Academic journal article Defense Counsel Journal

Looking at the Events of September 11: Some Effects and Implications

Academic journal article Defense Counsel Journal

Looking at the Events of September 11: Some Effects and Implications

Article excerpt

While the impact on insurers is large and apparent, there are many other possibilities, even probabilities, of contention and litigation

WITH estimates of financial losses from the attacks of September 11, 2001, at $70 billion or more, the impact on the insurance industry will be profound. There will be numerous disputes at various levels-cutting across many forms of insurance-as to the amount and nature of the losses and how they should be borne. September 11 will affect how policies are written and underwritten. Some legislation has been enacted, and other proposed legislation would provide federal support for coverage for terrorism acts in the future.

The immediate issues for the insurance industry will include the scope of coverages, the applicability of exclusions and the amount of damage sustained. The claims will involve virtually all forms of insurance and reinsurance, including property and casualty, business interruption, life, health, accidental death and disability, workers' compensation, aviation, and automobile. Some commentators anticipate that most disputes will stem from the amount of money requested in claims and not from whether coverage actually exists, but certainly there will be coverage issues.

One dispute that arose immediately relates to the number of occurrences. Given their close coordination, were all four attacks one occurrence? Were they all separate? Were the attacks on the World Trade Center one occurrence regardless of the others? It also will be necessary to determine where and how disputes are to be resolved. Does the legislation giving the U.S. District Court for the Southern District of New York exclusive jurisdiction over the claims preclude contractually agreed arbitration of coverage issues?

The attacks will have a profound impact on the internal operation of the insurance market. Aside from the staggering financial losses the industry will incur, future policies face dramatic changes. Some premiums already are affected as insurance and reinsurance contracts renewed on January 1,2002. In addition to increasing premiums, some policies now will include exclusions for losses from terrorism or will price terrorist risks separately. Policyholders will face higher costs and additional exclusions.

The various claims also will present a variety of reinsurance issues. For example, some primary insurers have indicated that they will not seek to rely on war exclusion clauses in their policies, and some may not even invoke exclusions for terrorism. Reinsurers with similar exclusions will have to decide whether to rely on those exclusions, or, if the reinsurer does not have such an exclusion, will need to consider whether to take the position that the primary carrier must enforce such limitations on coverage. Reinsurers will have to consider whether there are rights of subrogation to pursue not only against the terrorists and their backers, as well as governmental bodies and other entities that may be held in some respect responsible for the losses.


A. Introduction

A number of policies that may be implicated contain war exclusion clauses, one form of which excludes coverage for "war, invasion, civil war, revolution, rebellion, insurrection or warlike operations, whether there be a declaration of war or not." While many U.S. carriers have indicated that they will not seek to invoke those exclusions, some, including some reinsurers, may do so.1

While decisions as to any specific exclusion must turn on policy language, there is some case law as to how an act of war will be defined by the courts. The Second Circuit, addressing that issue in Pan American World Airways v. Aetna Casualty & Surety Co.,2 reasoned that the terrorist act there at issue did not equate to an act of war as used in the insurance contract. To date, no case has held that a terrorist act does constitute an act of war,3 and the prevailing view of commentators appears to be that the events of September 11 will not fall within a war exclusion. …

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