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What Liabilities Do Insurance Companies Face From Terrorist Acts?

Timothy NoahPosted Tuesday, Sept. 11, 2001, at 6:29 PM ET

Are insurers on the hook for the collapse of the World Trade Center?

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In general, yes. Today's disaster is sure to require billions of dollars in payments from insurance companies to the businesses and individuals (and survivors of deceased individuals) who occupied the twin towers. These payments will come out of property insurance policies, life insurance policies, workmen's compensation policies, even automobile insurance policies--no doubt many a car in the vicinity was demolished. There might even be claims under liability insurance policies if it can be proved that any of the World Trade Center's tenants failed to engage in proper safety precautions that might have minimized the damage wrought by the terrorists. And, of course, there will be massive payments from reinsurers, which are in effect insurance companies for insurance companies, to the insurers themselves.

The World Trade Center disaster is being widely compared to the bombing of Pearl Harbor, an act of war. Acts of war are typically excluded from insurance policies. Generally, though, a mishap can only be categorized an act of war, for insurance purposes, if it involves a declared war between nations. That obviously isn't the case here. But there's another catch: During the last decade or so, some insurers have inserted into their policies exclusions for acts of terrorism. That the World Trade Center was the target of a well-publicized earlier attack in 1993 may mean that at least a few of the building's tenants had terrorism exclusions in their property insurance policies. And since today's disaster was clearly an act of terrorism, that will leave some would-be claimants high and dry.

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Explainer thanks Sean McManamy, director of public affairs for the American Insurance Association.