Officials have identified the recent bombing at a Palm Springs, California fertility clinic as an act of terrorism. The blast not only caused significant structural damage to the clinic but also impacted numerous surrounding businesses, raising critical questions about the adequacy of insurance coverage concerning terrorist acts. It is vital to understand how such events are classified, how insurance addresses these risks, and the types of businesses that need to consider better protection.
The Terrorism Risk Insurance Act (TRIA)
The US Government enacted the Terrorism Risk Insurance Act (TRIA) in 2002, currently renewed through 2027, to establish a temporary federal program that compensates for certain insured losses resulting from acts of terrorism. Many standard commercial insurance policies, particularly property and liability policies, exclude coverage for terrorism unless it’s added through a certified endorsement.
TRIA classifies an incident as “terrorism” for insurance purposes. For coverage to trigger, the Secretary of the Treasury, in consultation with the Secretary of Homeland Security and the U.S. Attorney General, must certify an event as an “act of terrorism.” The act must:
- Be violent or dangerous to human life, property, or infrastructure.
- Result in damage within the United States (or to certain U.S. interests abroad).
- Be committed by individuals acting on behalf of a foreign interest or be intended to coerce civilians or influence government policy.
Under U.S. law, terrorism must be officially certified by the federal government to activate coverage. Even if the FBI or local authorities label an event as terrorism, without TRIA certification, the insurance policies will not be triggered. That distinction can mean the difference between full recovery and devastating loss.
What Can A Business Do?
Policyholders can invest in stand-alone terrorism insurance to secure broader coverage than what is available under TRIA. These policies are designed to protect against financial losses due to acts of terrorism, and coverage may include property damage, business interruption, extra expense, and some liability components.
Industries at Greater Risk
The bombing in Palm Springs did not target a government or financial building, yet it struck a healthcare facility, a sector that can perform services that some may consider sensitive or controversial. Industries and businesses that tend to be more risk-sensitive or high-profile can be more at risk and are more likely to purchase terrorism insurance. These include:
- Financial institutions
- Healthcare providers and hospitals
- Government contractors
- Hotels, malls, and entertainment venues
- Religious institutions
- Media companies
- Critical infrastructure and energy facilities
Looking Ahead: Preparing for Future Risks
The recent terrorism incident in Palm Springs has highlighted the vulnerabilities many businesses face in today's world and the need to review insurance policies thoroughly. Understanding that an act of terrorism must be certified under TRIA is crucial for triggering coverage. Just because authorities or media label an incident as “terrorism” does not guarantee that insurance will cover it. To safeguard against future risks, businesses should assess their insurance needs to better protect themselves against potential financial losses and ensure their longevity in an unpredictable landscape.