough not allcompanies have said that, barring an official declaration of war, they do not expect to apply the act of war exception. "We are taking the approach that the phrase is political rhetoric and not an actual fact," says Ann Ellis, spokesperson for Atlantic, Inc., a company that insures 18 businesses that had offices in the World Trade Center as well as a few others in nearby locations. Several other insurers, including CIGNA, Allstate, The Hartford, and Chubb, have pledged not to deny claims on the basis of their war exclusions. The majority of life insurance companies involved have also said they expect to pay benefits as soon as family members have certificates of death.
Even more pertinent for affected business, property, and disability insurance holders may be exclusions for terrorism, which were increasingly inserted into policies of companies in the World Trade Center after a car bomb in the parking garage there killed six and injured 1042 people in 1993. "We don't know yet which of the companies did have terrorism exclusions," says Julie Rochman, senior vice president of public affairs for the American Insurance Association.
"But being in that building, anyone would not have been surprised to have the subject [of terrorism] come up" during insurance contract negotiations. The Consumer Federation of America's Hunter expects that a minority of contracts include terrorism exclusions, but adds that "if there is one, then it will probably be imposed."
While several insurers have already pledged to pay all claims, the majority of insurance companies involved have yet to make public statementswhich are legally bindingabout their intentions. And some industry experts say that executives are anxious that, in the midst of hurricane season, a natural disaster could push a strained industry over the financial edge.
The battle over the official significance of the terms "war" and "terrorism" will determine how a financial burden that could total as much as $40 billion will be spread among companies and the government. Already the airlines, which could assume much of the debt if insurance companies are spared by exclusions, have taken steps to limit their liability. On Thursday, representatives of United and American lobbied Congress for legislation that would help protect them against negligence and wrongful-death suits. The Association of Trial Lawyers of America quickly responded, calling the move premature and "totally inappropriate."
The battle, according to industry veteran Goldsholle, is "bound to go on for years." In the meantime, companies are scrambling to piece together responsibility for a financial disaster in which crucial records and many of their employees are missing. Indeed, many of the biggest insurers were located in the World Trade Center and will be both receiving claims and filing them.