Is Your Business Prepared for Terrorism?

By Floyd Arthur

On December 2, 2015, two heavily armed perpetrators opened fire at a Christmas party for employees of the San Bernardino County Health Department in San Bernardino, California,  killing 14 people and wounding 26. The attack reignited fears of global terrorism here in the United States, and brought the city of San Bernardino to a standstill as law enforcement officials scrambled to find the people and the motives behind the attacks.

The attacks also crippled the San Bernardino County Health Department, which faced the nearly impossible task of maintaining normal operations with almost 40 fewer employees than it had on hand before.

To assist the beleaguered health department, Gov. Jerry Brown of California declared a state of emergency in San Bernardino County on December 18. The declaration allowed the state to send in replacement employees until the injured staffers return to work and empowered the state Office of Emergency Services to provide additional assistance to the the county and the citizens who were impacted by the event.

How Terrorism Can Impact Your Business

The tragedy in San Bernardino demonstrates all too well how a single act of terrorism can bring a business to its knees. Although terrorist attacks are, fortunately, rare in the United States, those that have occurred have had devastating consequences -- not just in terms of lives lost and people injured, but in the amount of damage to surrounding property. Following the Boston Marathon bombing in 2013, for example, Massachusetts’ largest insurers paid out over $1.9 million in property damage claims. The cost of the World Trade Center attacks in New York was $31.6 billion in property damage alone.

Further, a terrorist attack can interrupt normal business operations for many days or weeks as law enforcement and federal investigators sift through the site for clues. If, as in San Bernardino, a large number of employees or key personnel are injured in the attack ,even lengthier interruptions can ensue.  

How Terrorism Insurance May Help

In the wake of the September 11, 2001, terrorist attacks in New York, Pennsylvania and Washington D.C., Congress passed the Terrorism Risk Insurance Act, which created a federally-backed insurance program to assist businesses who sustained property damage due to terrorism. The program, which was reauthorized by the Obama administration in 2015, establishes a dollar threshold above which the federal government shares a portion of the cost of payments made by insurers to businesses that suffer damages in a terrorist attack. The law also mandates that all commercial insurers offer the coverage to all businesses and certain other types of commercial enterprises they insure.

The TIRA, however, has some significant limitations. For example, an attack must be certified as an act of terrorism by the Secretary of the Treasury and the Secretary of Homeland Security before the federal government steps in. According to the language of the original law, this means that an attack, whether perpetrated by foreign or domestic agents, must be deemed:

“an act that is dangerous to human life, property, or infrastructure and to have resulted in damage within the U.S. (or outside the U.S. in the case of a U.S.-flagged vessel, aircraft or premises of a U.S. mission). It must be committed as part of an effort to coerce U.S. civilians or to influence either policy or conduct of the U.S. Government through coercion. “

Further, as of 2015, the aggregate amount of property damage claims suffered by the insurance industry due to an attack must be at least $100 million before the government will certify an attack as a terrorist act. That amount increases by $20 million per calendar year to a maximum of $200 million in the year 2020.

Do You Need Terrorism Insurance?

The limitations of the federally backed terrorism insurance program apply primarily to insurers: They determine who bears the cost -- the insurer or the federal government -- when an act of terrorism causes property damage to a business or results in bodily injury to its employees. Furthermore, damages due to acts of terrorism are specifically excluded from many property and casualty policies, so a business without this coverage could find itself in dire financial circumstances in the event of a terrorist attack.

If you are interested in learning more about the benefits of terrorism insurance,  talk with one of our commercial insurance experts today. We will help you design an insurance program that addresses all of your risk in the most comprehensive and cost-effective way. Just call us at 516-292-3780 between 9 a.m. and 6 p.m. to schedule an appointment, or request a free consultation online now. 

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