At 9:30 a.m. on Sept. 11, 2001, shortly after learning about the crash of a second airplane into the World Trade Center in New York City, President George W. Bush called the events an "apparent act of terrorism."

A typical act-of-war exclusion
Standard property/casualty insurance contract forms provided to the industry by the Insurance Services Office contain clauses excluding "war, including undeclared or civil war" and "warlike action by a military force, including action in hindering or defending against an actual or expected attack, by any government, sovereign, or other authority using military personnel or other agents."

Just over a day later, Bush said that "the deliberate and deadly attacks which were carried out yesterday against our country were more than acts of terror. They were acts of war."

While the President’s words have unequivocally stated the position of the United States, they may have muddied the waters concerning the insurance issues around the attacks on the World Trade Center and the Pentagon.

Many property/casualty insurance policies are written to exclude coverage for acts of war, but not for acts of terrorism. If the act-of-war exclusion clause of the insurance contracts is invoked, insurance companies can refuse to pay the benefits on the policies, including payments on businesses, homes, and cars that were damaged or destroyed.

"Every time I hear the President or Colin Powell saying we’re in a war, I wince," says J. Robert Hunter, director of insurance for the Consumer Federation of America. "There are probably discussions going on in every [insurance] company about whether or not to deny claims based on act-of-war exclusions."

Members of the U.S. House Financial Services Committee weighed in to make their opinion clear with a Sept. 17, 2001, letter to the National Association of Insurance Commissioners.

"Through necessity our government is expressing America’s outrage through words of war," reads the letter. "But this rhetoric reflects the passion and determination of our country, not the legal reality of Tuesday’s destruction."

"Any attempt to avoid coverage obligations by either primary insurers or reinsurers based on such legal maneuvering would be . . . unsupportable and unpatriotic."

The letter, signed by both the chairman and ranking member of the insurance subcommittee, states that "any attempt to avoid coverage obligations by either primary insurers or reinsurers based on such legal maneuvering would be not only unsupportable and unpatriotic ? it would tear at the faith of the American people in the insurance industry."

Despite the strong stand taken by members of Congress, there is still some concern that overseas reinsurers ? notably those based in Bermuda ? might still attempt to invoke act-of-war exclusions on some policies.

Insurance industry representatives were unwilling to speculate on whether or not the attacks of Sept. 11 would constitute an act of war, or on whether or not insurers would pay out on policies ? saying that it would be up to each insurer to examine the language of its policies and make a decision.

Life and health insurers say they won’t do it
Jack Dolan, a spokesperson for the American Council of Life Insurers (ACLI), is quick to offer what reassurance he can. While life insurance policies have included act-of-war exclusions in the past, it hasn’t been a standard part of any life insurance policy since the end of the Vietnam War. The ACLI says, "We are unaware of any suggestions from any quarter of the industry that such exclusions are applicable in this instance. All claims prompted by the Sept. 11 tragedy will be treated in a normal manner: Companies will promptly pay death benefits to beneficiaries of the victims with life insurance coverage."

Further, according to the ACLI, "Life insurance policies typically do not contain ‘terrorism exclusions.’ It is highly unlikely that many, if any, victims of the tragedy had a policy with an exclusion that covered the attacks. Terrorism exclusions generally are written into contracts of those who travel to places where terrorist acts are common. They typically do not apply when the insured is in the United States."

Insurance policies that do usually have act-of-war exclusions:

    * Auto
    * Home or renters
    * Business interruption
    * Commercial property
    * Business auto
    * Commercial crime
    * Workers compensation (varies by state)

Insurance policies that do not usually have act-of-war exclusions

    * Individual life
    * Group life
    * Key person
    * Accidental death and dismemberment

Individual life insurance policies and "key person" policies ? a life insurance policy that names a corporation as a beneficiary if a person vital to the business’ success dies ? generally do not carry act-of-war exclusions.

Accidental death and dismemberment (AD&D) policies and riders for individual life policies are also safe from act-of-war exclusions.

Some group life insurance policies may have exclusions for war and terrorism on their AD&D riders, but according to Dolan, "We don’t have any indication that those exclusions will be invoked."

Some health insurance policies ? both group and individual ? may have exclusions for war and terrorism. However, all health insurers that belong to the American Association of Health Plans (AAHP) have indicated that they will not invoke these exclusions for those injured in the attacks.

Property/casualty exclusions remain to be seen
Losses to property may be another story, says Donald Griffin, a spokesperson for the National Association of Independent Insurers (NAII). According to Griffin, almost every type of business insurance policy, as well as home, renters, and auto insurance policies, has an act-of-war exclusion written into the contract.

Griffin stresses that it is up to each individual insurer to determine whether these clauses, or those like them in other insurance contracts, could be invoked to avoid paying insurance claims. Insurers like Chubb Corp. have stepped forward to say that they will not invoke act-of-war exclusions.

Hunter believes that the companies most likely to deny claims based on act-of-war exclusions, if any actually do so, are those with commercial insurance policies and reinsurers ? insurers that sell policies to help traditional insurers spread the risk of their policies. The public outcry against these denials would be far less than if life or personal auto insurance claims were denied, says Hunter.

Insurers would face some difficult challenges if they did decide to invoke act-of-war clauses, both legally and as a matter of public opinion, says Garrett Moore, a partner at Moore, O’Brien, Jacques, and Yelenak, a Connecticut law firm focusing on airline litigation.

"The public response would be absolutely devastating to insurance companies," says Moore. "And there may be legal barriers even if they did decide they wanted to invoke act-of-war clauses."

Last updated Oct. 3, 2001