New York’s decision on terror exclusions presents coverage withdrawal

The recent rejection by The New York Department of Insurance (DOI) of terrorism exclusion wordings compiled on behalf of insurers by the Insurance Services Office (ISO) could lead to a significant withdrawal of commercial cover at a time when the city’s economy is in a fragile state of recovery, says Joe Termini, counsel for the National Association of Independent Insurers (NAII).Although the terrorism exclusion wordings have been approved by 36 state insurance regulators, Termini admits that the decisions made by the New York regulator and that of California were key to broad acceptance of the policy limits. "…observers were waiting to see which way California and New York would lean on the issue. Earlier this week, the California Insurance Department stated that it would not accept terrorism exclusions, and New York followed suit," NAII says in a statement.The National Association of Insurance Commissioners (NAIC) did approve the ISO exclusion wordings just prior to the end of 2001 when it had been expected that the U.S. Congress would approve legislation creating a federal government-backed reinsurance facility for terrorism-related risks. Such legislation was not passed before the yearend deadline when a significant portion of reinsurance treaties in the U.S. are renewed. As such, insurers began filing their own policy renewals including the ISO terror exclusion. "The New York DOI’s refusal to exclude terrorism from commercial policies could cause market disruptions in the state if leery insurers back out of the New York market. The New York DOI’s decision could disrupt not only the state’s insurance market, but its overall economy at a time when New York needs all the economic support it can get," Termini says.