AAIS Files Conditional Endorsements for Terrorism Coverage on Rental Dwellings

An endorsement is now available for providing terrorism coverage on rental dwellings covered by dwelling and premises liability policies, in the event that such coverage is determined to be commercial insurance under the new federal terrorism reinsurance program.

The American Association of Insurance Services (AAIS) has filed an endorsement for use with its Dwelling Properties and Personal/Premises Liability programs that addresses property and liability losses arising from an event certified to be an act of terrorism covered under the Terrorism Risk Insurance Act of 2002. The endorsement also includes provisions for fulfilling disclosure requirements under the act.

The new endorsement is filed countrywide on a “file and use” basis, making it available immediately for use in most states, with certain restrictions and requirements in some states. Property/casualty companies not currently affiliated with AAIS will be allowed to use it, provided they get permission from AAIS. For information, contact Rick Anderer, marketing director, at richarda@AAISonline.com, or by calling 800/564-AAIS.

With the new endorsement, “we want to give insurers a means to access federal terrorism reinsurance for dwelling and premises liability policies covering rental properties if the Secretary of the Treasury decides it is applicable,” Susan Luecke, AAIS director of personal lines, commented.

There are important qualifications on the coverage provided:
*The endorsement’s provisions apply only if the Treasury Secretary determines that the terrorism reinsurance program covers rental properties insured by dwelling and premises liability policies. AAIS has written to the Treasury Department seeking clarification on this point.
*The endorsement does not address losses arising from “non-certified” acts of terrorism. (For information on the distinction between “certified” and “non-certified” acts of terrorism, go to www.AAISonline.com and click on the icon for “Terrorism: The New Rules.”)

Also, the endorsement specifies that no coverage is provided for any loss that would otherwise be excluded under exclusions that address war, military action, or nuclear hazard, and that the insurer will not pay for any portion of a certified terrorism loss that exceeds the federal program’s maximum annual limit.

In essence, if the Treasury Department determines that dwelling or premises liability polices on rental housing constitute commercial insurance covered under the federal reinsurance program, the AAIS endorsement would provide treatment of “certified” terrorism losses equivalent to that developed for commercial lines.

At this time, however, AAIS is not filing a dwelling and premises liability terrorism exclusion for occasions when buyers decline coverage. Such endorsements have been widely approved for commercial lines, but AAIS believes state insurance regulators are currently reluctant to approve them for traditionally personal lines policies.

“Unless and until the Treasury Department determines that all policies covering rental dwellings constitute commercial insurance, our opinion is that most regulators will be unwilling to approve an exclusion for terrorism loss,” Luecke continued.

She added that many state insurance departments currently categorize all dwelling and premises liability policies, including those insuring 1-4 family rental dwellings, as personal insurance.