INSURANCE AGAINST TERRORISM The Insurance Issues (A Paper) First edition published 1993 Reprinted 2009 ISBN 1 85609 063 9 © W J Gloyn British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library. Notice of Terms of Use All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher and copyright owner. While the principles discussed and the details given in this book are the product of careful study, the author and publisher cannot in any way guarantee the suitability of recommendations made in this book for individual problems, and they shall not be under any legal liability of any kind in respect of or arising out of the form or contents of this book or any error therein, or the reliance of any person thereon. Published in 2009 by Witherbys Insurance 4 Dunlop Square, Deans Estate, Livingston, Edinburgh, EH54 8SB Scotland, UK Tel No: +44 (0) 1506 463 227 Fax No: +44 (0) 1506 468 999 Email: info@emailws.com www.witherbyseamanship.com INSURANCE AGAINST TERRORISM The Insurance Issues (A Paper) by William J Gloyn To Erika, Elizabeth and George V Contents Page THE AUTHOR VI 1. INTRODUCTION — HISTORICAL BACKGROUND 1 2. THE INSURANCE ASPECTS 7 3. THE ABI STANDARD EXCLUSION 9 4. SPECIAL PROVISION — TERRORISM 15 5. OPTIONAL COVER 19 6. PREMIUM CHARGES 27 7. PROPERTY ISSUES 31 8. ALTERNATIVES AND THE FUTURE 35 VI The Author Bill Gloyn is Managing Director of Bain Clarkson Commercial Property Services. The Division, which he set up in 1983, specializes in the insurance requirements of the commercial property owner and numbers amongst its clients not only public and private property companies but also institutions, charitable organisations and the management portfolios of several major firms of Chartered Surveyors. He recently rejoined Bain Clarkson after 3 years as Vice President-Insurance of Olympia & York where he controlled their London-based insurance programme. He remains a consultant to the Administrators of Canary Wharf. Before Bain Clarkson, he was, for 14 years, the Group Insurance Manager of English Property Corporation Plc. He was also a Director of their Property Management Division with responsibility for Risk Management together with Health and Safety at Work. He advises the British Property Federation on insurance matters and represented them on the NEDO Committee which considered the problems of latent defects in buildings and possible solutions, culminating in the publication of the BUILD Report. He is currently Chairman of the BPF Working Party on Construction Insurance and the BPF representative on the JCT Insurance Committee. He was a member of the Advanced Study Group of the Insurance Institute of London which recently produced a widely acclaimed guide to Inherent Defects Insurance. He is a regular speaker at conferences on insurance subjects of interest to the property world and a contributor to the property and legal press. 9 3 The ABI Standard Exclusion At least with the exclusion we have a degree of certainty. It has been published by both the ABI and most of the member insurance companies. There is some uncertainty over the date when it first came into force. Originally this was due to be the 1st January but, in an attempt to circumvent the exclusion, many insureds were persuaded to forego a days premium and renew their policies on the 31st December. Not surprisingly the insurers became wise to this and applied the exclusion in any case. It is a matter of public record that the City of London Corporation block policy, one of the biggest on record, fell due for renewal on the 24th December last and was made subject to the exclusion. There is certainly a credible story relating to the distressed telephone conversation between the Lord Mayor of London and the Prime Minister which contributed to the Government’s change of heart. The exclusion applies to all commercial insurances covering material damage and subsequent consequential loss. Domestic properties, including those in local authority and housing association ownership, are not subject to the exclusion but blocks of flats and high value dwellings in commercial ownership are, subject to special conditions detailed in the next section. Certainly the position with flats is often that they are privately owned with merely a 10 fronting management company, the shareholders of which are the flat owners. It seems inequitable that the rules are different for two types of dwelling but the insurers reasoning rests on the accumulation of risk that obviously exists with a block of flats rather than individual houses. Although the changes affect contractors all risks and other construction policies this only applies to the material damage and consequential loss elements. No changes are being made to public and employers liability or motor policies at this time. We can now turn to an examination of the wording of the exclusion. This begins by stating: “This insurance does not cover damage or loss resulting from damage A) in Great Britain by fire or explosion occasioned by or happening through or in consequence directly or indirectly of terrorism except to the extent stated in the Special Provision – Terrorism” Reference to Great Britain relates to the British mainland. Northern Ireland is subject to a later exclusion and the Isle of Man and the Channel Islands are currently not affected, neither is damage other than by fire or explosion. Theoretically therefore damage caused by some other cause, for instance flood following the opening of sluices or downgates, would still be covered. There is a certain question mark over this, at least so far as specified perils are concerned. It is possible that insurers could apply the argument of approximate cause in attempting to frustrate a claim. The root or proximate cause of the damage is arguably the terrorist act not the flood which followed it. The Special Provision comes later and is where the cover to counteract the exclusion is found. First there is